SK Slavia Prague: A Showcase of CEFC China’s Investment Philosophy

On April 21, 2017, SK Slavia Prague, a Czech football club that was taken over by CEFC China Energy Company Limited (CEFC China) in 2015 defeated rival FC Slovácko by a score of 2-0, taking itself to the summit of the Czech First League. Since CEFC China’s buyout, the club, which was established in 1892, has come back from the brink of bankruptcy and is now enjoying a new lease of life, extending its winning streak to 24 games.

Unlike some high-profile buyouts of major league clubs, CEFC China’s tie-up with this time-honored Czech club has generally not got too much media spotlight. The Slavia deal is one of dozens that have taken place in recent years, as a flood of Chinese money has flowed into football. According to incomplete figures, Chinese firms and individuals have taken minority or controlling stakes in 20 foreign football clubs in total. However, so far just a handful of these Chinese firms have seen their investments pay off, while others have been beset by financial troubles. Of all of these deals, CEFC China’s takeover of Slavia has yielded the best returns. Only recently on the brink of bankruptcy, the club has climbed to the final of the League table, in a reversal of fortunes that exceeds CEFC China’s wildest expectations. Moreover, the buyout has given CEFC China an opportunity to showcase its unique approach to international investment.

An unexpected reversal of fortunes

Thanks to its 2-0 win over FC Slovácko, SK Slavia Prague has extended its winning streak to 24 games (21 league matches, 3 cup matches) in total. Furthermore, following league leader FC Viktoria Plzeň’s defeat to AC Sparta Prague, Slavia has now climbed to the top of the League table with a two-point lead. This stellar performance takes the club back to its glory days of the 1920s, when from 1928 to 1930, the side went undefeated for a staggering 27 games in a row.

Now, with just five rounds remaining in the top flight, Slavia has extended a considerable lead over third-place rival AC Sparta Prague, which all but guarantees the club’s entry to the UEFA Champions League. Meanwhile, in the Czech Cup, Slavia emerged from a field of over 150 teams to qualify for the quarter-finals, a commendable performance. With its growing success on the pitch, this rising star is once again commanding respect from rival teams and drawing large crowds of Czech fans to football stadiums. Indeed, Slavia already has the highest average attendance rate in the Czech leagues. Dignitaries including the Czech president, Prime Minister, the President of the Chamber of Deputies, cabinet members, and the Chinese Ambassador to the Czech Republic have repeatedly attended Slavia matches, and the club also enjoys a popular following among politicians from across the political spectrum and people from all walks of life.

Given this glowing report card, few would have guessed that the club, formerly one of the country’s strongest sides, came within an inch of vanishing altogether just two years ago. SK Slavia Prague was founded on November 2, 1892, making it one of Europe’s oldest football clubs. Its founders played an important role in the establishment of Czechoslovakia in 1918, including Edvard Beneš, who later went on to become the country’s second president. Over the years, the club has become something of a national symbol for Czech people, much like the country’s legendary Skoda cars, and the cartoon character Krtek (Little Mole.) As with the plight of the Czech people themselves, the team has experienced many trials and tribulations over the years, but has always managed to survive and stand still. It is just like the bright red star on their team shirts, filled with the hope to persevere in the face of adversity and defeat. However, after winning the Czech First League for the last time in 2009, Slavia’s financial situation deteriorated rapidly.

By September, 2015, the club was laden with debt and its finances were in tatters, giving shareholders no option but to file for bankruptcy. For the club’s players, and many hundreds of thousands of fans, this was a catastrophic loss. In a bid to save the club from its financial dilemma, talks were initiated with investors from Russia as well as other potential partners, but ultimately all of these deals fell through.

A clean start

It was at this point, when the club’s prospects were looking increasingly bleak, that CEFC China came to the rescue. According to CEFC China Board Chairman Ye Jianming, the decision to buy Slavia Prague was reached in just two days despite considerable skepticism.

In September, 2015, CEFC China acquired a 60% stake in the club, in what was a bold investment move. In November, 2016, the company increased its stake to 99.964%, leaving the remaining 0.036% of shares in the hands of Slavia fans. This gave CEFC China absolute control of the club.

