CEO and cofounder David Han, ’02, is building on the 15-year relationship between Chicago Booth and NBA Hall of Fame basketball player Yao Ming.
- By May 01, 2017
- Private Equity
“We want Yao Capital to be an influential player in the sports industry, similar to the way that Sequoia Capital is perceived in the high-tech industry.”
Barely a year into existence, Yao Capital is well on its way to making good on Yao Ming’s vision. It has approximately 2 billion RMB in assets under management. It has investment from institutions such as China’s largest internet company, Tencent; leading Chinese internet-based sports media company, LeSports; the Tsinghua University Education Foundation, the endowment fund of China’s wealthiest university (and Han’s alma mater); and Qianhai Fund-of-Funds (FoF) and CICC FoF, two of the largest FoFs in China. Google China founding president Kai-Fu Lee—Han’s former boss when both worked at Microsoft, and a godfather figure of sorts to China’s entrepreneurial-minded youth—has invested in Yao Capital both individually and with his venture capital firm, Sinovation Ventures. “Because of the huge support and endorsement from the business world in China, we got off the ground very smoothly,” Han said.
In addition to investment know-how, Yao Capital has a not-so-secret weapon: Team Yao. That’s the moniker for the Chinese basketball sensation’s business advisory group, a name coined in the early 2000s, when Yao’s journey from China to No. 1 overall pick in the 2002 NBA draft played out in the international media. At the head of Team Yao’s operations sits Chicago Booth–educated Zhang, Yao Ming’s close friend and business adviser. Han has known Zhang since both were students at Booth in the early 2000s. Zhang is Yao Capital’s vice chairman and managing partner.
A founding member of Team Yao, Zhang has advised the Chinese basketball star since those Booth days, when Zhang was a student in the Evening MBA Program. After nearly two decades of managing Yao’s financial interests, including a five-year stint as general manager of the Yao-owned Shanghai Sharks CBA franchise, Zhang leverages deep sports industry expertise that is crucial to Yao Capital’s investment strategy.
“Funding a new private equity firm is not easy,” Han said. “We’re a brand-new fund, and limited partners usually won’t invest in first-time funds. We’re fortunate in that this firm was created not only by a team of investors who have a great track record, but in combination with Team Yao, especially Yao Ming himself and Erik Zhang.”
Zhang was not the only connection in the Booth community that Han turned to when building out the Yao Capital team. Han’s CFO and managing partner at Yao Capital is his Booth classmate, Hong Quan, ’02. Han’s friend since their first day at Booth back in 2000, Quan has more than a decade of experience in investment banking and the private equity industry, with director-level roles at CDB Capital, Morgan Stanley, and JPMorgan. Quan's wife, Sue Luh, ’01, is a past president of the Shanghai Booth alumni club.
“If it were not for the Booth connection, Yao Capital would not have been created,” Han said. And that connection between Booth and Yao Ming stretches back to Han’s student days, when a 22-year-old Yao, little known in the United States, came to Chicago for a predraft workout in front of professional basketball scouts, hoping to break into the NBA.
“I saw such a rare talent—almost a gift to basketball, or a gift to the world—and I didn’t want to screw it up.”
As second-year students at Booth, Han and Quan ended up in the same entrepreneurship class. Part of the coursework required that the duo form a company and compete for business. “It was a mock entrepreneurial experience,” Quan recalled. “David was the CEO and I was the CFO.”
While Han and Quan focused on their studies in entrepreneurship and the possibility of earning a living together one day, fellow Booth student Zhang landed in the epicenter of an international sports drama. Although he grew up in Wisconsin, Zhang has deep family roots in Shanghai, Yao Ming’s hometown, and their families were friends. In the spring of 2002, Yao and his parents’ sights were set on that summer’s NBA draft, but they needed help with the incredibly complex process of leaving China and negotiating Yao’s contractual exit from the Shanghai Sharks. Knowing that Zhang was pursuing a business degree at Booth, Yao reached out to his friend for help.
Their arrangement was simple at the start, Zhang recalled. “I wanted to help a friend. Also, I saw such a rare talent—that is almost a gift to basketball, or a gift to the world—and I didn’t want to screw it up.” Years earlier, Zhang tried to convince Big 10 teams, including Wisconsin, his alma mater, to take a flier on Yao and offer him a college scholarship. No one bit.
Now faced with the certainty of being drafted by an NBA team, Yao Ming turned again to Zhang. That spring, Zhang arranged for Yao to show off his skills for scouts at Chicago’s NBA Pre-Draft Camp.
