Trump’s order to ban WeChat deals could affect the NBA’s Chinese deal with Tencent

Although the National Basketball Association finds itself in the midst of geopolitics again, there are no plans to abandon its partnerships in China as tensions with the US continue to escalate over national security concerns.

The latest threat to the NBA’s commercial operations in China comes following concerns that its streaming partner Tencent may face business disruptions following an executive order from President Donald Trump last week. The executive order states that Tencent’s WeChat app poses a threat to US “national security, foreign policy and the US economy” and prohibits US companies from doing business with it.

It is not yet clear whether or not Trump’s executive order is tailored to WeChat or all of Tencent, which has several investments in US video game, sports and media companies. In the case of the NBA, Tencent has a $ 1.5 billion five-year deal to stream NBA games in China, one of the league’s most profitable markets outside the United States. The deal was signed last July. The NBA has not provided a statement on the potential effects of the Trump executive order.

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

The article states that the NBA has not followed up on complaints describing the mistreatment of young people at the academy. After exchanging letters with government officials, the NBA’s affairs in China have further attracted the attention of US politicians, including Senator Marsha Blackburn. The Tennessee senator accused the NBA of misleading 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 is also the NBA’s chief operating officer, added that the league ended its partnership with the Xinjiang academy in June 2019 following its latest event. Tatum said the league provided only three coaches to attend the Xinjiang academy, “none of whom have been accused of committing any wrongdoing.”

However, the NBA’s credibility was questioned in ESPN’s article, as the league is also rumored to have asked people not to speak to the network about the report.

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

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

The NBA claims it has 1.4 million followers on Tencent’s WeChat, which though pales compared to its 44 million followers on its Weibo, a Twitter-like Chinese social network. With the renewal of Tencent’s streaming rights agreement last year, NBA China’s valuation is estimated to have surpassed $ 5 billion.

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

Tencent also discontinued streaming games at the time, but returned to show select games that don’t include the Rockets. During the NBA’s All-Star Weekend in Chicago, league commissioner Adam Silver said the conflict could cost the NBA up to $ 400 million.

However, the NBA has no plans to quit its China business, and Silver has reiterated that message in recent months. But if the NBA were forced to decide between business at home and China, it could be detrimental to its entry into the world’s fastest growing market.

Tatum told Forbes in 2018 that the league’s operations in China, which is owned by the owners of the NBA teams, were then valued at around $ 4.3 billion. Over 500 million people watched NBA programming in China for the 2018-2019 championship season, allowing team owners to raise revenue from league content distribution, merchandise sales, and even the NBA’s Playzone, a space interactive for young people.

Suppose the tensions between the US and China continue after the US presidential election. If so, the NBA’s business in China could continue to suffer, bringing even more pain to its salary cap, which is already expected to take a hit from Covid-19.

The NBA has gained ground in other global markets, including India, which Tatum says “would overtake China in the next five or six years.” Mexico is another country where the NBA will continue to invest alongside Brazil, but none of these markets currently have the established infrastructure or paying customers that match the Chinese market.

Silver suggested in February that the NBA’s business in China is not permanently damaged, and added that the league accepts “the consequences of our system and our values.”

The NBA recently resumed 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 post-season, which is expected to end in October, ahead of the US presidential election on November 3.