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Author: Zhao Xiaoxiao

Edited by Guan Ju

Image source: Nets, PAC-12 official Weibo

Tsai Chongxin started combining his love of sports and investing in 2015.

That year, Jack Ma and Joseph Tsai jointly established the family office Blue Pool Capital to manage the huge wealth brought by Alibaba's IPO. A set of data in 2020 shows that Blue Pool Capital manages part of Jack Ma's family's assets of about US$40 billion and Joseph Tsai's assets of about US$10 billion.

Blue Pool Capital invests in diversified asset classes, mainly listed companies, private equity, hedge funds, etc., and invests in multiple fields such as healthcare, finance, and sports.

Tsai Chongxin is very low-key and rarely appears in public for a project. He took the initiative to participate in a project and actively spoke out in 2015, when he facilitated the cooperation between Alibaba and the PAC-12 Alliance (Pacific 12 Alliance) under the National Collegiate Athletic Association. Before that, Alibaba Sports Group had just been established.

In 2017, Tsai bought his first team, the San Diego Seals of the National Lacrosse League (NLL). In 2019, he bought the New York Liberty of the Women's National Basketball Association (WNBA). His biggest sports acquisition was the purchase of the NBA Nets for a total of $2.35 billion in 2018 and 2019, and the purchase of the operating rights of the Barclays Center, a large sports stadium in Brooklyn, for $900 million, making Tsai the first Chinese owner of an NBA team.

This month, two things that Cai Chongxin likes have changed dramatically: the Koch family acquired a 15% stake in BSE Global, the parent company of the Nets, at a valuation of US$5.8 billion, and wrote a check of US$688 million (about RMB 5 billion) to Cai Chongxin and his family. Another thing is that Blue Pool Capital has just raised US$500 million to establish a new fund.

The former hit the hottest moment in the NBA and made Tsai Chongxin a fortune; the latter was a strategic adjustment, with Blue Pool Capital opening its asset management services to external clients for the first time.

Bought an asset whose valuation keeps rising

The Nets have a history of more than 50 years. They were founded in 1967 and were originally known as the New Jersey Nets. They were a member of the American Basketball Association (ABA) and joined the NBA when the ABA and NBA merged in 1976.

The first major change of ownership of the Nets was in 2010, when Russian businessman Mikhail Prokhorov bought the Nets for $223 million, becoming the first owner of an NBA team from outside North America. In 2012, the team moved to Brooklyn, New York, and was renamed the Brooklyn Nets.

In 2018, Tsai Chongxin first acquired 49% of the Nets' shares for $1 billion. In 2019, he acquired the remaining 51% of the shares for $1.35 billion, becoming the team's sole controlling shareholder and the first Chinese owner of the NBA.

Tsai Chongxin said that he bought the team out of his own interest. He loves sports and participated in highly competitive sports when he was in high school and college in the United States. After becoming an Alibaba partner, he accumulated assets and had more time, and Tsai Chongxin's high enthusiasm for sports investment was revealed.

By acquiring the Nets, Tsai Chongxin seized a good investment opportunity.

At the time of the acquisition, the NBA's nine-year, $24 billion broadcasting contract had just come into effect, and the team's revenue soared.

Chen Diandian, founder of Krypton Media, said that NBA teams’ revenue mainly comes from three aspects: broadcast rights sharing, commercial development, and game day/derivatives revenue. “The biggest variable affecting the NBA market and revenue is the broadcast rights sharing.”

Sky-high broadcasting contracts mean that every team has a considerable share of revenue. The biggest investment value of the NBA lies in its stable revenue, and there are very few loss-making teams. A set of data in 2019 shows that 29 out of 30 NBA teams are profitable.

The NBA league's mechanism design ensures that there are no poor teams in the NBA. "The NBA league does not have a promotion and relegation system. The league will balance the team's income based on the team's performance and income through systems such as salary caps and luxury taxes, and try to avoid financial crises caused by excessive investment." Chen Diandian said, "It encourages every team investor to invest rationally, so that the team has both competitive strength and the ability to attract money."

