Joseph Tsai, the executive vice chairman and co-founder of Chinese e-commerce giant Alibaba, has agreed to purchase 49 percent of the Brooklyn Nets for US$1.1 billion. The deal gives the NBA team a valuation of about HK$18 billion.
Tsai currently has a personal wealth of around US$12 billion with a 2.5 percent stake in Alibaba.
While Tsai is a huge basketball fan, the deal also highlights the financial incentives of owning a sports team.
The National Basketball Association runs one of the world’s most profitable sporting events with a global audience of one billion people.
Its games are ranked as the third most valuable sports events with a revenue of 5.87 billion euros (US$6.83 billion) in 2015-2016, according to Forbes, right behind National Football League (12.27 billion euros) and Major League Baseball (9.44 billion euros).
Premier League (4.87 billion euros) and National Hockey League (3.43 billion euros) are ranked fourth and fifth respectively.
With four of the world’s top five most valuable sporting events coming from the United States, it could be said that Americans are very good at commercializing sports.
For instance, NBA is the first regional sports league to adopt new technology to broadcast its games live all over the world. Also, it’s one of the few major sports events that can be viewed online.
Such breakthroughs have enabled NBA to gain a bigger pricing power and more direct income for its teams.
In contrast, the British Premier League still relies heavily on television coverage.
Currently, ticket sales, broadcasting rights and advertising are the three main revenue streams of Premier League. NBA, however, has done much better in exploring derivative products, such as online games, toys, clothing, food, multi-media, restaurants, etc. These derivative products generate about one-fourth of the league’s revenue.
Also, NBA has utilized every aspect of the game to find a sponsor, ranging from sports arenas with naming rights, arena banners, players’ gadgets and even official gym partners, official sports drinks or car sponsor.
NBA has opened up so much advertising space, while the Premier League continues to be a bit shy about making business.
The Nets have not been performing well on the court. It was ranked near the bottom among all teams on the East Coast in the last season, but it still generated a revenue of US$220 million, thanks to its Brooklyn supporters, among which are lots of billionaires, politicians and bankers.
That makes a valuation of US$2.3 billion more sensible.
Meanwhile, Norwich City, a low-ranking team in the Premier League, only earned US$130 million in the last season.
In the Premier League, the exception is Manchester United, which is in a league of its own, particularly in terms of its earnings ability.
Manchester United was acquired by American billionaire Malcolm Glazer in 2005, and was listed on the New York Exchange in 2012.
The sports club has introduced the American-style business model, and launched its own TV channel, MUTV. It has also aggressively developed derivative products and lured sponsors.
As a result, the football club’s revenue soared to US$680 million last year from US$220 million in 2005. Manchester United is now the world’s most valuable football team.
Manchester United’s huge success has drawn more American billionaires to the Premier League. They have acquired stakes in at least six teams, including Arsenal and Liverpool.
Tsai was born in Taiwan, where basketball is one of the most popular sports. In acquiring the Nets, Tsai hopes to help the team expand its global presence by leveraging on his business ties in Asia.
The deal also includes the option for him to acquire a controlling interest in the NBA franchise in 2021.
This article appeared in the Hong Kong Economic Journal on Nov. 1
Translation by Julie Zhu
[Chinese version 中文版]
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