This weekend the English football season will swing into action, with the first games of the 2016/17 season. In keeping with tradition, the major clubs spent the summer offseason shopping for new star players, breaking the world record transfer fee in the process. Yet for Chinese investors, the summer was dominated by a different priority: shopping for the teams themselves.
In recent years, China has been left behind in the race to acquire England’s top-flight teams. Manchester City, Chelsea, and Leicester City, the winners of the last three Premier League titles, are majority-owned by investors from the UAE, Russia, and Thailand respectively. Moreover, at the start of the year, overseas investors held a controlling or minority stake in no less than 13 of the 20 clubs to compete in this season’s top division, known as the Premiership. Only one of these was a Chinese entity, the result of the Government of China purchasing a 13 percent stake in Manchester City in 2011.
Chinese investors have spent the last few months playing catch up, with a flurry of new bids and takeovers. Yet more interesting than the late arrival of Chinese money has been the the manner of its deployment. Until now, foreign investors seeking to buy a major English team have followed a tried and tested formula: Seek out a big club with a rich history of success, invest copious amounts in an audacious takeover bid and convince fans of the benefits by pledging to attract big name players with generous wages. That approach saw Chelsea secure four Premiership titles in a ten year period under the ownership of Roman Abramovich, and enabled Manchester City to transform themselves into national champions in just four years under the direction of Sheikh Mansour.
Yet this summer, China’s investors have turned the traditional playbook on its head. The pursuit of world-class teams has been shunned, and the on the only occasion it was tried it failed, with the current owners of Liverpool rejecting an approach from billionaire entrepreneur Liu Yiqian.
Instead, those seeking a foothold have taken a different approach, targeting the “low-hanging fruit” of English football.
The result has been a fire sale of lesser-ranked teams in the Premiership that don’t have a long history of success, as well as those playing in the Championship, the division below the EPL, to which teams can gain automatic promotion with a top-two finish. Aston Villa, relegated from the Premiership due to a last-place finish at the end of the 2015/16 season, was snapped up by Dr. Tony Xia for £60 million ($78 million). Fosun International secured control of Championship team Wolverhampton Wanderers for £45 million ($58 million). Guochuan Lai moved to acquire West Bromwich Albion, a premiership team that has finished in the bottom half of the highest division in each of the last three seasons, for an estimated £150-200 million. Further discussions are underway between consultancy Xinfu and Championship side Leeds United about a possible takeover.
What explains the sudden rush to acquire lesser-ranked teams? For one thing, the most prominent teams have already been acquired. Each of the five teams to have have won the Premier League since 1995 has fallen under foreign management in the last 12 years. In addition, geographic path dependency also helps to explains the tide of investment. The Financial Times was quick to note that all of the new Chinese acquisitions were located in the English Midlands. Those mounting bids over the course of the summer are therefore following a trail blazed by Carson Yeung, the former owner of Birmingham City, who was forced to sell the club to Paul Suen Cho Hung following a conviction for money-laundering.
Yet perhaps the strongest explanation for the purchases is the nature of the 2015/16 season itself. Likely “also-rans” Leicester City astounded pundits and fans alike, beating 5,000-1 odds to secure the Premier League title with a run of strong performances. The club’s unexpected success offers a wealth of new opportunities to its Thai owners, including merchandising potential and the additional funds derived from participation in the European Champions league (a knockout competition featuring the continent’s best performing clubs). Forbes estimated the collective revenue to be gained from the record-breaking season to be approximately £146 million ($189 million).
Accordingly, Leicester City’s triumph offers a potential playbook to new investors. 2015/16 was the year in which the stranglehold of larger teams was finally broken. In the previous 20 years, every Premier League title had been secured by one of just four clubs. By contrast, Leicester City’s success demonstrated to investors that with a fairly small initial outlay, a less well known team can enjoy as much success as major rivals, irrespective of its track record.
That realization underpins the sudden rush of Chinese investments. Each of the clubs to have been purchased enjoys good fundamentals — a steady fan base and a stadium capacity in excess of 25,000 — but carries a price tag a fraction of the cost of a Premier League giant. By way of context, Manchester United’s market valuation in 2003, when its current American owners announced their intention to mount a takeover bid, was some £741 million. The Chinese purchases therefore represent a bet on lower ranked clubs as potentially undervalued assets, capable of developing into vehicles for success in the medium term. As the first games kick-off this weekend, those teams’ supporters will be hoping the gamble pays off.
Timothy Stafford is a Research Fellow with Pacific Forum – CSIS