Good operating conditions have become the basis for the continuous increase in the valuation of NBA teams over the years. According to Forbes data, from 2011 to 2023, the average valuation of NBA teams increased from US$356 million to US$3.85 billion, an increase of more than ten times.

The Nets also have their own competitive strength: they entered the NBA Finals for two consecutive years (2002 and 2003) and entered the playoffs several times in the mid-2010s. Historical basketball superstars include Julius Irving, Jason Kidd, Deron Williams, Joe Johnson and Brook Lopez.

After being acquired by Tsai Chongxin, the Nets became one of the most watched teams, not only because of Ali's background, but also because of the joining of well-known basketball stars such as Kevin Durant, Kyrie Irving and James Harden.

The Nets' debt ratio (the proportion of loans in the team's assets) is 11%, ranking in the upper middle among the 30 teams, and the asset structure is good. In terms of price, taking Prokhorov's purchase price of US$220 million as an example, Tsai Chongxin's purchase price is US$2.35 billion, an increase of nearly 10 times.

In addition, Brooklyn, where the Nets are located, is adjacent to New York. "The added bonus of a big city gives the Nets the ability to increase their value," said Chen Diandian.

Sell ​​at high valuations

After Tsai Chongxin acquired the Nets, the team went through two stages: reconstruction and competition. He spent a lot of money to bring in Durant, Irving, and Harden, and worked hard to maintain the team's competitiveness.

In the past three seasons, the Nets' winning percentage, league ranking and valuation have been steadily rising, but in the last season (2022-2023), the overall performance declined a lot. In the just-concluded 2023-2024 season, the Nets did not even make the playoffs.

Some industry insiders commented that the Nets’ performance has not improved significantly enough since Tsai Chongxin’s acquisition.

The winning or losing of a game is originally a matter of luck, but the main reason behind it is the chaotic internal management and the conflict between the core players and Tsai Chongxin over the contract renewal, which led to the departure of three core players. The rebuilt team is full of potential players, not real players. "Let these players play, and the result is predictable." The above-mentioned industry insider said that from last season to the season that just ended, the Nets' performance ranked in the middle and lower reaches.

"NBA history has proven that putting several stars together may not be useful. The key is to establish the value of long-term cooperation with them, rather than putting together a team temporarily and giving it a try," said Chen Diandian.

But in terms of valuation, the Nets have not declined, rising from US$2.35 billion at the time of acquisition to US$4 billion today.

One reason is that the NBA just finalized an 11-year broadcasting rights agreement worth more than US$76 billion in July this year. The major sponsors are Disney (ESPN), NBC (National Broadcasting Corporation) and Amazon. The broadcasting structure will start in the 2025-2026 season.

According to the latest broadcasting rights cooperation agreement, the total broadcasting amount of US$76 billion is equivalent to US$6.9 billion in broadcasting fees per season, which averages out to US$230 million in revenue per team per season.

Similar to the timing of Prokhorov's sale of the Nets, valuations are at their current highs.

In this transaction, the Koch family valued the Nets' parent company BSE Global at US$5.8 billion. In addition to the Nets and New York Liberty teams, BSE Global also owns assets such as the operating rights of the Barclays Center.

Tsai Chongxin originally paid a total of US$3.25 billion for the Nets and Barclays Center, so it seems that the valuation of the entire asset has increased significantly.

According to public information, the Koch family was founded in 1927 and is one of the most famous business and political families in the United States. Koch Industries under the family is one of the largest private companies in the United States. The main heirs are Charles Koch and David Koch. The latter died in 2019 and his widow Julia Koch inherited 42% of the shares.

According to Forbes' real-time ranking of the world's billionaires, Julia Koch and her family have a net worth of approximately US$65.4 billion, ranking 24th on the real-time ranking, and Charles Koch has a net worth of US$59.5 billion, ranking 26th.

