Li Ning "high price" sponsors CBA focus on "return to sports" sector

The China Men's Basketball Professional League (CBA) has become one of the top sporting events in China. In recent seasons, the ratings and attendance rates have greatly increased and the market has great potential.

After experiencing a series of market failures, Li Ning also stopped oscillating between professional sports and sports fashion, refocusing on "return to sports." This time, Li Ning successfully won the CBA (China Men's Basketball Professional League) sponsorship of the opportunity, hope to sponsor the CBA to restore Li Ning's current decline, refocusing the sports market.

Li Ning’s report on business operations and financial status issued by the Hong Kong Stock Exchange was informed that Li Ning has signed up as a CBA equipment sponsor. The agreement covered five seasons from "2012-2013" to "2016-2017" but did not disclose the specific amount of this sponsorship. There are two versions of rumors in the industry for the amount of this sponsorship contract: “50 million yuan in equipment and 250 million yuan in cash each year” and 2 billion in 5 years. Regardless of the version, the amount of equipment sponsorship of the CBA has increased by more than ten or even tens of times over the previous three years of RMB 60 million.

With the east wind of the 2008 Beijing Olympics, Li Ning reached a peak. In 2009, Li Ning’s operating income in China surpassed Adidas for the first time, becoming the second brand behind Nike in the Chinese sportswear market. But in the following years, Li Ning’s attempt to replace the logo and enter the international market failed to achieve the desired results.

“Astronomical” sponsored the CBA, meeting the requirements for returning to sports proposed by Chairman Li Ning, which is also an opportunity for Li Ning’s self-salvation in the performance decline. However, success or failure still requires time and market testing.

"Astronomical" sponsorship value is not worth?

Although the sponsorship amount is not negligible, but Li Ning Company acknowledged in the announcement that due to the influence of the sponsorship amount and deadline of the CBA contract, brand marketing and promotion expenses will increase significantly in the next five years. The 2011 annual results report released by Li Ning in March 2012 showed that Li Ning’s 2011 gross profit was 4.114 billion yuan, while net profit was only 386 million yuan.

Obviously, Li Ning is not "not bad money." According to a related analysis provided by the Bank of America Merrill Lynch Group and the JP Morgan Chase Group to China News Weekly, two-thirds of Li Ning’s sponsorship expenses to be invested in the CBA will be through the termination of other sponsorship projects and reduction of marketing activities. The realization of the other one-third is achieved through the compression of labor and store rental costs. It is quite a "concentrated effort to do big things."

What are the reasons for Li Ning's willingness to set such a high price for CBA?

In explaining the reasons for making the decision to sponsor the CBA, Li Ning believes that basketball is one of the mainstream sporting events in the country, and it is particularly attractive to young consumers. The basketball market has huge capacity and rapid growth, and the basketball sports category has always been one of Li Ning's most important business contributions.

Basketball shoes have always been Li Ning's best selling products. Li Ning has also been looking for opportunities in the domestic market. Li Ning has been the equipment sponsor of the NBL (National Men's Basketball League, CBA's secondary league), and has several signed players in Li Ning in China. In 2011, when the contract between CBA and Anta was not yet over, Li Ning signed a sponsorship contract with the CBA's Shanghai Oriental Sharks. The boss of this team is another legendary figure of China Sports – Yao Ming.

As a competitor, through its seven years of cooperation with CBA, Anta has achieved great success in both brand and performance. In 2011, Anta's operating income reached 8.905 billion yuan, while Li Ning had a performance decline in 2011, annual revenue of 8.929 billion yuan, the two companies are almost comparable. In terms of brand influence, Anta has also been greatly improved. Li Ning's "China's first sports brand" may even seem to be challenged.

Competitors' achievements in the basketball market made Li Ning see the opportunity that the sponsorship of CBA can bring to the company. Li Ning chose to align with CBA in order to consolidate its brand position and market share in China's basketball industry. The CBA's driving effect on brand and performance is so obvious. It is not surprising that its sponsorship contract has skyrocketed.

According to Bao Mingxiao, director of the Sports Social Sciences Research Center of the Sports Institute of the State Sport General Administration, Li Ning’s “high market entry” is not wise.

"CBA and China's sports industry are in a different cycle from 2004." Bao Mingxiao told China News Weekly that the sporting goods industry has experienced rapid growth over the past ten years and has entered an adjustment period. The Chinese economy has declined. The trend is also obvious. These two cycles are stacked together. Li Ning's involvement in CBA at this point in time is very risky.

Li Hongliang, former manager of Li Ning Sports Marketing Department and director of Eastern District Retail Market, doubts the authenticity of the sky-high price figures. He believes that with the current revenue scale of Li Ning 8 billion, the total market investment is expected to be around 8%, that is 650 million yuan, 400 million signed the CBA, the other will not have to do it.