Justifiably, Zhang felt “a little overwhelmed” by the faith Yao had in him and the responsibility entrusted to him. So, he sought advice from former Booth statistics professor Michael Parzen and John Huizinga, Walter David “Bud” Fackler Distinguished Professor of Economics, who was then deputy dean at Booth and an avid basketball fan who had played college basketball at Pomona College in California. Zhang invited Parzen to attend Yao’s tryout, and Parzen in turn asked Huizinga to join. Huizinga, an NBA fan who chose MIT for graduate school partly because of his love for the Boston Celtics, knew the pre-draft camp at Chicago’s Moody Bible Institute would be closed to the public. “Mike said, ‘You’ll never believe this, but the guy that’s organizing it is actually a student here and he is a student in my class,’” Huizinga recalled. “‘He can get us in.’”
After Yao’s tryout, Zhang invited Huizinga to dinner with Yao, where Zhang asked Huizinga for his help in negotiating for Yao’s release from his CBA contract so he could play in the NBA. “I didn’t really think I could be much help,” Huizinga said.
Nevertheless, Huizinga agreed to assist Yao. He traveled to China and helped Zhang in successfully negotiating Yao’s release, and—importantly—Yao’s ability to choose his own agent, rather than have an agent chosen for him by the Shanghai Sharks. “I thought once he got the right to choose his own agent, he would pick a full-time agent,” Huizinga said. “But Yao’s such a loyal guy, he felt like Erik and I had done a good job and could be trusted, and he just felt more comfortable with us.” Zhang had to leave his studies at Booth reluctantly, as his role as Yao Ming’s business partner and head of Team Yao became a more-than-full-time job. Despite having no previous agent experience, Huizinga became Yao’s official agent with the National Basketball Players Association, remaining in that position until Yao retired in 2011. Huizinga has no formal relationship with Yao Capital, but he remains close to his former client.
In the fall of 2002, as Yao began his rookie year, the Booth Management Lab focused an entire course on developing a brand marketing plan for Yao Ming in China. The students studied transcripts of focus groups, examined polling data, conducted additional market research in China, and developed a long-term marketing plan for Yao Ming, which they delivered to the clients, Yao’s agency, BDA Sports Management, and Zhang. “We still use that marketing plan today,” Zhang said in fall 2016. “We’ve made adjustments to it, but it is still being used today.”
Of course, Yao’s play during his basketball career would have made any marketer’s job easy. He started in the NBA All-Star Game his rookie season, the same year the NBA, for the first time, offered All-Star Game ballots in three languages: English, Spanish, and Chinese. Yao went on to be an eight-time NBA All-Star, and he starred for the Chinese national team in the 2000, 2004, and 2008 Olympics. After his retirement, Yao was inducted into the NBA Hall of Fame, in 2016, and his Rockets No. 11 jersey was retired earlier this year.
As his playing career wound down, Yao Ming became more active in the sports industry in China, particularly in the business side of basketball. In 2009, on the advice of Zhang and Team Yao, he bought his former team, the Shanghai Sharks. Since then, he has worked behind the scenes to bring a more market- and fan-focused, private-team-ownership approach to the state-run CBA. As a member of the Chinese People’s Political Consultative Conference, a political advisory group to the Chinese government, Yao has helped influence governmental policy around sports. At the 2016 meeting of the CPPCC, Yao said, “Sport plays different roles at different times. Olympic gold medals used to inspire our national teams, but now people consume sport as a cultural product or service in the form of a great basketball game, a yoga course, or a skiing trip. Our emphasis should develop along with demand so we can develop the industry follow-up.”
For Yao, of course, basketball remains the No. 1 sport. In February, he was unanimously elected as the new chairman of the CBA, announcing plans to reform the game from the professional level down to youth programs. “Our next move will be to borrow from international advanced experience, to thoroughly study China’s actual conditions and carve ourselves a path of innovation,” Yao said.
“Entertainment, sports, media: these are the newcomers for the next wave of development in China.”
Like Yao, David Han’s pursuit of his dreams has led him from China to the United States and back. He grew up in Beijing, where his parents taught at their hometown Tsinghua University: his mother in computer science and his father in civil engineering. So it’s little surprise Han himself attended Tsinghua University, graduating with an AB in environmental engineering in 1991. Two years later, having moved to the Pacific Northwest, he completed an MS in chemistry at Portland State University. As he entered his 30s, Han had a comfortable corporate job as an environmental engineer in Las Vegas. But he realized he couldn’t achieve his career goals without an MBA. So, in 2000, Han and his wife both quit their jobs and moved to Chicago so he could get his MBA. “Going back to business school at the age of 32 was not an easy decision,” Han said.
On the other hand, choosing Booth for his MBA was a “fairly easy” one for Han, who planned to pursue a career in finance after graduation. “With its reputation in finance, and rigorous and flexible curriculum,” Han said, “I knew it was the best program for me.”
When Han began his studies at Chicago Booth in 2000, he discovered a vibrant Chinese community at the Hyde Park campus. Many of those students returned to China after Booth, Han recalled. “That is really kind of the foundation of today’s very robust and large alumni community in China, primarily concentrated in major cities: Beijing, Shanghai, Hong Kong,” he said. “Throughout our careers, after graduation, every step of the way, we can find help one way or the other from the Booth alumni community.”
