The acquisition of a 99 percent interest in AC Milan football club by a Chinese consortium was reported as completed on 13 April 2017, marking one of the latest investments by Chinese investors in the overseas football sector. AC Milan, the 118-year-old football club, is now owned by a Chinese consortium led by a businessman named Li Yonghong. From now on, the famous “Milan Derby” has become “Chinese Derby”. AC Milan’s arch-rival, Inter Milan, was acquired by Chinese retail giant Suning in June 2016.

Over the last couple of years, Chinese investors have acquired substantial stakes in almost a dozen of European football clubs (including famous ones such as Aston Villa and Lyon). Chinese investors can also be seen among the shareholders of mega clubs such as Atlético Madrid and Manchester City.

One of the drivers behind such active (and sometimes aggressive) investment initiatives was China’s national policy. President Xi, famously known as a football fan, turned his vision for Chinese football into national policy. On 2 October 2014, the State Council (China’s cabinet) issued a decree to promote China’s sports industry and reform the professional sport regime in China – the objective is to create a sports economy with an aggregate value of US$725 billion by 2025. This decree also encourages high-quality Chinese enterprises to “go abroad”. The General Administration of Sport of China, in its “Thirteenth Five-year Plan for Sports Industries”, announced its aim to create a sports industry accounting for 1 percent of China’s GDP by 2020. In particular, two highlevel national plans to promote Chinese football were issued by the Chinese government in 2015 and 2016, respectively.

Chinese businessmen with political savvy soon came to realize that sport, especially football, could be the next “big thing” for China. Since early 2015, we have seen capital flooded irrationally to the Chinese Super League, or CSL (the top football league in China). Chinese football clubs spent significantly in order to bring superstars to the CSL. For example, in 2016 Shanghai SIPG created a CSL transfer record in its €56 million signing of Brazilian striker Hulk, which was soon broken in December 2016 by Shanghai SIPG’s £60 million signing of Brazilian midfielder Oscar from Chelsea. Statistics from different sources all reflect the same result that, during the 2015 and 2016 transfer window, the CSL spent more money than any other football leagues in the world.

For Chinese investors, this is more than another buying spree with hot money; they aim bigger. Suning already owns a super CSL team, and its subsidiary brand PPTV owns the TV broadcasting rights to La Liga, Premiere League and Bundesliga in China. Reports suggest that in June 2016, Suning was very close to becoming the owner of Stellar, the world’s leading football agency. With these aggressive moves, Suning has evolved from an electronic appliance seller to a content provider, which now has a significant say on how Chinese football fans can be entertained. Wanda, the real estate giant and an investor in Atlético Madrid, also aims to extend its entertainment network globally by investing in the football sector. In February 2015, Wanda acquired Infrontsports, a sports marketing and management giant, whose clients include FIFA and UEFA. These examples demonstrate how the Chinese investors aim to integrate both upstream and downstream business opportunities relating to the football sector.

But every opportunity has its challenges. In December 2016, ADO Den Haag, a Dutch football club, sued its Chinese owner United Vansen for its failure to fulfil certain financial obligations to the club. The lawsuit was a result of their dispute over how the club’s money should be spent. Vansen wished to use the invested capital on new facilities and players, while the club management wanted to prioritize the needs in the budget. Admittedly, Chinese investors are often ambitious and full of liquidity, but they are still “amateurs” in the football sector (neither Wanda (a real estate company) nor Suning (an electronics retailer) was a football expert, although they are catching up fast). The general practice is still to leave the operations of the clubs to their management teams. But when the Chinese owners try to intervene, there could be clashes of business mentality, commercial practice, or even culture differences. ADO and Vansen reached an agreement to solve the funding dispute in early 2017, and both of them recognized that the conflict was a result of “cultural misunderstandings”.

The biggest challenge, however, came from Beijing. By the end of 2016, as the valuation of RMB against US$ plunged, the Chinese government took active measures to curb capital flight by tightening control on overseas direct investments (or ODIs) by Chinese investors. As a result, Chinese investors with ongoing ODI projects have found it extremely hard to remit capital out. The closing of the AC Milan acquisition was delayed by a few months due to such policy change. On 6 December 2016, the Chinese government held a press conference to send a strong message that the authorities would pay closer attention to irrational ODI projects in the sectors of real estate, hotel, cinema, entertainment and sports. The buying spree of football clubs has cooled down significantly since then. This unwritten policy was put in writing on 4 August 2017, when the State Council issued a Notice explicitly restricting overseas investment by Chinese investors in certain sectors, including sports clubs (the “Notice 74”). As a result, Chinese investors have found themselves in a more difficult position in bidding for overseas targets, and the sellers have generally started to ask for solid proof from Chinese investors showing that they can mobilize funds in a timely manner in order to ensure deal certainty.

Despite the Chinese government’s tightened scrutiny on investments in sports clubs, some Chinese buyers have found ways to circumvent the restrictions to strike deals. According to press reports, Chinese businessman Gao Jisheng’s acquisition of Premier League club Southampton was completed on 14 August 2017, right after the Notice 74 was issued. Gao is reported to have funded the deal by using his family funds in Hong Kong and overseas bank loans. The successful example of Gao’s investment may encourage other Chinese investors to adopt a similar funding structure in completing in the sports sector.

It remains to be seen whether China’s foreign exchange control will be relaxed any time soon as the RMBUS$ exchange rate stabilizes, but Chinese investors’ appetite for European football clubs seems to remain strong. The opportunities and challenges for Chinese investors are always there, and it will be interesting to see how things unfold in the next six to twelve months.