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Zhengyuan Bo

How Does A Sport Brand Save Billions for American Taxpayers?

By | TDG Insights

If you pay any attention to the Summer Olympic games at all, like the one is happening now in Rio, it is probably an accustomed pattern to see Team USA on top of the medal rankings. This summer, Team USA athletes are on their way to clinch the 2500th medal for the U.S., including the 1000th gold medal in the country’s Olympic participation history.

Here comes the fun fact:

The United States Olympic Committee, responsible for supporting, entering and overseeing the largest and probably the most successful Olympic teams in the world, does NOT receive federal financial supports.

So how was the Team USA organized and supported?

This is how it works:

First, you need a vital, market-based sports ecosystem with abundant commercial resources.

The bottom-line is the sheer size and velocity of the sport market. Despite the rapid growth of the Chinese sports market, which is predicted by Caixin to reach $242 U.S. billion by 2025, the U.S. remains the most robust sports market in the world, valued 60.5 billion in 2014 and predicted to reach 73.5 billion by 2019. With capitalism at its heart, league executives, capital carriers, corporate sponsors, broadcasting networks, and national leagues are constantly flowing. 42 of the 50 most valuable sport teams locate in the U.S. Hence, so are the most industrialized broadcasting networks and corporate sponsors.

 

 

Second, you also need a designed model turning the sports assets into lasting values and cash flows for the short term, and a sustainable cultivation of fan (consumer) base in the long term. This part is a bit tricky as typically in a market, with multiple competing networks and sports brands vying on a different type of sports leagues, the price-setting power of the content will naturally be divided and thus lower.

Therefore, with the Ted Stevens Olympic and Amateur Sports Act enacted in 1978, Congress gave birth to a federal chartered non-profit organization in Spring, Colorado known as the United States Olympic Committee(USOC) and authorized it as the sole marketer of Team USA-related marks, images and terminology, and broadcasting rights in the United States. Further, it effectively made the monopolistic manager body with the power to assign and ratify managers of market segmentation through the recognition National Government Bodies—the subunits in charge of managing sports training, competition and talent development for their sports. Thus far, two things giving the USOC a gold-raining brand monopoly status are settled: absolute internal control and handy tools of brand asset liquidation.

Source: United States Olympic Committee, 2014 Annual Report

(Source: United States Olympic Committee, 2014 Annual Report)

 

Source: United States Olympic Committee

(Source: United States Olympic Committee)

 

Lessons for Chinese Sport Investors: Value-Chain Integration

China has more than 600 million soccer fans. Nonetheless, buying Europe football leagues alone will neither complete the sports ecosystem in China, nor improve the competitiveness of China’s men national soccer team.


“Ecosystem” and “Sports Economy” are among the trendiest words appears increasingly associated with the recent sport-buying spree of Chinese investors, from the buy-up of Inter Milan and the recent takeover of AC Milan, to the minority stake investment in the Minnesota Timberwolves and USC. The opportune parts are, Chinese buyers spreading their oversea sport investment across the broad to hit different spots of the spectrum as recent deals did connect dots and promised a greater sports ecosystem. For instance, besides sports team investments, Chinese media giants like Tencent and Baofeng are also piling up online broadcasting rights contracts to leverage assets. The vitality of Chinese sports market, 4

making up to only 0.6 percent of the country’s GDP, comparing to over 2.4 percent in the U.S., along with the growing maturity of handling outbound asset acquisition, is shadowing a growing prominence of the market. In fact, a little known Chinese brand outside the country, 361 Degree, is now an official sponsor of the Rio Olympic Games.

Will China, at the least at the national level, create a batch of volcanic brands anytime soon to sustain the entire development of its sports talents? Probably not in the immediate future. But the good signs are there, the market element is about right, and it seems like Chinese investors are starting to make strategic decisions based on long term interest during their European shopping trip.