Quan entered Booth’s Full-Time MBA Program the same year as Han. “I remember there was a big reception in Chicago and David was sitting right next to me,” Quan recalled of his first day at Booth. Around the same time, Zhang began the Evening MBA Program, and the three crossed paths. “We’ve all known each other for 17 years,” Quan said.
After graduation, Han moved back to the Pacific Northwest to work at Microsoft, where his boss was future Yao Capital investor Kai-Fu Lee. In 2006, Han returned to China as Asia director for mergers and acquisitions for Danaher Corporation. He moved on to private equity roles for Quad-C Capital and Citic Private Equity Group, where he oversaw private equity investments in the industrial, energy, and technology sectors.
In 2012, Han became managing director of the Carlyle Group’s Asia Buyout Fund. He oversaw the $3.5 billion fund and the 5 billion RMB fund, and he led the $800 million buyout of Cloudary, China’s largest online literature publishing company. “We did the Cloudary deal because we believed China was transitioning from the path of a manufacturing-driven economy to a more domestic-consumption-driven economy,” Han said. “People have already resolved the basic needs. They want to pursue higher spiritual, cultural needs: entertainment, movies, sports, and health-related activities.”
In 2014, China’s largest commercial property developer, the Wanda Group, tapped Han to be its CIO, with the responsibility of leading its global acquisition and private equity investments. At Wanda, Han spearheaded the firm’s move into the sports industry. He initiated and led its buyouts of Infront Sports & Media and the World Triathlon Corporation, totaling $1.2 billion, as well as the €45 million minority investment in Atletico Madrid and a $32 million growth capital investment in LeSports. “Those deals helped ignite the sports industry in China,” Han said.
A block from Yao Capital’s Shanghai headquarters, tourists and Shanghai residents flock every day to the world-famous riverwalk, the Bund. To see dramatic evidence of the economic boom of the past 40 years, you need only look across the busy Huangpu River to the opposite, eastern shore. There, the massive skyscrapers of the Pudong district and Lujiazui—the city’s financial heart—create one of the world’s most dramatic skylines. Merely 40 years ago, Pudong was a flat expanse of farmland. Today, it boasts China’s tallest building and the second-tallest building in the world, the Shanghai Tower. Nearby, looking like a giant bottle opener, the 101-story Shanghai World Financial Center houses the headquarters of Google in China. At night, LED lights illuminate the 11 spheres and main spire of the 1,500-foot-tall Oriental Pearl TV & Radio Tower. The dynamic Pudong skyline—captured in thousands of photos nearly every hour, every day by sightseers on the Bund—encapsulates China’s rapid rise to the second-largest economy in the world over the past four decades.
It’s no wonder an image of that scintillating Shanghai skyline adorns the home page of the Yao Capital website. Within the general rising tide of the country’s economy, as they pursued careers in finance over the past 15 years, Han and Quan have seen a steady stream of industries in China experience periods of significant growth. “For me and David, what we’ve seen is a rotation mode of industries in China going through rapid development,” Quan said. “It started with the real estate industry, the telecom industry, the resources and energy industry, about 10 years ago.” And now, it’s the sports industry’s turn. “The traditional industries—the manufacturing industry, real estate industry, financial industry—they’ve already had their peak,” Quan said. “Entertainment, sports, media: these are newcomers for the next wave of development in China.”
The biggest team sports in China currently are basketball and soccer. China’s passion for soccer is driven by the country’s fan in chief, president Xi Jinping, who has stated his goal to transform China into a world soccer power. Chinese firms have been making an investment run on European football clubs, including Wanda Group’s 20 percent ownership stake in Spain’s leading soccer club, Atletico Madrid, and retail giant Suning’s acquisition of a majority stake in Italian soccer powerhouse Inter Milan in 2016.
These and similar soccer megadeals have grabbed banner headlines in China and in the European sports press, but other groundbreaking investments indicate long-term growth opportunities for the Chinese sports industry. In 2015, the same year that Han was spearheading the Wanda Group’s massive Infront Sports & Media and World Triathlon Corporation deals, Alibaba—the largest online and mobile commerce company in the world—established Alibaba Sports Group with the goal of transforming China’s sports industry through internet-enabled technologies. According to data from ChinaVenture, overall investment in the sports sector in China for the first half of 2016 topped 11 billion RMB, nearly a 300 percent increase in deal value over the 3.6 billion RMB in sports sector deals from all of 2015.
The rise of the country’s sports industry parallels the recent boom in the movie industry in China. It’s expected the Chinese film market will supplant the United States’ as the world’s largest by 2020, in large part due to similar government deregulation and support as now benefit China’s sports industry. “For the past five years, the market in the movie industry has been growing at 35 percent annually,” Han said.
