From today's WSJ on Yao

Chinese Basketball Star
Is Big Business for NBA

NBA and Nike Are Banking Yao Ming
Will Open a Huge Chinese Market
By STEFAN FATSIS, PETER WONACOTT and MAUREEN TKACIK
Staff Reporters of THE WALL STREET JOURNAL


In the fall of 1996, Nike Inc. threw a party at a gym in Shanghai. The occasion: to welcome the local team, the Sharks, to China's year-old pro basketball league, which the sneaker company was sponsoring. As the players strolled in, none looked impressive -- except for a skinny kid named Yao Ming who towered over the rest.

"It was plain for all to see that he was huge," recalls Terry Rhoads, who was heading Nike's nascent sponsorship business in China. The teenager was 7-foot-3. There was only one problem: He was wearing Adidas sneakers. Mr. Rhoads quickly called Nike headquarters. Within days, Mr. Yao was sporting surplus size-18s, with Nike's familiar swoosh, built for National Basketball Association star Alonzo Mourning.

That encounter six years ago now may usher in a new era of internationalism in sports and reap rich rewards for Nike, the NBA and China. After years of maneuvering among Chinese basketball officials and American agents, marketers and scouts, Mr. Yao this week begins an NBA career unimaginable in China less than a generation ago. Now 22 years old, 7-foot-5 and joining the Houston Rockets as the league's No. 1 draft pick, the towering center with a flattop haircut has the potential, NBA executives believe, to do for basketball in the world's biggest untapped market what Magic Johnson, Larry Bird and Michael Jordan did at home in the 1980s and '90s.

Mr. Yao arrived in Houston on Sunday and joined his first practice with the Rockets Monday. But he already has had an impact as big as his high-tops. The NBA is expected to announce contracts soon with at least six provincial television networks across China to show games and other NBA programs. Combined with existing national and regional broadcasts, more than 150 NBA games -- at least 30 of them involving Mr. Yao's Rockets -- will be seen in China this year. Estimated TV audience in China for his NBA debut: 500 million people.


The NBA is readying a Mandarin-language version of its Web site. It is opening an office in Beijing, the first for a U.S. league in China outside Hong Kong. Exhibition games in Beijing and Shanghai are planned for 2003 or 2004, and NBA stores and restaurants are on the drawing board, too. Coca-Cola Co.'s Sprite brand, Anheuser-Busch Cos. and Adidas-Salomon AG are running NBA-themed promotions in China, while the U.S. importer of a Chinese beer, Yanjing, has signed a $1 million-a-year sponsorship deal with the Rockets.

'Be Like Yao'

Mr. Yao's long journey to the NBA is the product of a calculated bet more than a decade ago that sports would provide a commercial opening into China. The league first aired a game on Chinese TV in 1987. Nike outfitted China's track-and-field team at the 1984 Olympics. Then they got lucky: In Mr. Yao, Nike and the NBA landed a superbly skilled and personable athlete who already is a cultural icon in the most-populous nation on earth. "Kids are going to want to be like Yao -- now," NBA Commissioner David Stern says.

At a time of sports contraction at home, the NBA's main growth engine is a global hoops boom that began with Mr. Jordan but now is fueled by native players making their mark in the NBA. The league will have a record 60 international players this season, giving fans in basketball outposts such as Argentina, Brazil and now China local stars to idolize.

Mr. Yao stands at the crossroads of the old, insular China that treats top athletes like cogs in a cold-war sports machine and the new China eager to show off its modern economic face. Wearing a Nike-sponsored Chinese national team sweat shirt, Air Jordans and a Nike watch, Mr. Yao cupped a steaming cappuccino in a hotel coffee shop in Beijing last week before departing for Houston. "Now basketball is a kind of industry," he said. "There is a market."

