ESPN study finds NBA owners’ investments in China exceed $10 billionon May 19, 2022 at 12:52 pm
On the eve of the current NBA playoffs, the league’s games returned to state-run TV in China after a nearly three-year ban. It was a quiet return, with nary a word from New York or Beijing trumpeting the apparent end of a bitter conflict.
NBA owners had remained largely silent throughout the ban, even as the league worked behind the scenes to repair a ruptured relationship that had cost hundreds of millions of dollars and laid bare the complexities of doing business with an authoritarian regime.
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The owners had reason to stay quiet: In addition to the money their teams derive from the NBA’s $5 billion business in China, many have significant personal stakes there through their other businesses.
ESPN examined the investments of 40 principal owners and found that they collectively have more than $10 billion tied up in China — including one owner whose company has a joint venture with an entity sanctioned by the U.S. government.
The owners’ myriad ties to the world’s second-largest economy leave their businesses vulnerable if they get on the wrong side of the Chinese government or the public there, according to the analysis.
Since a tweet from then-Rockets general manager Daryl Morey in support of Hong Kong protesters ignited the NBA-China conflict in October 2019, the NBA’s relationship with a country widely criticized for alleged human rights abuses has come under scrutiny. Last month, ESPN reported the many ways Nets owner Joe Tsai, the co-founder of Chinese e-commerce giant Alibaba, personified the compromises embedded in the NBA-China relationship.
“This is a significant issue and problem that American companies have,” said Robert Kuhn, a longtime adviser to Chinese political leaders and multinational corporations operating in China. “It’s a tension between those two poles … to see companies promoting social justice in the U.S. but staying silent on what would be perceived to be far worse issues in China.
“This is going to be an issue for the rest of our working lives.”
The NBA declined requests to interview commissioner Adam Silver or deputy commissioner Mark Tatum, who oversees the league’s international operations. In a statement, NBA spokesman Mike Bass said, “We continue to believe that exporting media rights of NBA games to fans in more than 200 countries and territories around the world, including China, is consistent with our mission to inspire and connect people everywhere through the power of basketball.”
For this story, ESPN commissioned Strategy Risks, a New York firm that quantifies corporate exposure in China, to examine the conflicts not only for Tsai, but for the rest of the league’s owners.
The Strategy Risks analysis shows the NBA owners are exposed in two ways: First, NBA China has grown so large that it contributes significantly to the value of each team. And, second, though Tsai has by far the biggest exposure, many NBA owners also have substantial financial interests in China through their other businesses.
To calculate the owners’ exposure beyond the NBA, Strategy Risks assessed their holdings using a proprietary model that accounted for a range of data and risk factors, including the size of operations in China, current and projected revenues, valuation, growth opportunities and reliance on supply chains connected to the country.
To evaluate the owners’ China exposure strictly through their teams, ESPN used a conservative approach focused solely on valuation. NBA China is valued at approximately $5 billion, and the NBA owns 90% of the entity (ESPN owns a 5% stake and several state-controlled banks collectively own the rest). That would put the China value of each of the league’s 30 teams at an estimated $150 million.
The exposure numbers are estimates, and they’re based on market values as of February. Because the teams and companies are private entities, the financial information was derived largely from government filings, media reports and other publicly available documents.
NBA owners face both financial and political risk by doing business in China, according to Strategy Risks. Heat owner Micky Arison, for example, has more than $375 million tied up there through the team and his business, Carnival Corp., the world’s largest cruise operator. Before the pandemic, Chinese passengers represented 8% of the cruise industry’s total volume.
In 2018, Carnival launched a joint venture with China State Shipbuilding Corp., to establish a China-based cruise line. In touting the new partnership, Carnival CEO Arnold Donald said, “The official launch of our cruise joint venture in China is a significant milestone in the strategic development of a strong and sustainable cruise industry in China.”
Heat owner Micky Arison has more than $375 million tied up in China through the team and his business, Carnival Corp. AP Photo/Wilfredo Lee
In a recent filing with the U.S. Securities and Exchange Commission, Carnival affirmed the partnership is ongoing and “designed to serve the Chinese market.”
CSSC is a state-owned conglomerate with close ties to the Chinese military. It builds aircraft carriers for the People’s Liberation Army and is developing the country’s first nuclear-powered carrier, according to the South China Morning Post.
The U.S. government lists the shipbuilder among foreign companies “acting contrary to the national security or foreign policy interests of the United States.”
“That’s a pretty significant collaboration,” said Matt Schrader, a China analyst for the International Republican Institute, a conservative think tank that promotes democracy around the world. “It’s one that would give Mr. Arison pretty significant incentives not to get crossways with the Chinese state or to be supporting any positions that might be objectionable.”
The Center for Strategic & International Studies, a bipartisan think tank, cited the Carnival-CSSC partnership in a recent report titled, “In the Shadow of Warships — How foreign companies help modernize China’s navy.” The report called CSSC “a linchpin in Beijing’s military-civil fusion strategy, which aims to upgrade the People’s Liberation Army and level up China’s military science and technology industries while simultaneously strengthening instruments of national power across the board.” After noting Carnival’s ties to CSSC, the report said, “At face value, sharing capital and technology with CSSC subsidiaries may seem innocuous, but it should raise red flags for nations concerned about China’s growing military power.”
