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China's sports industry: the untapped gold mine

Friday, 10 Jul 2015 17:30   |   By China Daily

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Inspired by the concept of the 24-hour operations of US-based franchise Anytime Fitness, veteran fitness trainer Yang Bin started his own business by opening Now Fitness in January. He said he has high expectations of taking advantage of the fast-growing public enthusiasm for body building and keeping healthy.

"The passion for fitness has been roaring among urban residents, but a lot of people just don't have time for a workout during the daytime, even at weekends. So why not pull pieces of time together and make full use of it at night?" said Yang, who started his career as a fitness trainer in 2003.

Six months on, Now Fitness has attracted 500 members with eight employees including four trainers, and has managed to break even despite operational costs of more than 1 million yuan ($160,000).

"The growing market has provided untapped potential for privately owned businesses to net gains in the sports industry," said Yang, who is preparing to open another gym branch in the northeastern downtown area.

The boom in the fitness industry underscores how spending on sporting events and fitness-related activities has soared against a backdrop of urban consumption that has rapidly shifted toward leisure and recreation in recent years.

With a growing number of domestic and international sporting events held annually, related businesses, including club merchandizing, onsite catering, sales of sporting goods and trading in media rights, have been booming, contributing an increasing amount to the turnover of the country's fledgling sports industry.

According to research by Tan Jianxiang, a professor of sports sociology at South China Normal University, the added value of the sports industry reached 340 billion yuan in 2013 and has seen an average annual growth of 13.4 percent since 2008.

"Compared with the flat overall economic growth, the sports industry has grown rapidly over the years. The consumption of intangible products, such as professional league games, fitness guidance and services, has been an increasingly important driver of the growth," said Tan, a member of the State Council's think tank on sports policy.

Official backing

As China aims to shift its sporting focus from elite gold-medal-winning athletes to improving general levels of public fitness and well-being after the 2008 Beijing Olympics, boosting the sporting sector has become a top priority for the central government.

In last October, the State Council, China's Cabinet, issued a national development plan for the sports industry, urging the General Administration of Sport of China, the governing body, to loosen its tight grip on the untapped market and allow a larger number of businesses and private investors to enter the industry long dominated by State-owned companies. The policy has been ratified, but has not yet been fully implemented.

It's no surprise that so many players are reaching for a slice of the cake-China's sporting industry is expected to be worth more than 5 trillion yuan by 2025, when it's likely to account for about 1 percent of GDP compared with 0.6 percent in 2012, according to State Council projections.

Under the plan, the national sports administration and its branch administrative centers would relinquish the approval and oversight rights for commercial and mass sporting events to "unburden enterprises to the utmost and give vitality to all kinds of sporting resources", according to a statement released by the State Council.

Currently, all sporting events must be approved by the GASC, which also charges administration fees based on the scale and commercial prospects of the event concerned.

The proposed changes were welcomed by Chinese sporting luminaries, including former NBA star Yao Ming, a member of the Chinese People's Political Consultative Conference, who last year submitted a similar proposal to the nation's top political advisory body.

"The government decision (to free-up the sports market) provides a strong push to start the wheels of the sports industry rolling," said Yao, who owns the Shanghai Sharks CBA team.

Untapped gold mine

Although China's sports industry has recently grown by leaps and bounds, it remains underdeveloped compared with global powers such as the United States. Most of the sector's added value is generated by traditional manufacturers of sporting goods and athletic equipment.

"As far as I know, at least 80 percent of the sports industry's current output comes from the manufacturing sector, while less than 20 percent results from the consumption of intangible products and services. The proportion of the latter lags far behind the amount in the US," said Yao, who played in the NBA from 2002 to 2011.

According to research by Lin Xianpeng, a sports industry expert at Beijing Sport University, the annual value of the US sports industry reached $450 billion in 2013, accounting for more than 3 percent of GDP.

"More than 70 percent of the value in the US was generated by competition-related activities, including venue operations, player endorsements and sales of broadcasting rights. Compared with the US, we have a huge gold mine with an immense number of potential business opportunities that have yet to be exploited," he said.

Zhang Qing, founder of the sports marketing agency Key-Sports, said the decision to free up the market means the country's sports entertainment industry is expected to soar.

"China's rapid economic growth has driven up living standards and disposable incomes, particularly in large metropolitan centers such as Beijing, Shanghai and Guangzhou, where the sector is thriving as local professional sports clubs are becoming more popular," Zhang said.

In 2013, average per capita spending on sports was only 645 yuan, just 3.5 percent of average per capita disposable income. The percentage is far less than in the US, suggesting that the market potential is huge.

In the past five decades, Chinese sports have been State-run, and largely built around the planned economy, so the government owns and oversees the operation of all sporting events and leagues. Given the number of gold medals China has won at global events, the strengths of the system are evident, but the long relationship between the State and sports also presents difficulties, making it harder for the free market to develop and for a fully fledged sports industry to take root, Zhang said.

Stadium gains

In recent years, major international events, such as the NBA and Formula One, and a number of big-time sports conglomerates have succumbed to the lure of the Chinese market. Their presence has not only brought original live events to local audiences, but also provided expertise in the management of events and the business of sports in general.

In November, Beijing Inter Sports Co, a major sports promoter and operator, brought a high-profile exhibition soccer game between the national teams of Brazil and Argentina to the National Stadium. It was the sixth successive year that the main venue of the 2008 Beijing Olympics had hosted international exhibition games since 2009.

"Hosting these exhibition games has contributed a lot to our revenue through ticket sales, advertising and merchandizing. With the central government issuing policies to boost the sports industry, we expect to host more games, and eventually a domestic league club may settle down at the stadium and boost business further," said Li Zhiqun, assistant general manager of the National Stadium, better known as the Bird's Nest.

Organizers from overseas have also applauded the proposed policy, which they believe will loosen the tight bureaucracy of Chinese sports administration and help to bring a wider range of international competitions to the country.

For the past four years, En Garde Marketing GmbH, a German sports event company, and the State-owned Chinese Equestrian Association have jointly organized the International Equestrian Federation's World Cup Jumping China League in Beijing.

The experience means En Garde is fully aware of the complexities of running an international event in China. "All kinds of bureaucracy make it more complicated, which isn't usual on these occasions. If (the new policy) is implemented fully, it will definitely be good news (for foreign companies and investors), and we might consider introducing more events to China," said Christoph Johanning-Moellerhaus, a company representative.

If implemented, the policy will also encourage a larger number of companies to invest in China's top professional basketball and soccer leagues.

On Tuesday night, at the Beijing Ducks' second home game of the CBA Finals, the logos of a record 25 sponsors, who have contributed a combined 500 million yuan to the league this season, were seen inside the MasterCard Center in Beijing.

Promotional activities endorsed by leading sponsors, including sporting goods manufacturer Li-Ning and automaker FAW-Volkswagen, drew massive crowd participation and provided the companies with a huge amount of exposure.

"In metropolises such as Beijing, consumption driven by major sporting competitions has been a phenomenon in recent years. We believe the new policy will lure even more investors and sponsors who are eager to get involved in the booming business," said Liu Jingmin, former deputy mayor of Beijing and a member of the CPPCC National Committee.

The report was conducted by China Daily’s Sun Xiaochen.

Tags: China,sports industry,

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