Mr. Yao will be a market unto himself. He has signed a four-year contract with the Rockets valued at as much as $17.8 million. An entourage of advisers dubbed "Team Yao" is sifting through endorsement possibilities. It has tapped a group of 10 students and a professor at the University of Chicago's business school -- where Mr. Yao's Chinese-born cousin and adviser, Erik Zhang, is a student -- to develop a "brand strategy" for Mr. Yao in China.

"For Chinese, he is a symbol of modernization and professionalization in the sporting industry," says Steven W. Lewis, an Asia expert at Rice University in Houston who has advised the Rockets. "But he also has this incredible political symbolism ... the ability of Chinese to go out and compete in the world."


Mr. Yao already has come a long way. His father, Yao Zhiyuan, was a 6-foot-9 center for Shanghai's local team. His 6-foot-3 mother, Fang Fengdi, starred on the women's national team. The young Mr. Yao was tall -- 6-foot-6 at age 12 -- but tubby. When he was plucked for a special sports school, the elder Mr. Yao thought it might help his son get into a good university. "He was playing for fun," he says.

Unblinking Mandate

As in the old Soviet bloc, China's sports schools have an unblinking mandate: national glory. But the schools also give opportunities to poor children, such as Inner-Mongolia native Menk Batere, now of the NBA's San Antonio Spurs, who learned basketball when his father fastened a hoop to a tree outside the family's yurt.

By 14, Yao Ming was playing for the Sharks' junior team. Two years later, after the Sharks joined the pro league, Nike's basketball machine began churning. Mr. Rhoads arranged for Mr. Yao to attend a Nike camp in Paris the next summer. He was a bit of a weakling who couldn't bench press 125 pounds but also a tireless worker eager to learn. "Yao had a great personality, a real air of confidence about him," says George Raveling, Nike's manager of grass-roots basketball and a former college and U.S. Olympic team coach.

In 1998, China's basketball czars allowed Mr. Yao to join a Nike-sponsored summer team in San Diego called High Five America, exposing him to a faster game and audiences of NBA scouts. Schooled in team-oriented play, Mr. Yao had trouble getting the showboating American kids to pass him the ball. He also refused to dunk. "He thought it was too flashy," says his coach that summer, Rle Nichols. Still, Mr. Yao stood out, and Nike signed him to a five-year endorsement contract, outfitting him in company gear.

Nike sold $7.9 million of goods in mainland China in 1995, but Chief Executive Phil Knight had been eyeing the market long before that. When Mr. Knight incorporated a subsidiary in Taiwan in the 1970s, he used the company's original name, Blue Ribbon Sports. Mr. Knight wanted to avoid trademarking "Nike" in Taiwan, which China considers a breakaway province, in order not to jeopardize future opportunities in China.

Basketball was introduced to China in 1898 by Christian missionaries at a YMCA in the northeast city of Tianjin, just a few years after the sport was invented in the U.S. While pastimes from mah-jong to dancing were banned for most of the decade-long Cultural Revolution, which was launched in 1966, basketball was beloved by the Army and even by Mao Tse-tung.

In the 1990s, the sport's popularity surged in Asia, due in no small part to Nike. The company built courts in China and Taiwan and launched a high-school league on the mainland. The government-run Chinese Basketball Association criticized Nike for supplying its pro league with baggy shorts, which it considered too Western, but Asian kids were adopting the flashy moves, clothes and lingo of playground basketball in the U.S. By 2000, Taiwan was Nike's second-biggest Asian market, behind Japan.

But while Taiwan has 22 million people, mainland China has 1.3 billion. Chinese officials estimate 300 million people in China have played basketball. "Basketball is the cash cow of the Nike business," says Mr. Rhoads, who now runs a sports-marketing business in China. "And nowhere outside the United States had we ever seen this sort of opportunity."


As word of Mr. Yao spread, so did interest in him. After watching Mr. Yao play in San Diego, an NBA agent named Bill Duffy arranged a meeting with Mr. Yao and his parents. He took them to the young player's favorite Shanghai restaurant, Tony Roma's, wooing him over a plate of ribs.

