Sports Marketing in China Is No Slam Dunk

Foreign companies have seen big sponsorship deals fizzle out. Time for a new game plan

When PepsiCo Inc. (PEP ) marketing executives signed a five-year deal to sponsor the China Football Assn. in 1999, they thought they had a sure bet. The agreement included a commitment by state-owned China Central Television to carry at least 30 soccer matches per season, putting Pepsi's brand in front of hundreds of millions of viewers each week. As it turned out, CCTV showed fewer games than Pepsi had expected and by the 2002 season had stopped airing matches altogether. Though broadcasts resumed later in the season, Pepsi pulled the plug on the deal at the end of the year. "Sports marketing in China is very challenging because things are still so muddled," says Richard Lee, Pepsi's vice-president responsible for China marketing.

Just a few years ago, China appeared to be the next frontier for sports marketers. Shanghai hosts an annual Association of Tennis Professionals tournament and plans to open a Formula 1 track next year. The 2008 Olympics are to be held in Beijing, and basketball is now so established that some Chinese players -- particularly Yao Ming -- have become international stars.

But companies that rushed to plaster their brands on mainland teams and leagues are rethinking their strategies. Motorola Inc. (MOT ) has decided to stop sponsoring the Chinese Basketball Assn. Fuji Photo Film Co. (FUJIY ) and Virgin Atlantic Airways had brief soccer deals that they declined to renew. And Philips Electronics (PHG ) has dropped its backing of the Chinese national men's soccer team, though it continues to work with a university soccer league it created. International companies often "cannot justify the returns on their investment," says Scott Kronick, managing director of Ogilvy Public Relations Worldwide in Beijing.

That's not to say everyone is throwing in the towel. The first division soccer league is now called the Siemens Football League, thanks to a cash infusion from the German electronics maker. Adidas-Salomon recently signed a deal rumored to be worth nearly $10 million to back China's men's and women's national soccer teams through 2010. And companies are lining up to get a piece of the Olympics, which will have official sponsors of everything from mobile phones to insurance.

Yet efforts to market products through the Chinese sports Establishment haven't exactly been a slam dunk for foreign companies. The problem? For starters, there's a serious lack of marketing savvy among sports officials and team owners. "People in charge of sports need to begin embracing the consumer," says Terry Rhoads, general manager of Zou Marketing, a sports-marketing consultancy in Shanghai.

And Chinese fans are among the most fickle on earth. When their teams lose, they stay home, so they don't make a lasting connection with the players -- and their sponsors. For example, Shanghai's Shenhua SVA SMEG soccer club this year sold just 6,000 season tickets, a fifth of the seats in its stadium, says team General Manager Lou Shifang. That's largely because the team placed 12th in a 15-team division in 2002. Although more fans are showing up for games now that Shenhua has fought its way back to second place, they'll likely disappear if the team starts losing again.

Then there's the taint of corruption. In January, a soccer referee was convicted of taking $40,000 in bribes from team owners who publicly said they had paid the official for fixing matches. His 10-year prison sentence was the first conviction for a referee, and the China Football Assn. has vowed to crack down on bribe-taking, though the bribe payers haven't been prosecuted.

Worse, as Pepsi's fiasco shows, it's hard to gauge the value of a sponsorship deal. Media market research is still in its infancy in China, and reliable data on the number of fans and television viewers are hard to come by. And because CCTV has a monopoly on national broadcasts, the leagues and teams, much less the sponsors, have little control over which games get on the air.

The problems with sponsorship mean that even the best teams remain poor. Whereas TV revenues cover the bulk of costs for professional teams in the U.S. and Europe, in China CCTV pays little for sports programming. That means teams must depend on sponsorships to invest in good coaches and players. Without that money, their performance suffers and game attendance falls, leaving fans and sponsors ever more dissatisfied. "It's a vicious circle," says Stephanie Huang, who teaches sports marketing at Shanghai's Fudan University.

At the same time, foreign soccer and basketball are surging in popularity, which makes it even more difficult for local teams to grab the limelight. "International games are very exciting, but local teams really stink," says Sun Pei Yuan, a 27-year old economics researcher from Shanghai. And most Chinese stadiums would barely suffice for high school teams in the U.S., let alone National Basketball Assn. superstars. Forget skyboxes, cold beer, and sushi. In China's humble arenas, there's often no food available, though vendors outside the building do a brisk business selling sausages and squid. And if you think the players are huffing a bit more than they ought to, that's because so many spectators light up during games, despite a smoking ban in sports venues.

Given the limited opportunities with Chinese teams, companies such as Siemens, Nike (NKE ) and Pepsi have been able to parlay global sponsorship deals with megastars like Yao and David Beckham into greater awareness in China. Ever since Yao signed with the Houston Rockets last year, interest in the NBA has soared in the mainland. Some 50 million Chinese viewers tuned in to this year's NBA finals (even though Houston wasn't in them), making China the league's largest television audience outside the U.S. And on Aug. 2, Beckham played in a Siemens-sponsored Real Madrid exhibition soccer match in Beijing -- which gave the Siemens brand a boost. "Our global initiatives have a big impact on our products in China," says Siemens Chief Operating Officer Lothar Pauly.

Now, some Chinese companies are mimicking that strategy by spending their sports-marketing dollars overseas. Mainland mobile-phone maker China Kejian Co. has paid more than $1 million to sponsor English Premier League team Everton for three years. As part of the deal, Chinese midfielder Li Tie was signed to Everton, and players wear jerseys emblazoned with the Kejian logo, even though the company sells no phones in Britain. And Harbrew Imports, the exclusive U.S. distributor for China's Yanjing Beer, has signed a six-year, $6 million sponsorship deal with Yao's Houston Rockets.

Some multinationals, meanwhile, are focusing instead on grassroots programs. Pepsi is sponsoring teen soccer, while Adidas is funding camps dedicated to the sport. The university soccer league that Philips established now has 400 participating schools, and Nike has started a high school basketball league. "It's a big challenge -- to give youth more and more access to organized sport," says Paul Pai, Adidas general manager in Shanghai. But who knows? The company that helps nurture the next Yao Ming just might be on the player's short list when it comes to future sponsorship deals.

By Frederik Balfour in Hong Kong

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