Cai Chongxin’s challenge is not to smash the team, but at the stadium.
Editor’s note: This article is from WeChat public account “Prisma” (ID: lengjing_qqfinance) , the author Kang Lu.
Cai Chongxin, one of the co-founders of Alibaba, is welcoming a new title – the first Chinese boss of the US NBA team.
The announcement of the Nets on August 16, 2019 showed that Cai Chongxin purchased the entire equity of the New York NBA Nets from the Russian rich businessman Prokhorov. This is also the supplementary exercise of Cai Chongxin after purchasing the 49% equity of the Nets in 2017. Buying the Nets’ $2.35 billion (about 16.6 billion yuan) transaction price, the US professional sports team franchise transaction record.
Similar to Alibaba’s top management model, the relationship between the 30 NBA bosses is more like a partner. After the buyer’s willingness to franchise the team is submitted, the NBA’s review of the source of funds is required. After the agreement between the buyer and seller is reached, the NBA Council must also wait for the vote. It is reported that the next meeting will be held in the third week of September. Considering that Cai Chongxin has already passed a vote when he became a small boss of the Nets, the possibility of the transaction being blocked is very small, and the transaction is expected to be completed by the end of September.
After winning the entire equity of the Nets, Cai Chongxin also took over the Nets’ main stadium Barclays Center for $700 million and assumed the latter’s net debt of about $300 million. This means that Cai Chongxin invested a total of about 3.05 billion US dollars (about 21.6 billion yuan) in the New York Nets team and the main stadium. Based on the $9.6 billion personal net worth published by Forbes, Cai Chongxin has taken up one-third of his net worth.
Ed Desser, who served as NBA’s executive vice president for 23 years in the NBA, told Prism that despite the record highs, the price paid by Cai Chongxin is not surprising to the industry, at least Nothing is more surprising than the price of former Microsoft CEO Steve Ballmer to buy the Clippers. “The Nets not only have a world-class stadium, but the market behind the franchise is still growing. There are few similar assets.”
In 1999, Cai Chongxin abandoned the privately-owned gold collar life and joined the grassroots team Alibaba. The media was called Alibaba’s number one “outsider”. Twenty years later, Cai Chongxin began to explore a new unknown land and made a decision. Before buying the 100% stake in the Brooklyn Nets and the Barclays Center at home, Cai Chongxin has frequently purchased sports assets in the US, including the New York Freedom Team from Madison Garden, the parent company of the NBA Knicks. York Liberty), a country owned by the United StatesThe professional basketball team under the Basketball Association organized the exchange between the Chinese women’s basketball team and the New York Free team. He is also a major shareholder of the San Diego Seals team in the National Lacrosse League.
Behind the “NBA Boss Club”, Cai Chongxin is the trend of more technology and new investment in sports assets. It is also the epitome of the US head sports assets being opened to overseas capital to seek strategic partners and diversified sources of funds to prevent financial shocks.
But, the Nets will become a successful investment by Cai Chongxin, or is it an expensive hobby?
Investing in the business logic of a team
When asked why he bought the Nets, Cai Chongxin once said to the media that he loves basketball. Secondly, New York is almost the second hometown. His first career and his wife’s acquaintance happened in New York. .
Although the investment subject is Cai Chongxin’s family office, it is speculated that Cai Chongxin’s purchase of the Nets team is not only a personal hobby, but can be synergistic with Ali’s e-commerce and big entertainment. In June this year, Alibaba’s documents disclosed to the US Securities Regulatory Commission showed that Cai Chongxin held a 2.2% stake in Alibaba, the second largest shareholder other than Ma Yun, and served as executive vice chairman of the board of directors. Cai Chongxin was once the first person in charge of Alibaba’s strategic investment and was replaced by Wu Wei in June this year.
From the team’s performance alone, the Nets seem to be not the right investment target. Despite the playoffs last season, the Nets have been one of the top teams in the past 10 seasons. But sports information consultant Chris Bevilacqua believes that the team’s performance is only one of the considerations of investors.
Since 1998, NBA balls The average value of the team’s franchise is maintained at an annual growth rate of 11%
In 2014, Microsoft’s former CEO Steve Ballmer grabbed a $1 billion Clippers with a market value of $2 billion. Reuters’ evaluation of this price was “out of gravity”. . But five years later, the business value of NBA events has improved overall. The average business value of NBA teams rose to $1.9 billion in 2019, three times that of five years ago.
The increase in the value of the NBA team begins with the overall increase and redistribution of the league’s revenue. In 2014, the NBA’s nine-year, $24 billion TV contract with TNT and ESPN in the new business cycle allowed the team in the league to score $88.9 million per year. In the same period, the sports-related expenses for players were also reduced to 51% from the previous 57%. In addition to the league’s TV broadcast fee sharing,The Nets also signed a rights contract with local YES TV in New York, which earned $20 million a year.
Although the team’s valuation model does not have a uniform standard, player movements often drive the team’s valuation to rise and fall. In the summer of 2010, when LeBron James left the Cleveland Cavaliers to participate in the Miami Heat, Forbes subsequently reduced the Cavaliers’ valuation by 27%. In the same year, the average value of all teams in the league fell by only 1%. The movement of James has affected the valuation of a quarter of the team.
The value of the Nets has improved, and in the signing of the offseason players, there has been a foreshadowing. Among them, the participation of Durant and Owen has received much attention. Superstar Durant was originally the main player of the NBA’s Golden State Warriors and won two championships. However, in this year’s finals and the Toronto Raptors, they accidentally strained Achilles and entered the free market.
