On June 20th, Didier Drogba signed with the Shanghai Shenhua, raking in over $300,000 a week. Yes, that's a lot of money, especially in China, as it totals an annual salary of $15.6 million, placing him (according to my own calculations) just shy of the Top 10 Highest Paid Footballers in the World. That's pretty impressive for a guy on the tail end of his career at age 34, transferring to a frankly awful league in a developing country. (Samuel Eto'o's move to Anzhi Makhachkala is another example of intriguing financial and economic movements, although that one was funded by one individual's extreme investment.) While it was well known that Drogba would be going the way of David Beckham, stretching out his career by going to a less competitive, "powder puff" league (as I think of it) that's willing to pay him as much for his name as his skills, I was a rather startled to see him ending up in China instead of the MLS.So why do I care, besides that it happens to involve two of my favorite subjects: football and China? What does a Ivronian international's decision to move to the good ole Chinese Super League (中国足球协会超级联赛) have anything to do with the Chinese economics that I'm supposedly supposed to be discussing in this blog? Drogba's move signals a change in both China's social structure and its economy.
First, signing such a huge name shows a changing opinion of football in China. Despite having at least three tiers in the professional system and being operated by a government body (Chinese Football Association), CSL is so poorly viewed in China that it can't even manage to get a television deal from the government-monopolized television broadcasting company. To put that in perspective a bit, while I was in China, I had no trouble (well, despite the time difference) watching UEFA Champions League (inter-league European competition) or Serie A (Italian league) matches on television, but never once did I see a match or coverage of CSL matches. All the football magazines I bought went on and on about European leagues but never once mentioned the CSL. The rampant corruption and China's method of selecting youth for development (discussed in The Economist's article here) are certainly partially at fault. Shanghai Shenhua's decision to spend such a hefty sum rivaling that spent in the European leagues (which are both disgustingly more wealthy and vastly more popular) signals a huge change in expectations regarding the popularity of football in China.
As any economist (or anyone who's had any discussion with me about decision-making) knows, we don't buy anything unless we expect the payoff to be greater than (or at least equal to) the cost of purchase. (Economically, there may be non-monetary payoffs (prestige, for example, but that can also translate into monetary gain from sponsorships, ect.), so looking strictly at accounting won't necessarily give you the whole picture.) So that means Zhu Jun and his staff expect Drogba to bring in at least $300,000 worth of income (monetary or non-monetary) each and every week. That's some high expectations for a club that's struggling to fill its 33,060-capacity stadium (Old Trafford, Manchester United's ground, in contrast, seats over twice that). So popularity must be looking up! Why, exactly, I couldn't tell you. Chinese players certainly aren't getting any better and expats certainly haven't decided to switch to local football from European leagues. So natives must be taking to it, perhaps due to increased interest in European leagues thanks to expat or Western influence or simply a shift toward a different sort of sport preference. Regardless, Shanghai Shenhua plainly believes the face of Chinese sports is changing.
So there's the social shift. What about the economic shift? The economic shift is somewhat veiled in that it is a transition that has been taking place for quite some time, but it is now taking a new form. China is now willing to spend on football as a luxury good. Despite a huge population that should translate into a huge potential talent pool, China doesn't compete well on the world stage (they didn't even qualify for the World Cup in 2010 and only qualified for the 2008 Olympics because they hosted it), as "Olympic medals or World Cups...are luxury goods. Even for a government, there are choices to be made: the Chinese may have decided that athletics [gymnastics] gives more bang for its buck than football."(1) Investing in sports is risky and China's poor performance in football in comparison with gymnastics means the payoff is unlikely to be very high (in economic terms, the discount rate is high due to poor expectations).
But something has changed! Didier Drogba is certainly a luxury good, a man whose salary prices him out of most countries' leagues. China isn't new to consuming luxury goods to the extent that it has been accused of "malconsumption," choosing luxury goods over more essential goods that raise the true standard of living. In fact, although China's overall economy has slowed down from its astronomical growth, luxury brands are still selling strong, on pace to top Japan as the world's largest luxury market, consuming a fifth of the world's luxury brands totally a projected $27b in 2015. (2) But this market has been limited to luxury cars, clothing, handbags, fragrances... It's a new thing for China to begin splurging on luxury footballers. China's luxury market is growing by about 18% annually and it seems some of that growth is coming in the form of sports (and not just the extremely popular NBA China). So if you're looking to invest or advertise, you might consider getting involved with the good ole Super League. Don't be surprised if you see Maotai as Shenhua's new sponsor sometime soon!
(1: "China and football: World Cup economics", The Economist, http://www.economist.com/blogs/freeexchange/2010/07/china_and_football)
(2: "Slowdown in China? Not for luxury brands", CNN Money, http://money.cnn.com/2012/04/24/markets/china-luxury-brands/index.htm)
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