A Chinese flag is placed on merchandise in the NBA flagship retail store on October 9, 2019 in Beijing, China.
Kevin Frayer | Getty Images
Though the National Basketball Association finds itself back in the middle geopolitics, there are no plans to abandon its partnerships in China as tensions with the United States continue to intensify over national security concerns.
The latest threat to the NBA’s business operations in China comes following concerns that its streaming partner Tencent could be facing business interruptions following an executive order by President Donald Trump last week. The executive order claims Tencent’s WeChat app poses a threat to U.S. “national security, foreign policy and economy of the United States” and bans U.S. companies from doing business with it.
It’s still unclear whether or not Trump’s executive order is narrowly tailored to WeChat or all of Tencent, which has several investments in U.S. video game, sports and media companies. In the NBA’s case, Tencent has a five-year, $1.5 billion deal to stream NBA games in China, one of the league’s most lucrative markets outside the U.S. The deal was signed last July. The NBA didn’t provide a statement on the potential effects of Trump’s executive order.
Meanwhile, the order follows a report from the NBA’s domestic media partner ESPN, which published an article on July 29 that details the league’s affairs with a Xinjiang basketball academy.
The article claims the NBA failed to act on complaints detailing the mistreatment of youth at the academy. After exchanging letters with government officials, the NBA’s affairs in China have further caught the eye of U.S. politicians, including Sen. Marsha Blackburn. The Tennessee senator has accused the NBA of misleading officials about its relations in Xinjiang.
Mark Tatum, the NBA’s deputy commissioner who helps oversee the league’s international business, called the article’s allegations “disturbing.”
Tatum, who also serves as NBA chief operating officer, added the league terminated its partnership with the academy in Xinjiang in June 2019 after its last event. Tatum said the league only provided three coaches to participate in the Xinjiang academy, “none of whom have been alleged to have engaged in any wrongdoing.”
Still, the NBA’s credibility was challenged in the ESPN article, as it’s also said the league asked individuals not to speak with the network regarding the report.
Men walk past a poster at an NBA exhibition in Beijing, China October 8, 2019.
Jason Lee | Reuters
NBA’s Tencent concern
But even though the NBA is attempting to put out the fire created by alleged problems at the Xinjiang basketball academy, a more pressing concern comes from Trump’s executive order last week, which puts its streaming deal with Tencent in China at risk.
Tencent, which is expected to report quarterly earnings on Wednesday, has seen its shares drop nearly 10% since August 7, the day after Trump announced his executive order.
The NBA says it has 1.4 million followers on Tencent’s WeChat, which although that pales in comparison to its 44 million followers on its Weibo, a Chinese social network that’s similar to Twitter. With the renewal of Tencent’s streaming rights deal last year, it’s estimated the NBA China’s valuation has surpassed $5 billion.
Houston Rockets GM Daryl Morey damaged that valuation when sent his support for Hong Kong protesters last October via Twitter. That initially put the NBA in the middle of a geopolitical firestorm with China and resulted in suspended partnerships and the government-run CCTV from airing its games.
Tencent also halted streaming games at the time, but has returned to showing select games that don’t include the Rockets. At the NBA’s All-Star Weekend in Chicago, league commissioner Adam Silver said the conflict could cost the NBA up to $400 million.
Still, the NBA doesn’t plan to abandon its business in China, and Silver has reiterated that message throughout the past several months. But should the NBA be forced to decide between business at home and in China, it could be detrimental to its revenue in the world’s fastest-growing market.
Tatum told Forbes in 2018 the league’s China operations, which is owned by NBA team owners, was then valued at roughly $4.3 billion. Over 500 million people watched NBA programming in China for the league’s 2018-2019 season, allowing team owners to collect revenue on NBA China’s distribution of league content, merchandise sales and even the NBA’s Playzone, an interactive space for youth.
Suppose tensions between the U.S. and China continue post-U.S. presidential election. In that case, the NBA’s business in China could continue to suffer, bringing even more pain to its salary cap, which is already expected to take a severe hit due to Covid-19.
The NBA has gained traction in other global markets, including India, which Tatum said would “outpace China in the next five or six years.” Mexico is another country the NBA will continue to invest in along with Brazil, but none of those markets currently have the established infrastructure or paying customers that equals China’s market.
Silver suggested in February the NBA’s business in China isn’t permanently damaged, and he added the league accepts “the consequences of our system and our values.”
The NBA recently restarted its season in Orlando after suspending games on March 11 due to the pandemic. The regular-season-like games will end this week, and the NBA will advance to its postseason, which is scheduled to conclude in October, before the Nov. 3 U.S. presidential election.