The following was co-authored by Columbia student Maurice Eisenmann
When the news broke that Argentinian National team star and Boca Juniors veteran Carlos Tevez would move to Shanghai and would become the highest paid soccer player in history, many people were surprised. After all, why would a Chinese team be willing to pay this record price for Tevez, a player over his prime, to play in a league that does not get a lot of global coverage. Others however, realized that this trend fits perfectly with the aggressive recent investment strategies in the sports and entertainment industry by Chinese businesses and government
People say that this could be the start of the rise of the Chinese sports industry, but what many people don’t realize is that there is one highly successful Chinese company that has been investing heavily in sports, Tencent, China’s most valuable company.
What is Tencent?
Tencent is a highly-successful Chinese technology firm. It originally got its growth as an online messaging company back in the 90’s. In the early 2000’s Tencent realized that the online messaging market was moving towards a mobile dominated environment. With that shift came a new revenue driver, virtual goods, people were willing to pay money for additional premium features and the company started to creates its own licensed video games. This move was a huge success and Tencent shifted its company’s strategy from becoming an instant messaging company to a Disney like entertainment and technology empire. As of now, Tencent has made over 130 investments and it owns WeChat, Asia’s biggest messaging app. In order for us to better grasp the power that Tencent has in the sports industry, we would like to highlight some of the key investments the company has made in traditional sports and in eSports.
Investments in Traditional Sports
Tencent Sports is the largest sports content provider in China. While, in the past they have done so by providing content that does not have any exclusivity, recent investments show that this is about to change drastically. Here are some highlights:
- Tencent extended their NBA rights in China with a five year contract in 2015 valued at $700 million. Tencent already has the sponsor (car maker Build Your Dream) , and with their existing video streaming capabilities on platforms like WeChat and Douyu, they have the infrastructure. They also have seen the celebrity event crossover opportunities with the NBA. Tencent’s recommendation played a role in the NBA’s selection of Kris Wu as the first Chinese-born participant in the NBA All-Star Celebrity Game last year.
The Chinese-Canadian singer and actor has more than 20 million followers on Sina Weibo, China’s version of Twitter. His appeal to young people, especially young women, was evidenced by the remarkable increase of female viewers of the Celebrity Game. While female viewers would typically make up around 10 percent of the viewership of a regular NBA game, they made up around 20 percent of the audience for the Celebrity Game on Tencent’s online video platform, according to Zhao Guochen, general manager of operations of Tencent’s sports department.
They were the first Chinese media company to livestream the NBA All-Star Celebrity Game, and the Super Penguin contest is its very own domestic version of the Celebrity Game which last year involved some the biggest hoops personalities in China, Americans Stephon Marbury and Tracy McGrady.
- Tencent is a part-owner of the UFC. In July of last year, Zuffa sold the UFC for about $4 billion to WME-IMG, the Dalian Wanda Group, The Kraft Group and Tencent Holdings. Besides the obvious ROI that Tencent gets because of the content they can now bring to the Chinese market, a market where the UFC hardly has any presence yet, the UFC is also a perfect licensee for Tencent’s gaming companies.
- ESPN partnered up with Tencent to provide content for the Chinese company’s Tencent QQ Sports platform. Tencent will acquire exclusive NBA and international soccer content made by ESPN but other sports should follow. Tencent will also receive the Chinese distribution rights of the NCAA basketball tournament, over 100 college basketball games and the X Games. As colleges increase their focus marketing to Chinese students, the TV coverage builds affinity with participating schools, raising the profile for all involved.
Investments in eSports
With Tencent being an entertainment company that is heavily invested in video games, eSports is a logical growth opportunity for the Chinese conglomerate. According to NewZoo, Tencent owns 13% of the global $99 billion video gaming market. Some of their most important investments:
- Tencent fully owns Riot Games. In 2011, Tencet bought a majority stake in the developer of League of Legends and in 2015 they bought up all the shares they didn’t own yet. This alone, arguably makes Tencent the most powerful company in eSports as with LOL it owns the most popular eSports franchise in the world.
- Tencent owns almost 25% of Activision Blizzard. In 2013, Tencent was part of the $8 billion buyout of Activision Blizzard. This makes the Chinese firm a part-owner of the company that controls the eSports field with games like: Starcraft II, Overwatch, Heartstone and Call of Duty. It also now owns Major League Gaming, a key player in the eSports scene that was recently acquired by Activision Blizzard. More importantly, Tencent owns a piece of its biggest competitor, just imagine if the NFL owned almost 25% of the NBA.
- Tencent owns 84% of Supercell. In June last year, Tencent inked the deal to buy 84% of Swedish game developer Supercell for $8.4 billion. Some of you might not know about Supercell, but it is the creator of two of the most successful mobile video game titles, Clash of Clans and Clash Royale (remember this Super Bowl TV ad with Liam Neeson?). While these games aren’t big eSports titles yet, some people are saying that they could be the next big thing. With YouTube Gaming hosting a $100.000 Clash Royale tournament last year, the stage has been set. Tencent not only owns the biggest players in the PC and console eSports market, they also own a key player in the mobile market with Supercell.
- Tencent also owns stock in Epic Games, Glu Mobile and has worked with Electronic Arts. Basically, they either own or work closely with every single key player in eSports with the exception of Valve.
- Tencent has a distribution channel with Douyu TV, one of Twitch’s key competitors in China. This investment makes sure that Tencent owns the complete entertainment cycle: the creation of the games, the distribution, and the consumption of eSports content.
Tencent’s investments are very strategized. They focus on getting content that people want either through the buying of rights like the NBA and ESPN or the creation of content with their heavy investments in eSports(gaming) and the UFC. Much like Disney, Tencent wants to own every part of the business cycle from the creation all the way to the distribution. The company also focusses on sports with a high growth potential, specifically in China. At the moment, the UFC is highly successful in the North America and key countries in South America and Europe where MMA is legal, but it has only scratched the surface in China. The NBA is wildly popular in the Asia but lacked a long term strategic distribution partner and eSports is growing rapidly to become one of the biggest sports in China. Unlike some of its western contemporaries, every investment Tencent makes fills a piece of their puzzle of becoming the biggest entertainment company in the Far East.
Now there remains some uncertainty as to where deeper Chinese investment in American sport will go. Will some of President-elect Trump’s statements about keeping all business in the US have an adverse effect on Chinese business relationships going forward? Will cooperation continue to grow in the marketplace? All is still to be determined, but it is certainly worth watching. And if you aren’t watching Tencent, you should be.