Listed or not, revenues model is key to Guangzhou Evergrande

In the past week, news surrounding Guangzhou Evergrande Taobao FC’s filing to become the first Asian soccer club to be listed on the so-called New Third Board has seemingly attracted more attention than the recent arrivals of Luiz Felipe Scolari and Sergio Paulinho. The club, heavily-backed by two of China’s billionaires, Xu Jiayin and Jack Ma, is leading the way among Asian football clubs hoping to be listed on trading platforms.

Not long after the news emerged, Guangzhou EvergrandeTaobao FC returned to the top of theChinese Super League (CSL) table after hammering Chongqing Lifan FC 7-0. In addition, the club is also going strong in the AFC Champions League and will be face South Korea’s K-League Jeonbuk Hyundai in the quarter finals.

With this link up with capital markets, there is no question that Guangzhou EvergrandeTaobao FC is on its way to becoming a stronger presence not only in China but also in Asia. But the issue regarding the club’s significant financial losses in recent times is still troubling. As widely reported, the club has suffered financial losses since it was promoted to the top tier of Chinese football in 2010 despite its dominance in the CSL and its success in the AFC Champions League in 2013.

The club has registered losses of 576 million RMB ($92 million) in 2013, and then 482 million RMB in 2014, while they suffered a deficit of 265 million RMB in the first half of 2015. The large costs of continually signing top international players and coaches have played a key role in the club’s deficits which cannot be filled by the club’s revenues.

It is hoped that in the near future, Guangzhou Evergrande will eventually end their large megabucks transfer policy to strengthen squads when their talented youth players from Evergrande Football Academy in association with Real Madrid turn professional. Yet clubs will still face revenue challenges as the broadcasting rights of CSL are relatively much cheaper compared to those of Premier League, La Liga or Bundesliga. The CSL rights, are believed, to contribute only 1 percent to Evergrande Taobao FC’s total revenues.

In terms of gate receipts, Guangzhou EvergrandeTaobao FC had approximately 41,682 supporters per home game at the Tianhe Sports Stadium during the 2014/15 season, making it the highest average attendance among CSL teams. However, this outstanding attendance does not necessarily mean that the club will be able to significantly drive up box office revenues unless they dramatically increase ticket prices.

Nevertheless, advertising generated nearly 200 million RMB for the club in 2014 with sponsorships from brands such as Dongfeng Venucia, Clear and Skyworth. And investment by China’s wealthy e-commerce giant Alibaba also gave Guangzhou Evergrande FC a boost in solidifying a business mode that will help them to get back on the profit-making tracks.

As previously mentioned, Guangzhou Evergrande Taobao FC has faced strong challenges due to its great financial losses in the past few years. The question to be answered by the market and investors in the coming weeks is whether the club can get closer to financial balances.

Proofread by Raymond Fitzpatrick.