The burgeoning relationship between the NBA and China appears to be at a breaking point as a result of differing opinions regarding recent protests in Hong Kong, presenting what could be a lose-lose situation in the region for brands related to the association—namely, Nike and Under Armour but burgeoning Chinese athletic brands as well.
According to multiple reports, the saga began when Houston Rockets general manager (GM) Daryl Morey expressed his support toward Hong Kong protesters for their efforts to demonstrate in opposition to the Chinese government.
Morey urged his followers to “Fight for freedom, stand with Hong Kong,” a message that was almost immediately deleted and replaced with an apology from both Morey and the team’s official account.
Nevertheless, Morey’s support for Hong Kong protesters was a polarizing moment for those sympathetic to Chinese interests, especially considering the league’s close ties with basketball fans in China, which presents huge growth opportunities for the sport and related companies. In 2002, the Rockets drafted Yao Ming, arguably the greatest NBA talent to come out of China. Throughout his nine-year career with the team, and even in retirement, Ming has been an important ambassador for basketball and the NBA in China.
Today, Ming serves as the chairman of the Chinese Basketball Association (CBA) and faces the hard choice of aligning his loyalties to his home country or the team that helped propel him to international stardom. Despite the Hall-of-Fame athlete’s personal attachment to the Texas team, the CBA said on Sunday that it has plans to cancel its cooperation agreement with the Rockets.
Although the NBA issued a brief apology expressing its opposition to Houston GM’s inflammatory comments—earning the association yet another round of backlash stateside—Chinese companies have already taken swift and decisive action against the Rockets. Currently, searches for “Houston Rockets” return no results on JD.com or Tmall, which collectively drive huge amounts of traffic, and the digital rights holder for the team’s games in China, Tencent, has said it will no longer air Houston’s games or report on the team’s progress.
The backlash from Chinese sponsors didn’t stop with the Rockets, however, and seems to have spread like a virus league-wide. According to a Reuters report, Chinese athletic brand ANTA Sports Product—which makes athletic apparel, footwear and accessories— officially announced it would halt contract negotiations with the NBA on Tuesday, although it did not reveal details of the scuttled deal.
ANTA has an $80-million endorsement with Golden State Warriors sharpshooter Klay Thompson—a deal that sparked his infamous “China Klay” nickname on Twitter—as well as multi-year contracts with teammate Kevon Looney, the Lakers’ Rajon Rondo, and Gordon Hayward of the Boston Celtics, HoopsHype.com reported.
On Thursday, a preseason game went ahead in Beijing between the Lebron James-led Los Angeles Lakers and the Brooklyn Nets after reportedly being canceled by Chinese officials a day before.
In total, 11 of the 13 local business partners listed by the NBA China website have distanced themselves from the NBA following the controversy, according to CNBC. Unnamed league officials told Yahoo Sports that the loss of Chinese business could end up slashing the association’s profits by 10 percent to 15 percent, possibly affecting players’ salary cap as a result.
Li-Ning, one of the 13 businesses cutting ties with the NBA, boasts the Portland Trailblazer’s CJ McCollum, Atlanta Hawks’ Evan Turner, and Orlando Magic’s Michael Carter-Williams (formerly of the Houston Rockets) as high-profile endorsers, HoopsHype.com also reported.
Basketball remains exceptionally popular in China, where basketball shoe sales are “robust” compared to sales for the same products in the United States, according to The NPD Group’s retail sales tracker. While athlete endorsements are said to have comparatively little value stateside, NPD’s vice president and senior industry advisor for sports Matt Powell argued that athletes still offer remarkable value in driving sales in China.
“From what I’m seeing, endorsed NBA players still drive sales in China while they do not here in the U.S. If Chinese kids stop buying Western basketball shoes, I see the investments in athlete endorsements being worth even less,” Powell explained in an email sent to Sourcing Journal. “The same goes for NBA licensed products; if Chinese kids stop wearing NBA jerseys, the sales and investments in the licenses will, in my opinion, likely be in jeopardy.”
Nike currently holds exclusive rights to provide on-court NBA apparel after signing an 8-year deal in 2015 when Adidas’ tenure as the league’s apparel partner concluded. According to ESPN writer Darren Rovell, financial details of the deal were not made public but speculation at the time put the value of the contract at around $1 billion.
In 2015, NBA commissioner Adam Silver described the Nike deal as “instrumental” in growing the association’s presence globally—especially in China, where the NBA’s popularity continues to expand and where Nike recorded 22 percent revenue growth as of its most recent financial report, totaling $1.68 billion in sales during the first quarter of fiscal 2020.
On Thursday, Reuters reported that several Nike stores in large Chinese cities, including Beijing, Shanghai and Chengdu, have since removed Houston Rockets merchandise from their shelves—perhaps in an effort to isolate the impact to a single team, considering NBA-related sales have an obvious importance to local businesses.
“Other stuff, there hasn’t been any impact, and no one has said we need to withdraw it,” the store manager of a specialist NBA shop in Shanghai told Reuters. “If they say that all NBA stuff has to be withdrawn then our store will go bankrupt.”
Under Armour, which is licensed to produce NBA gear related to the Combine (the league-sanctioned workout held prior to the draft), has experienced similar growth in the region. In July, Under Armour revealed faltering sales in North America and modest gains in the EMEA region. However, sales were up by 23 percent in the brand’s Asia-Pacific region, which encompasses both China and Hong Kong.
The continued growth of Under Amour’s international business, which now represents 28 percent of its total revenue at $339 million in sales, could be in jeopardy if Chinese consumers decide to turn their backs on American brands.
As the situation plays out for these league-friendly organizations, it has become apparent that there will be financial consequences for the statement made by Morey. As a result, Silver felt it was necessary to clarify the association’s position on Tuesday.
“It is inevitable that people around the world—including from America and China—will have different viewpoints over different issues. It is not the role of the NBA to adjudicate those differences. However, the NBA will not put itself in a position of regulating what players, employees and team owners say or will not say on these issues. We simply could not operate that way,” Silver said in a statement released by the NBA.
“Basketball runs deep in the hearts and minds of our two peoples,” Silver added. “At a time when divides between nations grow deeper and wider, we believe sports can be a unifying force that focuses on what we have in common as human beings rather than our differences.”