Pro basketball hits a wall in China

August 17, 2011: 2:55 PM ET

Many players -- and fans -- were hoping to see some NBA talent shoot hoops in China while the lockout continues. But China is expected to nix the plan, at its own peril.

By Eli Epstein, contributor

FORTUNE--For weeks it was all NBA fans heard: Kobe Bryant, Dwayne Wade, Carmelo Anthony, and Chris Paul are all headed for China, lured by lucrative contracts, cushy accommodations, and an untapped, outrageously accessible Chinese apparel market.

But on Thursday, the rumors are expected to meet a swift death. That's the day governing bodies of the Chinese Basketball Association (CBA) will likely decide to bar Chinese teams from granting opt-out contract clauses to NBA players -- ejector seats that would allow players to leave China on a moment's notice if the NBA lockout were to be lifted.

If that happens, don't expect players to be in any hurry to sign papers. Yes, these guys want to play basketball, and they're willing to go to China to do it, but not if it means they might end up missing out when the season back in the States gets a last-minute rescue.

For a few weeks there, it seemed as if NBA icons would have a huge opportunity to export their star-power eastward, a la Stephon Marbury, and that many pockets would fatten from the influx. But now, if it doesn't happen, who will miss out on the potential benefits, and how much will they lose?

For one, the players were promised million-dollar-per-month contracts with navigable out-clauses if the NBA lockout were to end, and more importantly, the opportunity to build their brand in a country of nearly 1.3 billion people, 330 million of whom play basketball. NBA superstar Dwayne Wade was linked to a $2 million-per-month deal with the Zhejiang Guangsha Lions of the CBA, and Chris Paul and Carmelo Anthony were similarly enticed by the opportunity to "double dip" in China.

"They'd be able to cut across many brands in China, not just sports brands," says Dan Neely, CEO of Networked Insights, a firm that uses social data to uncover trends that increase marketing and advertising opportunities. "They'd be able to double dip in China where brands have huge opportunities and where they have the whole retail sector in front of them."

Then there is the Chinese Basketball Association, which would likely have seen a much-needed boost in revenues from ticket sales, merchandise, and sponsorships. The CBA, after changing the rules to allow more foreign talent to play in the league, raised its operating cost during the 2008-2009 season and subsequently incurred a loss of nearly $17 million.

Despite those losses, CBA official Liu Xiaonong told ESPN last month that the league's revenue is soaring with Nike (NKE), UPS (UPS), and TLC Communications as significant corporate sponsors. Still, these mega-sponsorship deals would only proliferate if localities were to bring in NBA stars.

"From a commercial standpoint, the CBA has much to gain," says Jon Pastuszek, founder and lead writer for Chinese basketball blog NiuBball.com. "Fans would undoubtedly flock to arenas to witness it all in person."

Sold-out arenas were the just the tip of the iceberg, Pastuszek believes. Local economies would also be boosted by the worldwide exposure, benefitting from increased gate revenues and money flowing into the locality.

Likewise, NBA agent Marc Cornstein, whose Pinnacle Hoops represents NBA players like Samuel Dalembert and scores of international players, points to the merchandising potential in China as another advantage potentially lost for NBA players who don't sign. Already, Chinese footwear brands Li-Ning and Peak have capitalized on basketball's growing popularity, and Nike reported a $1.7 billion in Chinese revenues for the 2010 fiscal year.

"There's a retailing arms race in China that outpaces the consumer spending power," says Cornstein, "but the spending power keeps going up and the specialty shoe market grows as the middle class does."

While the potential for basketball growth in China can seem limitless, the sport still faces numerous roadblocks there. One factor that has stunted growth in the past is the Chinese ethos of the national interest outweighing smaller regional and commercial interests like CBA owners. Chinese authorities remain wary of being seen as a fly-by-night destination for NBA stars looking to make a quick buck and leave when the opportunity affords them to.

"By coming to China temporarily, players would send a message that China is nothing more than a 'backyard,'  a quick and easy way to make a buck," warns Pastuszek.

Bruce O'Neil develops Chinese talent at his United States Basketball Academy and has been consulting Chinese owners and American agents for over 20 years on matters of Chinese basketball. He agrees with Pastuszek's assessment that Chinese government officials are averse to the short-term benefits of such a mass influx.

Still, O'Neil argues, the opportunities for growth are immense in China.

"The owners are very progressive and want Western insight on how to run basketball organizations," says O'Neil. "The apparel companies are also learning to carve niches with endorsements and to avoid buying NBA players for way too much money. In general, there's been a tremendous rise in basketball interest in China and the fan support is huge. The market will bear opportunities."

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