The league's games were re-broadcast on the eve the NBA playoffs. This was after nearly three years of ban. It was quiet, with no announcements from Beijing or New York announcing the end of a bitter conflict.
NBA owners remained silent throughout the ban, even though the league was working behind-the scenes to repair the relationship that had cost hundreds million of dollars and exposed the challenges of doing business with an authoritarian government.
They had good reason to keep quiet: In China, the NBA's $5 Billion business is a huge source of revenue for their teams. Many owners also own significant stakes in the NBA through other businesses.
ESPN examined the investments made by 40 principal owners. It found that their total Chinese holdings exceed $10 billion. One owner has a joint venture with a U.S. government-approved entity.
The analysis shows that owners have many connections to China's second largest economy, making their businesses vulnerable to being on the wrong side or public.
After Daryl Morey's tweet in support of Hong Kong protesters sparked the NBA conflict with China in October 2019, it has been scrutinized. The NBA's relationship to China, widely criticized for human rights abuses, is under scrutiny. ESPN published last month the many ways Joe Tsai (Nets owner) exemplified the compromises inherent in the NBA China relationship.
Robert Kuhn said, “This is an important issue and problem American companies have.” Kuhn has been a longtime advisor to Chinese political leaders as well as multinational corporations that operate in China. It is a tension between the two poles. Companies are promoting social justice in America, but avoiding speaking out on China's far more dire issues.
“This will be a problem for the rest of my working life.”
The NBA declined to interview either Adam Silver, the commissioner, or Mark Tatum (deputy commissioner), who oversees international operations for the league. Mike Bass, the NBA's spokesman, said that “we continue to believe exporting media rights for NBA games in more than 200 territories and countries around the globe, including China is consistent with our mission of inspiring and connecting people everywhere through basketball's power.”
ESPN hired Strategy Risks (a New York-based firm that quantifies corporate exposure to China) to investigate the conflict for this story.
Strategy Risks analyze shows that NBA owners are exposed to two things. First, NBA China is so big that it significantly impacts each team's value. Tsai is by far the most exposed. However, many NBA owners also have financial interests in China via their other businesses.
Strategy Risks used a proprietary model to assess the owners' exposure beyond that of the NBA. It included a range data and risk factors such as the size of China operations, projected revenue, valuation and dependence on China supply chains.
ESPN took a conservative approach to evaluate China owners' exposure through their teams. NBA China is valued at $5 billion. The NBA holds 90%, while ESPN has a 5% stake. Several state-controlled banks jointly own the remaining 10%. The combined value of all 30 league teams in China would be approximately $150 million.
The market values for February are used to calculate the exposure numbers. These estimates are only estimates. The financial information was largely derived from public documents and government filings because the companies and teams are private entities.
Strategy Risks reports that NBA owners can face both financial risk and political risk when doing business with China. Micky Arison is the Heat owner. He has more than $375million tied up in China through the team and Carnival Corp. (the world's largest cruise company). Before the pandemic the number of Chinese passengers in the cruise industry was 8%.
Carnival established a joint venture with China State Shipbuilding Corp. in 2018, to launch a China-based line of cruise ships. Arnold Donald, Carnival CEO, stated that the official launch of the China State Shipbuilding Corp. cruise joint venture was a major milestone in China's strategic development of a sustainable and strong cruise industry.
Carnival stated in a recent filing that the partnership is continuing and was “designed to service the Chinese market.”
CSSC, a state-owned conglomerate, has close ties to China's military. According to South China Morning Post it is responsible for building aircraft carriers for the People's Liberation Army as well as developing the country's first-ever nuclear-powered carrier.
The U.S. government listed the shipbuilder among the foreign companies “acting against the national security or foreign policies interests of the United States.”
Matt Schrader is a China analyst with the International Republican Institute. This conservative think tank promotes democracy all over the globe said, “That's quite a significant collaboration.” It gives Mr. Arison significant incentives not to cross-reference with China or support any positions that may be considered 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 pivotal in Beijing's militari-civil Fusion Strategy.” It aims to improve the People's Liberation Army, raise China's military science & technology industries and strengthen national power. The report noted Carnival's links to CSSC. It stated, “While it may seem innocent, sharing capital or technology with CSSC subsidiary companies should raise alarm bells for countries concerned about China’s growing military power.”