Although CEFC China has not been directly involved in the club’s management and operations since the buyout, their much-needed injection of capital gave the club a chance to make a clean start. CEFC China cleared the club’s outstanding debts accumulated in the previous years and invested heavily in rebuilding the club particularly its squad, spending large sums on the retention of the team’s star forward, Milan Škoda and the signing of a new Dutch winger Gino van Kessel. CEFC China also appointed a new head coach, Jaroslav Šilhavý, who is great in strategy formulation and player selection, and popular with players for his courteous manner. CEFC China also equipped Slavia with a state-of-the-art player selection system, which analyzes player data for all European sides. This was the first such system to be deployed in the Czech Republic, and was used to select Slavia’s first new signing after the acquisition—the Cameroonian defender Michael Ngadeu Ngadjui, who has now become one of the club’s top players. On the national level, Slavia currently has six players who represent the Czech national squad, more than any other Czech football teams.

More recently, CEFC China has completed the purchase of the Eden Arena, one of the most modern football stadiums in Central and Eastern Europe. This has finally given Slavia a more permanent existence—in the past, the stadium was rented by the club when it hosted home games. This acquisition of the venue will help promote the development of the club and the stadium, and create new opportunities.

CEFC China’s successful partnership with Slavia promises to open up new prospects for the club, and pave the way for further football and sports cooperation between China and the Czech Republic, and even the central Europe. For example, with its rich resources such as a large pool of fantastic youth players and approaches to hone the playing skills, Slavia’s outstanding youth team has sent coaches to offer regular training and summer camps for Chinese players. Moreover, in the future, China’s youth squad will attend one–to-four-year training courses in the Czech Republic to enhance their skills. This training project has been selected as a model of excellence for cultural, sports, and personnel exchange between China and the Czech Republic, as part of a wider effort to promote international cooperation under China’s “One Belt, One Road” initiative.

During President Xi Jinping’s visit to Prague in March, 2016, the Czech capital hosted the first edition of the Slavia International Cup, a youth football tournament that reflects the spirit of cooperation between China and the Czech Republic in this domain. During the visit, President Xi and his Czech counterpart, Miloš Zeman, attended a reception with the tournament’s young players at the Prague Castle. This year, the second edition of the Cup was held between 21–23 April with the honorary support of the Czech President; twelve top under-15 teams from China, the Czech Republic, and other European countries competed. This was also the first time that China’s national youth squad played in the Czech Republic, fielding other well-known teams from China such as Beijing Guo’an FC, Shanghai Greenland Shenhua FC and Jiangsu Suning FC.

In addition, CEFC China has also signed a formal cooperation agreement with the Football Association of the Czech Republic (FACR), which appointed the company as an official FACR partner, and named the former Juventus midfielder Pavel Nedvěd as Global Ambassador of the Chinese Super League. This series of initiatives is helping to build bridges in the sports industries and ordinary citizens between China and the Czech Republic.

Delegated investment management model

Slavia Prague’s success was made possible not only by CEFC China’s timely investment, but also by the company’s investment management model, which encourages the delegation of authority. Slavia’s story is a perfect example of CEFC China’s overseas investment strategy, and the corporate values that underpin it. After acquiring a controlling stake in Slavia, CEFC China has been implementing its established model of strategic and financial control, but does not involve itself directly in the day-to-day running of the club, nor appoint new managers. Instead, it places full trust in the club, granting it the authority to act as it sees fit. Fully empowered, the club established an improved management system, requiring a thorough review of all important club decisions at board meetings. CEFC China has also hired a new general manager with extensive management and financial expertise, and an intimate knowledge of the football industry. Under this new management system, club staff were given clearly-defined roles, while working towards the same overarching goals.

CEFC China’s fruitful cooperation with Slavia also reflects the traditional Taoist concept of wu-wei, which means “inaction” or “action without intent”. On the surface, it appears that CEFC China’s investment in this football club was arbitrary and lacked clear intent, but it is precisely this lack of top-down direction that has given the club the latitude to thrive and “achieve action through inaction”.

When CEFC China first invested in Slavia, the board’s decision was doubted by voices inside and outside the company. Critics argued that the company was deviating from its core business and would lose money. However, Ye Jianming never intended for this investment to turn a profit. Rather, the acquisition served the high-minded goal of saving a longstanding, much-loved Czech football team from extinction. This gesture was the company’s mark of respect for Czech football and Czech culture. In return for its goodwill, CEFC China has gained exposure to millions of Czech football fans, helping to build popular trust in its own, and other Chinese brands. As a result, the company has been able to overcome many of the cultural barriers that were holding it back in this European market. This approach to investment fits into China’s “One Belt, One Road” strategy, which seeks to promote mutual understanding.