The next day, at the Sharks' gym, Mr. Yao and Mr. Duffy, himself a onetime NBA draft pick, played the shooting game "Horse." Mr. Yao matched Mr. Duffy three times on shots from 24 feet -- three-point range in the NBA. "When somebody makes their first shot, it's, 'Whatever,' " Mr. Duffy says. "When someone makes three in a row, it's, 'This guy can shoot.' "

Mr. Duffy began writing Mr. Yao's mother and visiting China. But the agent was close to Nike officials, and Nike's relationship with the Sharks was tense. Nike wanted to get Mr. Yao to the NBA. The Sharks wanted to control his future and maximize the club's financial return.

In May 1999, the team took matters into its own hands, drawing up a contract that would have required Mr. Yao to be represented by another American agent. People close to Mr. Yao say he was told by the Sharks to sign the contract or he wouldn't be permitted to play in the NBA. When Mr. Duffy learned of the deal, he advised Mr. Yao that the NBA players union wouldn't permit it because it exceeded the amount an agent could receive. Mr. Yao immediately renounced the contract.

By 2001, Mr. Yao was considered ready for the NBA. But another agent imbroglio broke out, and the Sharks didn't allow Mr. Yao to enter the draft, saying they wanted to win a league championship first. Mr. Yao delivered, and when it looked as though 2002 was the magic year, scouts from almost all 29 NBA teams paraded to Shanghai.

Mr. Duffy assumed a low profile and Mr. Yao's parents enlisted Mr. Zhang, aided by a University of Chicago professor, John Huizinga, to lead negotiations before the June 26 draft. Mr. Zhang once had scoured Chicago for oversized sneakers for Mr. Yao. Now he had to gain Mr. Yao's release while tempering monetary demands from the Chinese authorities.

In April, the Chinese government revived a rule once applied to ping-pong players who ventured overseas: Half of an athlete's earnings would go to him and his team; half would be divided among various government sports entities.

When Mr. Zhang arrived in Shanghai at the end of May, things got rockier. The Sharks refused to negotiate with him, citing new rules requiring agents to take national exams. Plus, the team was hoping the contract Mr. Yao had renounced, which would have given the Sharks a large chunk of Mr. Yao's earnings, would somehow be revived.

When it became clear that deal was dead, the authorities relented. A week before the draft, Mr. Zhang was burning through cell-phone batteries trying to reach an agreement. The talks boiled down to compensation: how much the Shanghai team would receive from Mr. Yao's future earnings.

The Sharks believed they deserved a big cut because Mr. Yao was a product of their system. "We cultivated him, taught him to be a star," said Li Yaomin, the Sharks' vice general manager. "Yao Ming is China's Jordan. We don't want to lose him." Mr. Zhang took a more Americanized view: "Chinese colleges are heavily subsidized, but do they demand a payback if you become successful -- a Nobel Prize winner, a rich businessman?"

The Rockets held separate negotiations. The team had been wooing the Chinese authorities smartly. The day after the May "lottery" in which they won the No. 1 pick, the Rockets produced a video featuring local Chinese welcoming Mr. Yao to Houston. Rockets general counsel Michael Goldberg arrived in Shanghai exhausted after a 16-hour flight, but he stayed up past midnight chatting with Mr. Li of the Sharks to break the ice.

The Sharks had demands. Mr. Goldberg politely explained that under NBA rules they could pay the team no more than $350,000 for Mr. Yao's transfer. But he listened to requests for such things as joint sponsorships, help building an arena, coaching assistance and actual Rockets players for the Sharks' roster -- all of which ran afoul of NBA rules.

Mr. Goldberg also had to negotiate with the CBA, which wanted assurances Mr. Yao would be available for international tournaments. As the draft approached, without a signed release, he told the Chinese authorities that the Rockets could not use the No. 1 pick on a player who might not be available. "I asked them to put themselves in our shoes," he says.