But it is difficult to judge the value that Tsai Chongxin has brought to the team in the past five years. "The actual results of acquiring a team are evaluated over a period of 5 to 8 years, so it is difficult to judge in a short period of time," said Chen Diandian.

At least it brought a lot of benefits to Ali Sports. After Tsai Chongxin completed the acquisition, Ali became the Chinese company with the closest connection to the NBA. In addition to obtaining the NBA's broadcasting rights, the two also cooperated in NBA video content, e-commerce, big data, etc. The Nets also participated in the NBA's China Games three times.

It is also possible that Tsai Chongxin has completed his mission in the Nets, and the remaining 85% of the shares may be sold in batches, just like when he acquired the Nets.

New investment strategy under a new identity

The 60-year-old Joseph Tsai has four identities: founding partner of Alibaba, current chairman of Alibaba, partner of Blue Pool Capital, and owner of the Brooklyn Nets.

He joined Alibaba when it had nothing, helped Alibaba solve financing problems, and determined the equity incentive model for the founding team. He is the only permanent partner of Alibaba other than Jack Ma. Within Alibaba, Cai Chongxin is nicknamed "God of Wealth". He retired behind the scenes in 2019 and succeeded Zhang Yong as chairman of the Alibaba board last year.

Shifting his career focus back to Alibaba may be an important motivation for Tsai Chongxin to sell his team’s shares and become more proactive in financial operations.

According to the disclosed data, nearly half of Blue Pool Capital's investment projects in the past nine years have been in the pharmaceutical field. The newly established fund is called Harborside, which focuses on investing in hedge funds and private credit funds.

For family offices around the world, increasing investment in hedge funds has become a common choice. According to the "2024 Global Family Office Report" just released by UBS, one-third (33%) of family offices use hedge funds to diversify their investments.

In the past two years, many investment institutions have also increased their investment in private credit business, such as Oak Capital, BlackRock, Blackstone, Hillhouse Capital, etc. From 2020 to 2022, the annual growth rate of the private credit market increased from 12% to 23%. Marc Rowan of Apollo Global Management said, "This is a good time to raise private credit products."

At the end of March this year, Oliver Weisberg, CEO of Blue Pool Capital, said at the Global Investment Summit that the sports sector will be Blue Pool Capital's future investment focus, "it has become an asset class."

Tsai Chongxin has a deep obsession with sports. He initially participated in sports in order to integrate into American society. Later, his in-depth interpretation of sports rose to the philosophical level. He believes that the rules learned in sports will affect a person's growth in all aspects.

In 2015, when Ali Sports was first established, the Ali team in the United States received a cooperation invitation from the American college sports league PAC-12. Tsai Chongxin immediately jumped in and said, "I want to personally participate in this matter."

PAC-12 is a college sports league mainly composed of 12 universities in the western United States. Through that cooperation, Ali Sports introduced its most influential football and basketball games to China, which also opened the door for Ali Sports to go global.

After buying the San Diego Seals of the National Lacrosse League in 2017, Tsai Chongxin opened up his sports investment map.

In the past two years, the way of asset operation in the sports industry is becoming more diversified.

A typical example is the SoFi Stadium in Los Angeles, which is the home of the Los Angeles Rams and Chargers of the National Football League. It adopts the model of Stadium Seat License (SSL) to collect a one-time deposit from fans, ranging from $10,000 to $50,000. Fans who pay the deposit are eligible to purchase two team season tickets and playoff tickets. The deposit is valid until 2068, and the deposit will be refunded after the expiration.

An industry insider close to FC Barcelona revealed that Barcelona is renovating a sports stadium, and Goldman Sachs is the loan supervisor, using a similar approach to operate. "Europe and the United States have reached another level in the operation model of sports assets," the industry insider said, "Sports is a financial product that can be deeply mined."

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