Two years on, in 2017, the impact of the Slavia buyout has far exceeded CEFC China’s expectations. These days in Prague, when a Chinese person walks into a busy restaurant, local customers may give up their table to express their gratitude to China. Likewise, if a Chinese person asks for directions at the airport, they will soon be surrounded by eager helpers. Moreover, CEFC China has now become a household name in the Czech Republic, and the company has had a positive impact on the reputation of Chinese brands in this market in general.

CEFC China has a corporate culture of “Helping others achieve before accomplishing oneself”. On the subject of the Slavia acquisition, Ye Jianming remarked: “We aren’t grabbing market share and resources. We’re just making friends, and seeking common interests, so we can develop side by side.” CEFC China has also applied this business logic to other investments it has made in the Czech Republic, which include local television channels, hotels, and charity events. The company has also helped to finance the Central and Eastern Europe Center for Traditional Chinese Medicine and has given its backing to Panda and Little Mole, a cartoon co-produced by CCTV and a Czech media group. Thanks to their ability to bridge cultural divides and build trust, these other investments also pay off.

There is one short anecdote that speaks lengths about the positive brand image and influence CEFC China now enjoys in the Czech Republic: When CEFC China’s acquisition of J&T Finance Group was nearing completion, the Czech side suddenly decided to announce the deal publicly as a test of public opinion. It was understood that if deposits at the bank fell sharply, this would signify that the public were opposed to the deal, which would be called off. However, when the acquisition was announced, deposits at the bank actually increased by ten percent, signaling public support for and trust in CEFC China.

An investment approach infused with Chinese values

The success of CEFC China’s investments in the Czech Republic is a result of the company’s effective industrial strategy and constant fine-tuning of its own corporate culture and management mechanisms. Ye Jianming often reminds CEFC China executives that a company must itself be sound before it can influence others.

For many years, CEFC China has been a trailblazer for private companies in China. The company espouses traditional Chinese values of benevolence and integrity, and draws on Chinese and Western management practices, proposing its unique concept of a “well-structured common economic entity” as its business model. This model, based on principles of self-awareness and respect for contractual obligations, and guided by a management system underpinned by entrepreneurship, Confucianism and military-style management, helps to create organized and diverse linkages between personnel and organizational structures.

Currently, the global market is ripe with opportunities for Chinese investment. On the one hand, China has proposed its ambitious “One Belt, One Road” initiative, which has enjoyed a positive reception in many countries and created unparalleled opportunities for Chinese firms; on the other hand, in the aftermath of the 2008 financial crisis, prices for energy resources have fallen and many overseas assets are now undervalued. During the execution of CEFC China’s investment strategy, Ye Jianming has shaped an innovative corporate governance model, where headquarters are responsible for overall strategic and financial control, and subsidiaries are formed as partnerships on the business front line. This combines the advantages of a consistent corporate strategy, culture and management approach with the flexibility of a private Chinese business, allowing CEFC China to leverage international investment opportunities and drive its development.

As of last year, CEFC China acquired a controlling stake in KMG International (KMGI), a division of National Company “KazMunayGas” (KMG) of Kazakhstan, and was awarded an interest in Abu Dhabi’s largest onshore oil concession with a term of 40 years. CEFC China also entered into a strategic partnership with Cowen Group, a NASDAQ-listed financial services company, making it the Group’s biggest stockholder. A suggestion as to how CEFC China achieved this rapid portfolio expansion might be found in the minutes of the company’s latest board meeting: During the meeting, Ye Jianming once again focused on the organizational and management structures necessary to support CEFC China’s investment strategy. He stressed the importance of the company’s unique governance model, where headquarters are responsible for strategic and financial control, and subsidiaries are formed as partnerships on the business front line. He noted that this was an important component of the company’s well structured “common economic entity” business model. According to Ye Jianming, CEFC China already has a competitive advantage in terms of its strategic influence and layout, but it must work quickly to achieve its strategic goals, which requires the establishment of institutional safeguards. He believes that CEFC China must strengthen financial controls and independently-designed assessment systems of asset and management performance to allow the company to focus on its core businesses, develop specialized staff, securitize assets, and promote refined management.

In CEFC China’s portfolio of overseas investments, there are many examples of the company helping others achieve before accomplishing oneself, just as it did for the Slavia deal. CEFC China’s investment principles and management practices provide the pillars that underpin its overseas investment strategy. Without them, the company would not have come as far as it has today. This institutional framework provides the basis for Chinese companies to achieve truly global development in today’s competitive market.

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