Finally, at 2 a.m. on the day of the draft, a one-page fax in Chinese from the CBA arrived at Mr. Goldberg's home agreeing on the principles on which Mr. Yao could be selected. The Rockets picked him. Sitting in CNN's studios in Beijing, Mr. Yao donned a Houston cap and beamed.

New List of Requests

More trouble was brewing, though. Another Chinese player, Wang Zhizhi of the Dallas Mavericks, refused to return home to practice with the national team. Infuriated, China's basketball bureaucrats became more protective of Mr. Yao. They wanted assurances that Mr. Yao, a bigger star than Mr. Wang, would be available even if an important tournament fell in the middle of the NBA season.

At the end of July, the Chinese had a new list of requests, among them the right to approve where Mr. Yao could be traded by the Rockets. Finally, Mr. Goldberg -- who had been counseled about negotiating in China by his law partner, former Secretary of State James A. Baker III -- told the Chinese his fondest hope was to see Mr. Yao lead China against the U.S. in an Olympic gold-medal game. That helped seal a deal.

The Rockets agreed to deliver Mr. Yao for key offseason tournaments and to offer scouting advice on American players and other possible assistance. The Chinese agreed not to disrupt the Rockets' season with tournament requests. And Mr. Zhang reached monetary agreements less draconian than U.S. officials had expected.

According to people familiar with the deal, the Sharks' take depends on how long Mr. Yao plays in the NBA and how much he earns. If he returns to China within three years, the Sharks will get nothing. If he plays as long as 12 years, they will get between $8 million and $15 million of his salary and endorsements. The Sharks originally sought as much as $40 million, these people said. Also, the CBA will get around 5% of Mr. Yao's earnings.

While China conceivably could have held back Mr. Yao, people involved in the talks say, it also faced pressure to release him. China wanted to begin developing good relations in advance of the 2008 Summer Olympics in Beijing. On a visit to Houston last month, China's U.S. ambassador, Yang Jiechi, mentioned Mr. Yao as an example of "constructive engagement" between the nations.

"Obviously, they looked at the big picture," says Bruce O'Neil, a basketball coach and scout who has worked with China's pro league. "The economics of not just one player coming to America but the symbolism -- we're opening up, you can trust us, we gave you our word. Basically, we're open for business."

With middling revenue and the NBA's second-worst attendance last year, the Rockets are giddy about the prospects. They are targeting U.S., Chinese and other Asian companies as partners, and expect the new exposure to boost the asking price for a name on a new arena to open in 2003. "In Asia, it's like flipping on a switch," Rockets President George Postolos says. "Our team was just another NBA team. Now it's going to be the team they're interested in."

Banking on Mr. Yao isn't without risk. He has never faced the 82-game grind of the NBA or players such as Los Angeles Lakers behemoth Shaquille O'Neal, who told reporters in May that he might introduce himself to Mr. Yao with an elbow to the nose. Unperturbed, Mr. Yao replied, "This is an American-style welcome, right?"

The business ventures will take time, too. China's cities hold around 400 million people, but a middle class with disposable income is growing slowly. The NBA, Nike and its competitors in China must contend with a perennial problem: counterfeiting. Down the street from the CBA's official store in Beijing, a knockoff pair of Nike Shox -- "Yao Ming's brand," a saleswoman says -- go for $31. Nike's Yao shoe, with his name on the tongue, will retail for around $125 in China.

In Mr. Yao's cold new capitalist world, even Nike's hold on him isn't a lock. Mr. Yao's contract expires next year, and Team Yao -- now led by Mr. Duffy's sports agency -- doesn't feel bound by history. "We want to explore Yao Ming's fit with Nike," Mr. Zhang says. "Yao could have more of an impact on a smaller brand."

But in the long shadow of Mr. Yao's arrival, those are secondary worries. Team Yao hired an interpreter and a bodyguard and flew Mr. Yao's mother to Houston to pick out a house where she and her son will live. Mr. Yao said he was looking forward to his mom's chicken soup and dumplings.