Trump’s order banning WeChat business could affect NBA China deal with Tencent

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A Chinese flag is placed on merchandise at the NBA flagship retail store on October 9, 2019 in Beijing, China.Kevin Frayer | Getty Images

Although the National Basketball Association finds itself in the middle geopolitics, there are no plans to abandon its partnerships in China as tensions with the United States continue to escalate over national security concerns.The latest threat to NBA business operations in China follows concerns that its streaming partner Tencent could face business disruptions following an executive order from President Donald Trump last week. The executive order claims that Tencent’s WeChat app poses a threat to the “national security, foreign policy, and economy of the United States” of the United States and prohibits American companies from doing business with it.

It’s still unclear whether or not Trump’s executive order is tightly suited to WeChat or the whole of Tencent, which has multiple investments in U.S. video game, sports and media companies. In the case of the NBA, Tencent struck a five-year, $ 1.5 billion deal to broadcast NBA games in China, one of the league’s most lucrative markets outside of the United States. The agreement was signed last July. The NBA has not made a statement on the potential effects of Trump’s executive order.

Meanwhile, the order follows a report from the NBA’s national media partner ESPN, which on July 29 published an article detailing the league’s affairs with a basketball academy in Xinjiang.

The article claims the NBA has not acted on complaints detailing the mistreatment of young people at the academy. After exchanging letters with government officials, NBA affairs in China have again caught the attention of American politicians, including Senator Marsha Blackburn. The Tennessee senator accused the NBA of deceiving officials about its relations in Xinjiang.

Mark Tatum, the NBA deputy commissioner who helps oversee the league’s international affairs, called the article’s allegations “disturbing.”

Tatum, who also serves as the NBA’s chief operating officer, added that the league ended its partnership with the Xinjiang Academy in June 2019 after his last event. Tatum said the league had only provided three coaches to participate in the Xinjiang academy, “none of whom have been charged with any wrongdoing. ”

Still, the credibility of the NBA was called into question in the ESPN article, as it is also said that the league has asked individuals not to speak to the network regarding the report.

Men walk past a poster at an NBA exhibition in Beijing, China, October 8, 2019.

Jason Lee | Reuters

The Tencent concern of the NBA

But even as the NBA tries to put out the fire created by alleged problems at the Xinjiang basketball academy, a more pressing concern comes from Trump’s decree last week, which jeopardizes his streaming deal with Tencent in China. .

Tencent, which is expected to release quarterly results on Wednesday, has seen its shares fall nearly 10% since Aug. 7, the day after Trump announced his executive order.

The NBA says it has 1.4 million subscribers on Tencent’s WeChat, which although this is nothing compared to its 44 million subscribers on its Weibo, a Chinese social network similar to Twitter. With the renewal of Tencent’s streaming rights agreement last year, NBA China valuation is estimated to have exceeded $ 5 billion.

Houston Rockets general manager Daryl Morey damaged that assessment when he sent his support for protesters in Hong Kong last October via Twitter. This initially put the NBA in the middle of a geopolitical storm with China and resulted in the suspension of partnerships and the suspension of the broadcasting of its games by the government-run CCTV.

Tencent also discontinued streaming games at the time, but returned to show some games that did not include the Rockets. During NBA All-Star Weekend in Chicago, league commissioner Adam Silver said the dispute could cost the NBA up to $ 400 million.

Still, the NBA has no plans to abandon its activities in China and Silver has reiterated this message in recent months. But if the NBA were to be forced to choose between home business and China, it could hurt its revenue in the world’s fastest growing market.

Tatum told Forbes in 2018 that the league’s operations in China, which are owned by the owners of the NBA team, were then valued at around $ 4.3 billion. More than 500 million people watched NBA programming in China for the 2018-2019 league season, enabling team owners to earn income on NBA China league content distribution, sales of merchandise and even the NBA Playzone, an interactive space for young people.

Suppose tensions between the United States and China continue after the American presidential election. In this case, the activities of the NBA in China could continue to suffer, further damaging its salary cap, which is already expected to take a severe blow due to Covid-19.

The NBA has gained ground in other global markets, including India, which Tatum said “will lead 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 these markets currently have the infrastructure established or paying customers that match the Chinese market.

Silver suggested in February that NBA affairs in China are not permanently damaged, and added that 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. Regular season games will end this week and the NBA will advance to its playoffs, which are slated to end in October, ahead of the U.S. presidential election on November 3.

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