Overall, China has been experiencing a recent economic slowdown. But, so far, the decelerating growth has not halted the sports-related consumption among a populace with increasing disposable income and a burgeoning interest in healthy lifestyles. The number of marathon runners in China shot up by 67 percent in 2015 from a year earlier; marathon events more than doubled to a record 134 for the same period, according to data from the General Administration of Sports.
“It is very rare to find an industry that has a relatively big size—if you look at sports markets overseas—and that’s going to go through double-digit growth,” Quan said. “Also, the sports industry is still very fragmented, with a lot of low-hanging fruit. It’s the right moment in the cycle of the sports industry development.”
And so, in October 2015, Han reached out to his friend Zhang to see if they could meet for lunch in Shanghai. At the meal, Han brought up an idea he had been germinating: What about starting a private equity firm focused on the sports industry with Yao Ming? Zhang said he had been mulling the exact same idea. “We agreed on the spot,” Han said. “Erik went to discuss with Yao Ming, and he agreed as well.”
Han had previously shared the idea with Quan. With Zhang onboard, Han asked his Booth classmate if he would like to bring that mock entrepreneurial experience from their Booth days to life.
“When the Yao Capital opportunity came along—with David and Erik, who brought Yao Ming to the NBA, it just came so naturally,” Quan said. “I always say, work with the people you know best.”
Later that same October, Yao’s legal team had approved the new venture, and Han, Zhang, and Quan, along with veteran investor Will Zhu, finalized the deal to launch Yao Capital. “As a private equity investor for so long, it’s always been my dream to set up my own shop,” Han said. “It was not a difficult decision.”
“People want to pursue higher spiritual, cultural needs: entertainment, movies, sports, and health-related activities.”
Project Penguin. Project Fuel. Project Ali. Project Thunder. These names are emblazoned on thick dossiers arrayed on a counter in the Yao Capital offices. They’re code names for early Yao Capital deals that came to fruition during the firm’s inaugural year—investments in combat sports, auto racing, sports nutrition, and online sports content.
In April 2016, Yao Capital invested in WeiSai, the sports ticketing platform on WeChat—the largest social network in China, with 800 million subscribers—bringing Project Penguin to fruition. (Fellow investor Tencent has a penguin as its logo.) Over the next nine months, they bought into a controlling interest of Canadian nutrition-supplement maker Iovate Health Sciences International Inc.; acquired a strategic stake in Glory Sports International, a global leader in kickboxing and combat sports; and became a strategic shareholder in Formula E, a burgeoning international electric-car-racing championship heavily invested in digital marketing. These early investments reveal two prongs of Yao Capital’s investment strategy: identifying a global sports intellectual property that is looking to break into the China market, and discerning foreign sports brands with favorable valuation levels.
“We really look at that entire industry value chain as a pyramid,” said Quan. “On top, you always have the IP. Say, the game. Once you have the game, you need to broadcast it. Once you broadcast it, you have to have the media value, then endorsement and merchandising opportunities come naturally.” The pyramid moves on down the value chain to supporting sectors: sports nutrition, sports equipment, sports betting. “We make sure that we have a holistic view of the entire sports industry ecosystem,” Quan said, “so that we will capture growth in each of the specific subsectors.”
In the case of Project Ali, Yao Capital seized an opportunity in the growing popularity of combat sports in China. “The hottest place in kickboxing today is China,” Zhang said. “There are more promoters in this country than anywhere in the world. There are more events staged in China than anywhere in the world. At the same time, the top-level athletes for the most part are European or American.”
Yao Capital and Glory Sports plan to form a joint venture to grow the Glory brand and develop the sport of kickboxing in China. “We see an opportunity to introduce the brand to China to marry with the best of the local organizers and promoters, and to create a league here that is not only international but Chinese at the same time,” Zhang added.
Flourish in China and internationally—that same goal applies for Yao Capital as a whole. “We hope Yao Capital will be successful in terms of influence and positive impact in China and around the world,” Han said.
To this day, Han remembers an exercise from a venture capital course he took at Booth, taught by Steve Kaplan, Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance. “He asked us to write down on a piece of paper, ‘Why do businesses fail?’” said Han. “The best answer I heard was that every business, no matter how successful, is fragile and is just one small ship in the vast ocean. You must always be prepared to adapt to the environment. You cannot be comfortable with the status quo, businesswise or careerwise. Taking risks is the only way to grow and excel.”
Given the early trajectory of Yao Capital, it appears Han’s risk in starting his own private equity shop is paying off. Han gives credit to the team he’s assembled, and to the school he gambled on, quitting his job to attend at age 32. “Yao Capital is a product of great teamwork of the Booth community,” Han said. “Three of us went to Booth. And Yao has a special affinity with Booth. This firm is a baby of Booth."
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