Guangzhou Evergrande: a long way to go to become successful off the pitch

For most fans, Guangzhou Evergrande FC is a successful professional club on the pitch, dominating the Chinese Super League (CSL) from 2011 to 2017, along with two AFC Champions League titles and two fourth places in both the 2013 and 2015 FIFA Club World Cups.

During the 2015 season, the club was renamed as Guangzhou Evergrande Taobao FC in a 1.2-billion-yuan deal, driving the club to be listed on the National Equities Exchange and Quotations (NEEQ), also known as the New Three Board. As of now, the club’s owners are Xu Jiayin’s Evergrande Real Estate Group (56.71%), Jack Ma’s Alibaba Group (37.81%) and other shareholders in NEEQ (5.48%).

According to a China Daily report in 2016, the club’s estimated market value reached US$3.35 billion after it finished the first transaction in NEEQ, surpassing Real Madrid's $3.26 billion and Manchester United's $2.35 billion. 

However, Guangzhou Evergrande is not on a par with top European soccer clubs in profitability. In the 2016 financial year, the club suffered a loss of 812 million yuan in net profit. While in the first half of 2017, after paying out a total of 623 million yuan in salary for the head coach and players, the CSL outfit has again come up short with a 662-million-yuan (US $100.6m) deficit.

Yan Qiang, a Chinese sports veteran, ascribes the deficit of two CSL giants, Guangzhou Evergrande and Shanghai SIPG, to the tremendous expenditures on player transactions and salaries.

In a column for Sina Sports, Yan commented, “Although Guangzhou has been controlling their expenses in buying foreign players, even considering using all Chinese players, Guangzhou Evergrande won’t lower its investment to become more competitive in the CSL and the AFC Champions League.” 

‍‍T‍‍he Guangzhou Evergrande’s main revenue sources are from ticket sales, commercial ads, appearance fees, and bonus money, among a few others. In the 2016 season, commercial ads earned the club about 400 million yuan, accounting for more than 70 percent of the 561-million-yuan total revenue, while the second largest contributor was the 100-million-yuan in fees and bonus money.  

Therefore, the club must stay at the top of professional Chinese soccer to replenish its cash cushion. The club’s response is clearly visible in the changes in the ticket price, say, fans could watch all Evergrande matches paying 350 to 800 yuan in 2012, while they had to pay 600 to 2500 yuan for the same package in the 2015 season. The successes in the AFC Champions League has also brought the club’s ticket sales to a new high; 2015 saw earnings of 235 million yuan, quadrupling the 55 million yuan for its 2013 title.

The bad news is, China has rolled out stricter rules for domestic professional soccer clubs in 2017, which makes it more difficult for a CSL team to become competitive by relying on the introduction of foreign players. 

Earlier this year, the Chinese Football Association (CFA) released new rules to limit the number of foreign players and stipulate a minimum number of Chinese Under-23 players in each match. The Chinese soccer governing body is said to use the new policies to control clubs’ expenditure on buying foreign players and promote the development of youth training in the country. 

In this regard, it is likely that professional Chinese soccer clubs may be hesitated for the big-money signings while “cleaning up unnecessary inventory” in the future. In other words, clubs will become more “rational” during the transfer window period. According to the German website Transfermarkt, the CSL’s income and expenditure in the 2017 summer transfer period are 46.19 million euros and 55.45 million euros, respectively, reflecting a deficit of 9.26 euros, while Guangzhou Evergrande has become the highest-earning CSL clubs since it sold Paulinho to FC Barcelona for 40 million euros in August.

At the same time, Chinese soccer clubs may try to find other ways to ensure their competitiveness. As a matter of fact, Guangzhou Evergrande has been striving to optimize its bonus money and youth training systems, to top the rankings in Chinese and Aian soccer markets. In May, the club has emerged as the CSL’s bonus money rankings leader with bonuses totaling 25 million yuan (US $3.63m) after the first 10 rounds of the 2017 season.

Additionally, the club has also invested 2 billion yuan (US $302m) in the Evergrande Football School project over the past 5 years, which has helped the CSL giant set up a successful youth training system including both football skills training and cultural education.

In its interim report for 2017, Guangzhou Evergrande revealed plans to “adopt a new revenue model by fully utilizing its fans resources.” However, according to Yan Qiang’s point of view, the club still faces the big problem of how it can fill the gaps of high operating costs by further using its loyal and growing fan-base. 

Proofread by William Logsdon