According to ESPN reports, based on the professional judgment of the Nets medical team, the Nets management decided to introduce this superstar. In addition to Durant, the Nets also signed former Boston Celtics point guard Kyrie Irving and center DeAndre Jordan. The new season of the NBA will begin in October this year. The addition of star players is expected to boost the sale of tickets. Although Durant is still recovering, the Nets’ souvenir shop has begun to sell derivatives such as jerseys with Durant names or portraits.
Durant is still recovering The Nets’ souvenir shop has begun selling jerseys with Durant’s name or portrait
The representative example of a successful business team is the Knicks in New York. Although the New York Knicks team has only won 50% of the two seasons in the past 18 years, such as the change of 12 coaches, but also caused the fans to be dissatisfied with the trading star Porzingis, but this does not seem to delay The boss of the team “points the stone into gold.” The Knicks and local cable TV agreements are worth more than $100 million a year, second only to the Los Angeles Lakers.
Cai Chongxin’s bigger challenge at the stadium
In addition to receiving the entire equity of the Nets, Cai Chongxin also took over the Nets’ home stadium, the Barclays Center in Brooklyn, New York. The stadium was put into use in 2012, but it has never been profitable for seven years.
From the business records of recent years, the loss at Barclays Stadium is shrinking, but turning losses into profits is not easy.
Financial data for bondholders shows that Barclays for the fiscal year ended June 30, 2018The Brooklyn Venue and its affiliates, the main operating entity of the Center, have a total revenue of $149 million, including sponsorship fees, activity income, and other expenses such as ticket sales. However, operating expenses remained high, reaching $142 million. Together with other costs, the annual net loss was $53.78 million. Compared with the loss of 177 million US dollars in the previous year, the loss has shrunk.
The data shows that despite the backing of the New York metropolis, the Nets averaged 14,639 people in 2018, ranking first in the league. The low attendance rate and low fare are urgent problems to be solved.
In addition to the Nets, another long-term use of the NHL New York Islanders will also remove half of the games, which means that the Barclays Center needs to find other large events such as concerts to make up. Loss and expansion of new sources of income. But Madison Square Garden, another well-known venue in New York, has strong competition. The latter is home to another Knicks team in New York, in the heart of Manhattan. After the Knicks owner James Dolan completed the $1 billion renovation of the Knicks home Madison Garden in 2013, he successfully raised tickets, packages, and sponsorships. At the same time, because Madison Gardens once created an irreplaceable historical position in the sports and entertainment industry, it became a habit for Manhattan residents to entertain, rather than crossing the East River to Brooklyn.
According to statistics, only 14% of the tickets sold by the Nets last season came from Manhattan in New York.
As of June 30, 2018 In the fiscal year, the Brooklyn Venue and its affiliates, the operating entity of the Barclays Center, had total revenues of $149 million and operating expenses of $142 million.
The addition of superstars may partially ease the profit pressure of the Nets. According to the New York Post, after Durant and Kevin joined, the Nets expect a revenue growth of 10-15%. In addition, considering that Cai Chongxin has bought the professional women’s basketball team New York Liberty, which was originally owned by Madison Garden, speculation that the New York Freedom team will transfer more games to the Barclays Center in Brooklyn, or like the islanders. Like the team, the game is assigned to two venues.
For NBA teams and stadium operations, the basics are long-term interactions with local fans and local communities. But the history of the Barclays stadium has created a complex situation for the arena and the local community.
In 2004, New York real estate developer Bruce Ratner bought the Nets, which was still in New Jersey, USA, for $300 million.In an interview with foreign media, Ratner did not say that she did not understand basketball. The core of buying a team was to incite a comprehensive real estate project with a scale of nearly 5 billion US dollars. The first step in this comprehensive real estate project is the home of the Nets, a new stadium built in Brooklyn, with a core community of entertainment, residential and commercial communities.
March 2010, Lat Na and former New York City Mayor Bloomberg, Nets investor Jay-Z, etc. participated in the groundbreaking ceremony of the venue
As this integrated real estate project promises to provide concessional housing and boost the local economy, it receives government concessions on taxation. But government support does not solve all the problems. Because of the contradiction between the design and planning of the surrounding residents, the Latna Forest City, which was responsible for the development, has faced demonstrations many times and was involved in legal disputes.
The financing difficulties after the financial crisis in 2008 made it impossible for Ratner to fulfill the promise of buying land. A large number of legal disputes have also delayed the project process. In the end, Ratner, who had difficulty in the capital chain, found Russian businessman Prokhorov in July 2010 and became a small boss of the Nets, which only took a minority share.
After Cai Chongxin took over, how the management handles the relationship with the local community and gains trust will also become the focus of attention. During his tenure at Alibaba, Cai Chongxin was known as the “Invisible God of Wealth” behind Ma Yun, and he was rarely interviewed by the media. Bosses accustomed to low-key behavior are facing increasing exposure under the NBA aura. This double-edged sword may also turn into a public relations risk.
In 2000, the owner of the Dallas Lone Ranger team, well-known investor Mark Cuban once vomited, imagined the tide of buzzing caused by the team’s loss, but he also suggested that in the face of outside doubts Also, keep yourself a little. In order to quickly gain the trust of fans, Mark Cuban once put his mailbox on the big screen of the stadium and personally responded to the fans’ emails.
NBA opens its doors to “technical upstarts”
At least NBA’s current president, Adam Xiaohua, has publicly expressed a welcome gesture to the “outsiders” Cai Chongxin.
The NBA is increasingly valued by emerging markets in Asia, including China and India. As local TV viewers are squeezed by new entertainment methods, the NBA often faces difficulties in the growth of the local market and begins to explore new areas such as e-sports and gaming. But emerging markets are different. The population of the United States is about 329 million. The number of people watching NBA programs in China has exceeded the total population of the United States. This is NB.