NBA's China problem threatens billions in basketball investment

US-based professional league faces backlash, with core business interests up against politics of support for Hong Kong.

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    Yao Ming, the former NBA player from China, now runs the Chinese Basketball Association, which has said it will stop working with the Houston Rockets after the team's general manager expressed support for Hong Kong protesters [Greg Baker/Pool/Getty Images]
    Yao Ming, the former NBA player from China, now runs the Chinese Basketball Association, which has said it will stop working with the Houston Rockets after the team's general manager expressed support for Hong Kong protesters [Greg Baker/Pool/Getty Images]

    Through decades of painstaking deal-making, the NBA created a multibillion-dollar opportunity in China, the world's second-largest economy. Now a single swiftly deleted tweet has put all that time and money in jeopardy.

    Daryl Morey, general manager of the Houston Rockets, tweeted an image of a slogan supporting Hong Kong's pro-democracy protesters on Friday. That brought a backlash from supporters of the communist government, casting a shadow on what has been one of China's most popular NBA teams.

    Chinese sportswear maker Li Ning Co. and Shanghai Pudong Development Bank Credit Card Center suspended cooperation with the Rockets, while national broadcaster CCTV and Tencent Holdings Ltd. said they will halt broadcasting the team's games. Searches for Rockets gear on Chinese e-commerce sites operated by JD.com Inc. and Alibaba Group Holding Ltd. didn't return any results on Monday.

    Quick apologies to China and its loyalists from Morey, the Rockets' ownership and the NBA brought outrage of their own. Texas politicians Julian Castro, Ted Cruz and Beto O'Rourke were among those who tweeted their displeasure with the statements, which included the NBA calling the effect of Morey's original tweet "regrettable."

    The league says 800 million people in China watched NBA programming on TV, digital media or smartphones last year, which is nearly 2.5 times the entire population of the U.S. That huge viewership brings with it extensive sales of sponsorships and branded merchandise, the fate of which is in the balance amid the current contretemps.

    "They could lose their business in China," said Marc Ganis, a sports consultant. "I don't expect that to happen because the NBA has built up a tremendous amount of goodwill, but they're going to have to call on those reserves."

    Late 1980s

    The NBA has been making deals in China since the late 1980s, when it agreed to share a portion of advertising revenue in return for games being shown on CCTV. Expansion within the country became a major focus of then-commissioner David Stern, who declined to comment for this article.

    The NBA was the first U.S. sports league to establish a footprint in China, opening a Hong Kong office in 1992, and launched NBA China in 2008. The league now has offices in a handful of Chinese cities, including Beijing and Shanghai.

    The NBA was also the first U.S. league to host games in China - a pair of 2004 preseason match-ups between the Rockets and the Sacramento Kings. The league has staged more than 20 games in China, with two more scheduled for later this week.

    The NBA has also embraced investment from Chinese businessmen. In 2016, investor Lizhang Jiang became the league's first Chinese minority owner, buying a small piece of the Minnesota Timberwolves. Joe Tsai, co-founder of Chinese e-commerce giant Alibaba, last month became the league's first Chinese majority owner when he took over the Brooklyn Nets.

    Earlier this year, the league extended its partnership with internet giant Tencent, a five-year deal worth a reported $1.5 billion, a threefold increase over the previous deal. Tencent is the league's largest partner outside the U.S.

    There are also a number of other leaguewide deals, and team-specific deals. Earlier this year, an NBA representative told Bloomberg that the NBA's business in China has grown at double-digit percentages every year since 2008.

    Trade tensions

    When trade tensions heated up between China and the U.S., the NBA sought its first head of government and public affairs in China to help shape its "public narrative" within the country.

    The Rockets have been among the most popular teams in Asia dating back to the playing career of Yao Ming, a 7-foot-6-inch all-star center who spent his entire eight-year career in Houston. Another former Rockets star, Tracy McGrady, had a successful career in China after leaving the NBA. There's also a large Chinese-American community in Houston. When the Rockets sold to Tilman Fertitta for a league-record $2.2 billion, a part of that valuation included the team's popularity in Asia.

    Yao now runs the Chinese Basketball Association, which said it opposed Morey's comments and would stop working with the Rockets. In a June interview with Sports Illustrated about Yao's role with the Chinese basketball league, current NBA Commissioner Adam Silver addressed the differences between the U.S. and China.

    "He has obstacles that I don't," Silver said. "As the Chinese economy has experienced dramatic growth, it's not a free-enterprise system; the government hand is very strong on all businesses, including sports. He does not have the same economic liberties that a business in the U.S. has."

    - With assistance from Scott Soshnick.

    SOURCE: Bloomberg