One reason the Houston Rockets were willing to offer Jeremy Lin a three-year, $25.1 million contract — a deal that Lin’s former New York Knicks teammate Carmelo Anthony labeled “ridiculous” — seems pretty clear. Since the Rockets drafted Yao Ming back in 2002, the team has extensive experience marketing players to the massive, fast-growing Chinese market. And Lin, a Taiwanese-American and the only Asian-American playing in the NBA, is hugely popular in China (and elsewhere: on NBA.com and in the NBA Store in New York City, Lin’s jersey was the second-highest seller of the regular season, behind only Derrick Rose’s N0. 1).
So as long as he doesn’t regress on the court, Lin’s high salary, even the $14.8 million he is slated to earn in the final year of his contract, could pay for itself, thanks to Houston’s global branding machine. Yes, Houston believes Linsanity is much more than a freakish string of games in February. But given Houston’s prior inroads into China with Yao, the Rockets could afford to take more of a financial risk with Lin, who has started only 25 games in his NBA career.
Will Houston’s investment in Lin pay off? Well, for starters, it’s harder for individual teams to profit from international marketing than you might imagine. When a Houston Rockets jersey bearing the name of Jeremy Lin is sold in China — or in a retail outlet in suburban Houston or anywhere else in the U.S., for that matter, outside of a team-owned store — that money does not flow directly to the Rockets. It’s split among the NBA’s 30 teams. The Rockets also can’t, say, cut their own television deals in China. The NBA handles those negotiations, and divvies up the money among its franchises. “It’s not easy for a single team to make a fortune off a guy in China,” says Paul Swangard, managing director of the Warsaw Sports Marketing Center at the University of Oregon, who has traveled to China frequently and closely studied the country.
A 2011 Marketwatch.com story, headlined “Yao Ming and the Rockets’ Weak China effect,” details some of these limitations:
Estimates from sponsorship experts IEG are that the Rockets earned somewhere between $800,000 to $1.25 million in deals from all their China-related sponsorships. That’s not negligible, as it’s about 5%-10% of the average NBA team’s annual sponsorship income, but it’s less than a percentage point of the Rockets’ estimated $150 million a year revenue. IEG said that the Rockets’ overall sponsorship revenue wasn’t notably higher than other NBA teams during Yao’s time with the team.
In 2010, the Houston Chronicle wrote:
The financial impact [of Yao Ming] on the Rockets has been significant, but nowhere near as large as most assume. The team has about 85 sponsors each season. Typically, about seven are based in China, accounting for about 5 percent of the Rockets’ sponsorship revenue.
That’s not to say teams don’t benefit from signing players with global appeal. Just look at Lin in New York. During the height of Linsanity in February, stock in the Madison Square Garden Company, owner of the Knicks, rose 15%. (By contrast, since the reports surfaced last week that the Knicks probably weren’t going to match Houston’s offer for Lin, the stock fell 9%). Lin’s popularity helped the MSG Network, which broadcasts Knicks games, break an impasse with one of its most important TV distributors, Time Warner Cable (Time Warner Cable was spun off in 2009 from Time Warner, TIME’s corporate parent.)
Lin will probably put more Houston fans in seats. Last season, the Rockets finished 22nd in the NBA in home attendance, averaging 15,363 fans per game — that’s 85.1% of the Toyota Center’s capacity. So there’s room for growth, and Lin can provide a boost. Nearly 140,000 Asian-Americans live in Houston, the eighth highest total among U.S. cities: more of these fans will be more likely to buy Rockets tickets.
According to Forbes, Houston’s overall revenues increased 87% between 2002, the year the Rockets drafted Yao, and 2010, the year before he retired. Operating income jumped from $7 million in 2002 to $36 million in 2010, a more than a five-fold increase. The team’s value soared from $255 million in 2002 to $443 million in 2010, a 97% jump. Having the big guy clearly didn’t hurt.
Further, given Houston’s prior ties to the Chinese market because of Yao, the team is in better position than most to benefit from Lin’s strong performances. “Culturally, the Chinese market is built on long-term relationships,” says Swaangard. Chinese brands looking to increase their presence in the U.S. — and boost their prestige back home — partnered with the Rockets. For example Anta Sports Products Ltd., a Chinese athletic shoe company with 4,000 retail outlets in that country, inked a four-year arena signage deal with the Rockets back in 2007. Yao helped secure the 20-year, $100 million naming rights deal for Houston’s arena, which opened in 2003. Toyota was looking to expand sales in China, and signed on after Yao’s rookie year. With so many Rocket games being broadcast in China during the Yao era, multinational American companies like Anheuser-Busch and Adidas purchased bilingual Mandarin-English arena signage at the Toyota Center that television viewers could see. (NBA teams don’t have to share arena signage revenues).
After drafting Yao, Rockets owner Leslie Alexander founded Rocket Capital, a private investment company that “specializes in investments in emerging markets with a strong focus on the Greater China region.” Rocket Capital has invested in Chinese railway, auto, tea, and mining companies, among others; it has also poured millions into the Hong Kong’s IPO and equity markets. With Lin on board, and Yao maybe opening some doors, Alexander could gain access to more opportunities in China that could further benefit the franchise financially.
“The fact that the Rocket brand is a big deal in China makes Jeremy Lin more valuable to the team,” says George Postolos, the Rockets president and CEO from 2002-2006 who now holds the same positions with the Houston Astros. “The Rockets aren’t starting from scratch. Adding Jeremy Lin to the picture is a natural extension of what they’ve done.”
And not as ridiculous as some might think.