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Chinese Football, Inflated Value And The Galactico Model

Football is prone to cases of inflated value and China will be no different.

4Apr

Everton manager Roberto Martinez has said some fairly outrageous things during his three-year tenure at Goodison Park. From declaring Gareth Barry ‘one of the best English players ever’ to declaring his side the controlling outfit in a 2-0 loss to Sam Allardyce’s uninspiring Sunderland, the Spaniard is perhaps better respected for his playing style than his soundbites. The most recent Martinez-ism fell on April Fools Day, but one gets the feeling it was said completely without irony. After ‘financially, we can compete against anyone in world football’ left his lips, you wonder if the 42-year-old’s mind would have wandered to his ill-fated promise of Champions League football made back in 2013 when securing his job.

The Toffees’ turnover of £125.6 million has them way outside of Forbes’ Rich List top 20; Turkish giants Galatasaray - in at 20 - pull in £154 million. Martinez’s assertion was in specific reference to the chances of losing stars like Romelu Lukaku to those with heavier wallets, but the reality of the situation is that the gap between Everton and the richest clubs in England alone is more of a chasm - Manchester United’s revenue is just shy of £500 million.

Across Eurasia, reports emerged recently that Chinese Super League club Guangzhou Evergrande - owned, in part, by Jack Ma’s Alibaba - are worth a staggering $3.35 billion. For reference, that’s $500 million more than Manchester United, one of football’s most recognisable and lauded brands. You’d be forgiven for never having heard of China’s footballing shining light, but some clever moves in the stock market have wildly inflated their valuation.

Forbes broke down the scheme well. Alibaba bought half of the club for $193 million in 2014, which in essence gave the club a valuation of $384 million overnight. In January 2016, though, Guangzhou sold 5% of the club to the public, raising $132 million. So, technically, the business was now worth $2.6 billion. And, after months on the Chinese stock exchange, the club is worth $3.35 billion. Forbes’ Mike Ozanian is sceptical, and highlights the fact that Guangzhou’s revenue is, on the world stage, relatively small. At just $70 million, it is one tenth of Manchester United’s and Forbes neglect to include the side in their rankings of the world’s most valuable clubs. Real Madrid’s profits are greater than Guangzhou’s revenue, too. Essentially, there is a big difference between the ‘richest’ clubs in the world and the ‘most expensive’. Guangzhou’s brand isn’t yet the strongest, and when the stock price is extrapolated - and Chinese football is a hotbed of investment at present - their influence on world football doesn’t match their valuation.

The way in which clubs maintain and increase their value varies greatly. Chinese clubs seem to have no issues monetizing every facet of their identity - even down to the inclusion of Evergrande and Taobao in the rather long club name - and the result has been something of a quick fix; footballing monoliths have been erected but declining revenues paint a very different picture. It takes time to build a brand. Manchester United and Barcelona rely on their worldwide images, which are both so strong as to be relatively detached from their performances on the pitch - a theory United have been putting to the test in recent years. Decades of unbridled success will do that, though, and what Old Trafford represents is something far greater than the ignominy of crashing out of the Champions League at the hands of Wolfsburg.

The world’s richest and most valuable club, Real Madrid, take a different and bold strategy. The Galactico model - the accruing of global superstars at great expense with mind for commercial gain - has seen such greats as Cristiano Ronaldo, Zinedine Zidane, Luis Figo and David Beckham on display at the Bernabeu. It took less than a year for the value of Cristiano Ronaldo’s shirt sales to surpass the £80 million transfer fee paid to Manchester United in 2009, for example, and the model relies on blockbuster acquisitions to supplement the brand. The club earn so much from guest appearances, the sale of merchandise and television rights as a result of the system that it, in a sense, props itself up; the more superstars in the team, the greater the brand, the more can be charged at the turnstiles and the more superstars can resultantly be collected.

But a great team the Galactico model does not automatically make. Real Madrid failed to win the European cup between the triumphs of 2001/02 and 2013/14. If the Champions League is the marker of a truly elite club, Madrid’s Galactico model has drawbacks that come into much sharper focus when pitted against Europe’s finest - and, often, more balanced - sides. Typically, defense suffers, dressing room discord is rife and what you are left with is a team of individuals all expecting to dominate proceedings week-in-week-out. As unsustainable as the model appears, though, it is working. United’s operating income is far higher than that of Madrid, but Los Blancos’ brand is now synonymous with world class talent and a regality befitting their all-white strip.

This is, in a sense, what Chinese clubs are currently attempting. The purchase of some top European and South American talent is not entirely necessary in a league in which the general standard is relatively poor; one Alex Teixeira is not worth a number of ‘useful’ players and building a rounded team would almost guarantee success.The buys are for born out of business nouse more than they are footballing supremacy and the league is currently one made up of superstars and supporting actors. Guangzhou’s stock market trading does plenty for the image of their business, and China is emerging as the next great footballing superpower, but the valuation is bombastic; sports fans will hardly be flocking to see Paulinho and Jackson Martinez take on Fredy Guarin, as impressive as those acquisitions are.

From Roberto Martinez to Jack Ma, football is prone to examples of inflated value. Is Wayne Rooney worth £300,00 a week to United? Probably not. Are the ludicrous transfer fees in Europe justified? Probably not. And would Guangzhou sell for $3.35 billion? Who knows. There is no doubt that Chinese football is on the way up. But, just as Roberto Martinez’s assessment of Everton’s financial muscle, the important numbers put a dampener on the headline grabbing inflated value. Don’t stress, neither Everton nor Guangzhou Evergrande will be paying Lionel Messi’s wages any time soon. 

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