The NBA first arrived in China in 1979, eight years after the historic “Ping Pong Diplomacy” tour. The Washington Bullets, now the Wizards, traveled to China to play two exhibition matches—one against China’s national team in Beijing and another against the local Bayi Rockets in Shanghai—winning both. Today, the NBA is reportedly a $5 billion business in China: a value it earns through broadcast deals, merchandise, sponsorship, and ticketing.
However, the NBA’s 40 years of development in China is now at risk of unravelling all over a single tweet sent by Daryl Morey, the general manager of the Houston Rockets. In the now deleted post, Morey echoed a slogan from the ongoing protests in Hong Kong—”Fight for Freedom, Stand with Hong Kong”—which was interpreted as being anti-China and therefore prompted an instant and severe backlash from Beijing.
The NBA apologized for Morey’s tweet, in turn provoking an outcry from the association’s U.S. fans who criticized it for abandoning freedom of speech. Caught in a moral dilemma, the NBA walked back its apology and is now siding firmly with Morey much to the displeasure of Beijing and the detriment of the league’s China business.
Broadcast rights
In China, NBA games are broadcast on terrestrial TV by state-owned China Central Television (CCTV) and online through streaming services run by tech giant Tencent.
Last season, roughly 800 million Chinese basketball fans tuned in to watch NBA programming. In the sixth game of the NBA finals last season, 21 million Chinese viewers watched online while; in the U.S., viewership was 18.3 million.
The NBA first partnered with CCTV in 1987 when David Stern, then commissioner of the NBA, struck a deal to send video tapes of NBA matches to the Chinese broadcaster in exchange for a share of advertising revenue earned during the game segments. But, as advertising at the time was virtually non-existent in a post-communist China still coming to grips with capitalism, the deal was really about exposure.
By the mid-1990s, CCTV was paying the NBA to broadcast games live. The NBA’s partnership with CCTV continues still, but its value remains under wraps.
The NBA’s relationship with Tencent, which operates streaming service Tencent Video as well as some of China’s most popular social media platforms, began in 2009. In 2015, the Shenzhen-based tech giant acquired exclusive digital streaming rights for NBA games in a five-year contract worth $500 million.
Tencent claims to have tripled the NBA’s viewership since 2015 and, in July this year, the NBA extended Tencent’s exclusive broadcast rights through to 2025 in a deal reportedly valued at $300 million per year, or some $1.5 billion total.
However large that sum might seem, it pales in comparison to contracts the league signed with ESPN and TNT in the U.S. The NBA will earn $24 billion over nine years from its U.S. partners. With viewers in China more than double the total U.S. population, there should be huge room for growth in the NBA’s Chinese broadcast deals.
NBA’s partnership with Tencent has also served as leverage to develop new marketing opportunities in China, such as adding interactive elements to livestreams and hosting a web service for the NBA’s fan loyalty program in China. Tencent is also the distribution partner for livestreams of the NBA’s eSports venture, NBA 2K League.
However, the broadcast relationships the NBA has developed over the years are now in jeopardy amid the Morey tweet debacle. Both Tencent and CCTV have cancelled coverage of this year’s preseason games in China while CCTV says it is “investigating” its existing arrangements.
Tickets
Since the seminal contests of 1979, the NBA has sent 17 teams to play 26 games in China—soon to be 28, when the L.A. Lakers and the Brooklyn Nets conclude their two-day exhibition this week, with the first game tipping off Thursday evening at the 18,000-seat Mercedes-Benz Arena in Shanghai.
The frequency of the so-called NBA China Games only picked up in 2004. That year the Houston Rockets, now at the center of the NBA-China controversy, played two games against the Sacramento Kings—one in the Capital Stadium in Beijing and the other at a stadium in Shanghai. Although the NBA says the China Games is now in its 13th cycle, the regional series only became an annual pre-season fixture in 2014.
Regular seats at an upcoming game in Shenzhen are listed between Rmb350 ($50) and Rmb3,600 with courtside tickets costing a major Rmb18,888 ($2,600). But with games few and far between, ticket sales are likely not a major earner for the NBA in China.
Games, however, are an opportunity for the NBA to build brand awareness. The league frequently holds fan events prior to games, where star players make appearances at schools or public places and interact with fans.
This week, however, a fan event in Shanghai was cancelled owing to the furor over Morey’s tweet. And Ctrip, China’s largest online travel agent, announced it would stop selling NBA tickets and tour packages on its website, too.
Sponsorship and merch
The NBA’s largest retail store outside of North America is in Beijing’s downtown shopping district, Wangfujing. The two-story shop offers 1,450 square meters of floor space and opened just five months ago. According to local magazine The Beijinger, merch at the flagship store costs a premium compared to the NBA’s other, smaller Beijing stores. A pair of Air Jordans retails for Rmb1,499 ($210), while kicks from LeBron James cost Rmb1,599 ($225).
More than a decade ago, Tim Chen, then the CEO of NBA China—the association’s official Chinese subsidiary, which launched in 2008—said the brand wanted to open 1,000 stores across China by 2013. However, in 2012 People’s Daily reported that plan had “been altered” and the association was instead cooperating with local e-commerce sites to push its products.
Sure enough, NBA China opened store fronts on China’s two largest e-tailers, JD.com and Alibaba. However, both sites appear to have removed listings for merchandise from the Houston Rockets—the team at the center of the current scandal. Other NBA merch is still available through the online malls, but Chinese companies are fast abandoning the brand.
NBA China’s website lists 11 Chinese businesses as the brand’s official partners. All 11 have now said they will cut ties with the NBA. The companies include fast-food chain Dicos, milk manufacturer Mengniu Dairy, sportswear giant Anta, and Ctrip. That represents the loss of major marketing opportunities for NBA in China and, given the current climate, finding replacement partners won’t be easy.
More must-read stories from Fortune:
—10,000 jobs on the line as HSBC mulls its future in Europe
—Hong Kong’s mask ban pits anonymity against the surveillance state
—The world’s biggest turbines and no subsidies: how offshore wind is entering a new era
—The global phenomenon of “American Sriracha”
—Plant-based meats have huge potential in China, but Beijing wants a homegrown champion
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.