Schrader, China analyst, stated that “If China invades Taiwan,” a lot the ships involved will be built in the CSSC. If we see Ukraine 2.0, then the CSSC will have played a significant role in that.
Arison has been an advocate for human rights in the United States. Arison described the Heat’s commitment to social justice in 2020 as “never-ending,” as part of a campaign that saw the team release a two-minute video featuring Heat employees Pat Riley and Erik Spoelstra pledging to combat systemic racism.
Arison declined to comment on this story. Carnival stated that its joint venture and its JV partner were not subject to any US trade-related sanctions. Carnival Corporation took steps to ensure compliance with all relevant US sanctions.
China exposure is not something that the NBA and its owners are unique in. Many businesses have attempted to profit from the huge Chinese market only to be accused for selling out American values. This includes Disney, ESPN’s parent company. It has a Shanghai-based theme park and does extensive business in China. When Disney launched its streaming service to Hong Kong last year, it did not include any episode of “The Simpsons,” which was critical of the Chinese government.
Strategy Risks claims that Tsai, Nets' owner, has 53.5% of the net worth he owns tied to China through his role as Alibaba's founder. Strategy Risks has Paul Jacobs as Kings co-owner. Strategy Risks believes that more than 30% is linked to his business in China.
Strategy Risks says Jacobs is heavily invested at Qualcomm, the wireless technology company. Qualcomm had two-thirds (or three quarters) of its annual revenues from China and Hong Kong last financial year. Jacobs, who was the Qualcomm CEO, holds shares worth more than $200m. Although it is not clear how large Jacobs' stake is in the Kings, Strategy Risks estimates that his total China exposure is around $140 million.
Jacobs declined comment
Robert Pera of the is another owner.Ubiquiti, a manufacturer and distributor of wireless equipment, was founded by. Ubiquiti receives almost 10% of its revenues from Asia. Ubiquiti’s manufacturing and logistics operations, as well as its headquarters are located mainly in southern China.
Ubiquiti stated in SEC filings that the company is at risk of “exposure to increased operational and economic uncertainties… due to foreign policy and geopolitical development… involving China.”
Strategy Risks estimated Pera's total exposure to be $369 million.
Multiple requests for comment were not answered by Pera.
Rockets owner Tilman Fentitta is the president and CEO at Landry's. The company operates 10 restaurants in China, which generates an estimated $57 Million in annual sales. Strategy Risks places Fertitta’s total risk at $160.3million.
Fertitta declined comment.
Michael Jordan's brand is so popular in China that he filed an unsuccessful lawsuit against a Chinese sportswear manufacturer using his transliterated Chinese name, Qiao Dan. The suit included a facsimile logo of Air Jordan and his transliterated Chinese name. Nike faced first criticism last year over claims it used cotton grown in Xinjiang in forced labor conditions. After expressing concerns and insisting that the products were not sourced from Xinjiang it was subject to a boycott by Chinese consumers.
Jordan and his brand donated $100 million to the United States' social justice movement in 2020. Tsai and other NBA players contributed $300 million. The estimated China exposure of Jordan is $85 million.
Jordan declined comment.
Strategy Risks discovered that many NBA owners are exposed to China through their ownership in venture capital or private equity firms.
Strategy Risks reported that the Chinese financial sector is becoming more open to foreign investment. This means that these companies are becoming more vulnerable to China through acquiring indirect or direct ownership stakes in Chinese companies.
Joshua Harris is the principal owner and co-founder of Apollo Global Management. Harris has 20% ownership of the private equity company that manages assets valued at $481 billion. Strategy Risks reports that Harris also owns 20%. AGM has three Hong Kong subsidiaries and one in Shanghai.
AGM stated in an annual report that the Asia real estate equity funds it manages had a primary focus investing in China, India, and Southeast Asia .
Strategy Risks has estimated Harris' China exposure through AGM to be $12.4 million. Harris is also tied up in China through other means, in addition to the $76.5 million exposure through 76ers. 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' exposure to China is approximately $96 million.
Harris declined to comment.
“Nobody wants their name to be associated with China. But what can they do? Dan Harris, an attorney whose firm Harris Bricken represents companies doing business in China, said that he is happy to help. They are somewhere between. It's death for China if they say what the Americans want. It's death in America if they say what China wants.
ESPN's John Mastroberardino contributed this report.