For European Soccer Teams, Chinese Money Flow Seen Drying Up
(Bloomberg) -- China’s invasion of European soccer appears to be over.
The State Council, China’s cabinet, on Friday formally put sport clubs on its list of industries that local companies are restricted from investing in overseas. The move builds on a state campaign that began late last year to curb capital outflows, including scrutiny of what the government called "irrational investments," to protect the yuan from depreciating further.
While the clampdown has been building for months, the announcement is the clearest sign yet that government is serious about reversing the flood of Chinese money that’s poured into an estimated 29 foreign soccer clubs -- including AC Milan and Birmingham City -- in the past four years. Large Chinese companies such as Wolverhampton Wanderers owner Fosun International Ltd. have gotten the message, with its billionaire chairman penning an open letter last month backing the government campaign.
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"A lot of them will be looking to make a sale," Alexander Jarvis, chairman of U.K.-based soccer-deal adviser Blackbridge Cross Borders, in reference to Chinese companies or individuals that have invested in European teams. Deals are now likely to be derailed because of the new restrictions, though some may find ways to get around the rules, he said.
Behind China’s surge in investments into soccer is the government itself. In 2015, President Xi Jinping, the game’s most powerful fan, announced a plan to transform the country into a world beater at the sport he played as a student.
That resulted in China’s top teams responding by spending hundreds of millions of dollars to hire foreign stars like Brazilian striker Hulk and Argentinian forward Carlos Tevez in hopes a higher level of play would trickle down to the national team and help quickly build world-class leagues. As Chinese clubs spent dizzying amounts on players, inflating the whole market, the government clamped down on foreign-player acquisitions earlier this year.
Then there are purchases of teams themselves. Southampton Football Club was recently bought by tycoon Gao Jisheng, joining West Bromwich Albion and Aston Villa in the expanding list of British teams under Chinese control. In Spain, Dalian Wanda Group Co. owns 20 percent of Club Atletico de Madrid. The Sunday Times reported earlier this month that an unidentified Chinese billionaire approached some of Manchester United Plc’s biggest shareholders to gauge their interest in selling out.
Now that the wind is turning, companies such as Fosun, which bought the Wolverhampton Wanderers last year, are falling in line with the government’s prudence toward investments into sports.
"If we don’t take some measures, foreigners will take us as ‘dumb people with a lot of money,’" Fosun Chairman Guo Guangchang wrote this past month. "The recent scrutiny on overseas investments and financial irregularities are necessary, timely and can eradicate a lot of irrational investments."
While the rules present an obstacle, they aren’t watertight. In the past, bans on overseas acquisitions have been gotten around through the use of offshore financing, said Mark Dreyer, founder of the China Sports Insider website. The Southampton deal, he noted, was financed through loans from a Hong Kong bank backed by assets outside of China, according to a Bloomberg News report that cited people familiar with the matter.
“I would caution about making sweeping projections that this will definitely put an end to everything,” Dreyer said.
To contact Bloomberg News staff for this story: David Hellier in London at email@example.com, Jing Yang de Morel in Shanghai at firstname.lastname@example.org.
With assistance from David Hellier, Jing Yang de Morel