Said Schrader, the China analyst, “If China invades Taiwan, a lot of the ships that do it will be built by the CSSC. So, if we’re going to see Ukraine 2.0, the CSSC will have been a big player in that.”
In the United States, Arison has been a prominent advocate for human rights. In 2020, he described the Heat’s commitment to social justice as “never-ending,” part of a campaign in which the team released a two-minute video featuring employees like him, Pat Riley and Erik Spoelstra vowing to fight systemic racism.
Arison declined to comment for this story. In a statement, Carnival said its “joint venture or its JV partner are not designated under any US trade-related sanctions. Carnival Corporation has taken steps to ensure full compliance with relevant US sanctions and export control laws.”
The NBA and its owners are far from unique in their China exposure. Numerous businesses have tried to capitalize on the immense Chinese market, only to be accused of selling out American values. That includes Disney, ESPN’s parent company, which has a theme park in Shanghai and has extensive business in China. Last year, when Disney launched its streaming service in Hong Kong, the company did not include an episode of “The Simpsons” critical of the Chinese government.
Robert Pera of the Memphis Grizzlies is the founder and majority shareholder of Ubiquiti, which has manufacturing and logistics operations based primarily in China. AP Photo/Lance Murphey
Nets owner Tsai, by virtue of his role with Alibaba, has by far the highest percentage of his net worth — 53.5% — tied to China, according to Strategy Risks. Next on the list is Kings co-owner Paul Jacobs, who Strategy Risks estimated has more than 30% of his net worth linked to business there.
Jacobs is heavily invested in wireless technology company Qualcomm, which had two-thirds of total annual revenues earned in China and Hong Kong last year, according to Strategy Risks. Jacobs, a former CEO at Qualcomm, owns shares in the company worth more than $200 million. It’s unclear the size of Jacobs’ stake in the Kings, but a conservative estimate by Strategy Risks puts his total China exposure at about $140 million.
Jacobs declined to comment
Another owner, Robert Pera of the Memphis Grizzlies, is the founder and majority shareholder of Ubiquiti, a wireless equipment manufacturer. Ubiquiti derives nearly 10% of its revenue in Asia. More importantly, Ubiquiti’s manufacturing and logistics operations are based primarily in southern China.
In SEC filings, Ubiquiti reported that the company faces risk from “exposure to increased economic and operational uncertainties … as a result of foreign policy and geopolitical developments, particularly those involving China.”
Strategy Risks estimates Pera’s total exposure at $369 million.
Pera did not respond to multiple requests for comment.
Rockets owner Tilman Fertitta is president and CEO of Landry’s, which operates 10 restaurants in China that generate an estimated $57 million in annual sales. Strategy Risks estimates Fertitta’s total exposure at $160.3 million.
Fertitta declined to comment.
Charlotte Hornets owner Michael Jordan’s brand is so well known in China, he filed a successful lawsuit against a Chinese sportswear company that was using his transliterated name, Qiao Dan, and a facsimile of the Air Jordan logo. Last year, Nike first faced criticism over allegations it used cotton picked under forced labor conditions in Xinjiang; then, when the company expressed concerns about forced labor and insisted its products weren’t sourced in Xinjiang, it was hit with a boycott from Chinese consumers.
In 2020, Jordan and his brand pledged $100 million to the social justice movement in the United States. The NBA committed $300 million, and other owners, including Tsai, made similar donations. Jordan’s estimated China exposure is about $85 million.
Jordan declined to comment for this story.
Strategy Risks found that several NBA owners have significant China exposure through their ownership of private equity or venture capital firms.
“As the Chinese financial sector has increasingly opened to foreign investment in recent years, these firms are becoming more exposed to China by acquiring direct or indirect ownership stakes in Chinese companies,” Strategy Risks reported.
Joshua Harris, the principal owner of the 76ers, has exposure through Apollo Global Management, a private equity firm he co-founded; Harris owns 20% of the company, which, as of last year, managed assets worth $481 billion, according to Strategy Risks. AGM has three subsidiaries in Hong Kong and one in Shanghai.
In an annual report filed last year with the SEC, AGM noted that “the Asia real estate equity funds we manage have a primary focus on investing in China, India and Southeast Asia…”
Strategy Risks estimated Harris’ China exposure through AGM at $12.4 million. In addition to an estimated $76.5 million exposure through the 76ers, Harris also is tied up in China in other ways. For example, his parent company, Harris Blitzer Sports & Entertainment, also owns 36% of English Premier League team Crystal Palace and a stake in top-flight esports team Dignitas, both of which generate revenues through relationships in China. Harris’ total China exposure is estimated at about $96 million.
Harris declined to comment.
“Nobody really wants their name associated with China, but what can they do?” said attorney Dan Harris, whose firm Harris Bricken represents many companies that do business in China. “They’re sort of betwixt and between. If they say what Americans want them to say, it’s death in China. If they say what China wants, it’s death in America.”
ESPN’s John Mastroberardino contributed to this report.
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