Li Ning's measures also failed to win the approval of investment banks and institutions. On June 13, Bank of America Merrill Lynch stated that Li Ning’s earnings forecasts for 2012 and 2013 were revised downwards by 37% and 36%, respectively. According to the forecasted price-earnings ratio of 11.5 times in 2012 and 2013, the target price will be reduced from HK$8.8 to HK$4.7. The rating dropped from "neutral" to "underperformed the market." JPMorgan lowered Li Ning’s recurring earnings in 2012 by 10%, maintained a “Reduce” rating, and lowered its target price from 7 yuan to 4.5 yuan.

Li Ning wants to "return to sports"

"Astronomical" sponsored the CBA. Li Ning seems to have redefined its strategic focus. Prior to this, China's largest sporting goods company has suffered from unclear positioning and tactical confusion.

Benefiting from the marketing and offensive of the 2008 Beijing Olympics, Li Ning Company showed a good upward trend. Sales in China exceeded Adidas for the first time. But since then, Li Ning has begun a huge strategic transformation. These transformations included the deployment of multiple brands and the expansion of outdoor, table tennis, badminton and sports fashion. Badminton was also identified as the core category of Li Ning.

The overly decentralized front did not bring good income, but increased operating costs. In the three years, among the brands that Li Ning laid out, only the outdoor brand Aigle benefited from the growth of the industry and showed signs of profit growth.

In 2010, Li Ning released a new logo and slogan (make the change "Make The Change") and redirected target consumers to "post-90s." According to a previous survey, 50% of consumers in Li Ning are aged 35 to 40. .

However, this brand remodeling has not been successful so far.

"There is no difference between the '90s Li Ning' slogan and '90's Wang Er'. After 1990, who is Li Ning? Li Ning was able to continue Li Ning's influence in the crowd after 60 and 70. The sub-brand, even if it is called 'Wang II' can also be, but to separate and Li Ning. If so, it may not be caught in today's situation." Financial commentator Liu Ge told the "China News Weekly" said.

Li Ning also hopes to establish itself as a direct competitor to global brands such as Nike and Adidas, and to increase product prices accordingly. Prior to this, Li Ning’s market positioning has always been a “no man's land” between the low end and the high end. The lower end has ANTA, Peak and other lower competitors, while the high end has Nike, Adidas and so on.

For Li Ning build high-end local sports brand, consumers do not buy it. Zhang Zhiyong, CEO of Li Ning, also admitted that Li Ning had lost some loyal customers. Li Ning had no choice but to return to the cheap old road.

Li Ning has also shown little improvement in overseas markets where he has invested a lot of money. In 2008, Li Ning set up an R&D center in Portland, Oregon, USA, which is also home to Nike's Nike R&D base, and not far from Nike's Nike headquarters. Li Ning opened its first store in the R&D Center building in Portland City in 2010. A few months later, Li Ning teamed up with FootLocker, the largest sports brand distributor in the United States, to sell Li Ning sports shoes at its subsidiary's Champs store.

The two basketball shoes launched by Li Ning in the United States have encountered slow sales, and they must not sell the original price from US$ 99.99 to US$ 9.99. The Li Ning shoes that were sold at the end of the price and were made for the US market by the “US orders” Most of them were bought by Chinese buyers and they returned to China's private sports footwear market.

A series of failed strategies have created opportunities for Li Ning’s opponents. Li Ning's "imaginary enemies," Nike Nike and adidas adidas, are accelerating the pace of expansion in the second and third tier cities, and this is Li Ning's dominant market. The opponents from the domestic brands Anta, Peak, etc., grew rapidly with their sponsorship of the CBA and in-depth cooperation with the NBA.

“Li Ning did not maintain the continuity of its own brand image.” Lei Xiaoshan, general manager of China Market Research Group, told the reporter that “When Li Ning was growing rapidly three years ago, its brand positioning lacked strategic vision. It first proposed to be the country’s most A good brand then said that it wants to challenge Nike globally, and finally went back to the cheap route, and all this happened in three years.In seven years, the main project from basketball to running to badminton, the chief operating officer After four terms, the market has left a quarter of the staff. Now it's time to return, hoping everything will be available."

In this regard, Mr. Li Ning, the chairman of the board, also expressed his concern about these issues. At the company's annual meeting in 2011, he pointed out the company's problems: It must stop swinging between professional sports and sports fashion, and focus on sports. He also proposed to withdraw resources from various sub-brands and focus on the core brand Li Ning. Sponsoring the CBA is being seen as an important measure for this "return."