Onside or offside: has the Asian century reached European football

Jens Bastian is an independent financial sector analyst & economic consultant

Much attention is being directed towards China’s global ambitions and the Belt and Road Initiative (BRI) currently being implemented across countries and continents. Investment in infrastructure projects, Chinese-lending and the acquisition of high-tech companies in Germany, the US and Africa all highlight the ever-expanding presence of China, from telecommunications to facial recognition software and fintech innovation.

But what about Chinese investments in sports? Is the game of football, a sport which only US citizens refer to as ‘soccer’, caught in an offside trap in Beijing? Any fan worth his and her salt in Asia or Europe will immediately say ‘no’! China is in play and pushing the ball forward aggressively.

In June 2016, football fans in Italy realised that the Asian century had arrived in Milan, the commercial and financial centre of the country. The Chinese company Suning had acquired a majority stake (70%) in the iconic Italian soccer team, Inter Milan. The investment in this century-old club was estimated to be worth over $306m.

But in an odd sense of déja-vu, the growing interest in soccer by Chinese investors did not stop at Internazionale. Its cross-town rival, A.C. Milan, was purchased in August 2016 by Mr Yonghong Li, the entrepreneur of a Chinese consortium, for the reported sum of €740m.

While Mr Li was unknown to football aficionados in Italy and beyond, the previous owner of A.C. Milan from whom he bought the 99.93% stake is a household name in European football and Italian politics, albeit often for rather dubious reasons: Silvio Berlusconi’s investment firm, Fininvest, sold the stake to the Chinese. However, Mr Li’s pride in the take-over was short-lived.

The acquisition of both Milan football clubs by Chinese entrepreneurs is but one example of the growing presence of Chinese investment in European soccer. Chinese investors also own Aston Villa, a second-tier team in Birmingham, UK, a 20% shareholding of top-flight Atletico Madrid in Spain, and a 13% equity investment in Manchester City, the reigning Premier League champion.

Many anxious fans are now speculating, not only in Italy, whether ‘Forza China’ will become the new rallying cry of European football. The influx of Far East money into football is not limited to Chinese investors, however. Leicester City FC was bought by the late Vichai Srivaddhanaprabha in 2010, a business entrepreneur from Thailand who tragically died in a helicopter crash in October after attending a home game of his football team. Known as ‘Khun Vichai’ in his home country, Mr Srivaddhanaprabha made his fortune through his King Power duty-free stores, which have a monopoly in Thailand’s three major airports.

In May 2017, Mr ‘Khun Vichai’ once again invested in European football. Following his purchase of the Belgian second-flight club, Oud-Heverlee Leuven, he promised “sufficient financial resources” with which to enable the club’s push to top-flight football in Belgium.

The business model of both investments can be characterised as a joint venture, with the British club adopting the role of senior partner and the Belgian side providing the farm team. In other words, the Belgian squad will serve as a development team, providing new recruits for the Premier League club. The former loans players to the latter, thereby taking advantage of the high output of top players from Belgium over the last decade.

The absence of a level-playing field in European football is a matter of topical discussion. The arrival of Asian investors is changing the rules of the game, from the acquisition of teams, investment in high-profile players, broadcasting rights, merchandising and, ultimately, the ways in which fans are able to see their favorite team play.

Referees in Brussels and regulatory authorities from Beijing, Rome and London are attentive to these on-field developments and threaten to brandish yellow cards should things get out of control on the touchline of the football pitch.

While the US–China trade war escalates, a rather different tug-of-war has emerged over the Chinese ownership of A.C. Milan. Its new owner, Mr Li, financed the acquisition with funding from the state-backed Chinese bank, Haixia Capital, but Beijing authorities started putting the brakes on capital outflows in 2017, not only limiting the purchase of luxury hotels, casinos or energy utilities, but also prestige buys such as European football clubs.

As a result, Haixia Capital was obliged to pull out of the financing arrangement. Mr Li’s investment in the Rosso Neri (the red-and-black color of Milan’s jerseys) rested on shaky ground given that the second source of his financing came from Elliott Management, an activist fund from which he was owed at least €300 million. Faced with the prospect of loan default, Mr Li engineered a debt-to-equity swap with the US-based fund.

Ownership of A.C. Milan has now changed twice within two years. Numerous questions have been raised regarding the transparency of the deal, the sources of financing and if the former majority owner is, in fact, from China.

What happened with A.C. Milan is not only a cautionary tale about murky business arrangements involving a prized European football club. This experience of buying distressed assets resonates beyond the win or lose categories; it warns football fans and Chinese observers that playing by the rules of the game cannot be taken for granted when opening the door to those who claim to represent the Asian Century.