LeTV Sports is going out of business after losing its core copyright

The lack of follow-up funds has broken down LeTV Sports’ core copyright barrier, but insufficient operational capabilities are the more long-term problems faced by companies like LeTV Sports.

On March 6, LeTV Sports held a meeting for all employees.

In the LeTV Sports studio located in the Dentsu Creative Center, facing hundreds of LeTV Sports employees, LeTV Sports CEO Lei Zhenjian took all the responsibility, "I'm sorry for putting everyone under pressure and doubts. These are all my own problems."

The reason for the meeting was that two weeks earlier, LeTV Sports had successively lost the copyrights of AFC events and the Chinese Super League. LeTV Sports President Zhang Zhiyong and Chief Operating Officer Yu Hang had successively submitted their resignations, and the copyright barriers that the company had built collapsed in an instant.

It can be said that LeTV Sports is facing the biggest crisis since its establishment, and it is also paying the price for its previous "blind rush".

"I never believed they gave up the AFC Champions League," Li Yidong, chairman of Ti Ao Power, which took over the AFC copyright that LeEco gave up, lamented to CBN Weekly, "LeEco is not so far away from being unable to raise this little money, but it really didn't."

Ti Ao Dianli owns the copyright of the Chinese Super League and the Chinese team, which are the most valuable sports resources in the Chinese sports market. LeTV Sports signed a two-year 2.7 billion yuan Chinese Super League broadcasting contract with it in February 2016, and subsequently completed mutual shareholdings.

In April 2016, LeTV Sports completed its B round of financing of 8 billion yuan, with a valuation of 21.5 billion yuan. It was at this time that Ti Ao Power became a shareholder of LeTV Sports. "Ti Ao only invested a symbolic amount," said Li Yidong, adding that the investment amount was 200 million yuan.

Although he is both a partner and shareholder of LeTV Sports, Li Yidong did not have a peaceful life last year. After signing the Chinese Super League contract, LeTV Sports began to default on its funds. In the contract signed between Ti Ao Power and LeTV Sports, the copyright fee for each season was paid in three installments, "and each installment was delayed, with the longest delay being three months."

It is not just Ti Ao Dianli, other copyright holders have also encountered similar situations. A former employee of LeTV Sports’ copyright department told CBN Weekly that since August 2016, a large part of his job has been dealing with copyright crises. “When others push for too much, I just give up a little bit and delay as much as possible.”

LeTV Sports' behavior also attracted the attention of the AFC copyright agency Lagardère Group. In October last year, Lagardère Group informally asked Li Yidong, "If LeTV is lost, will you want it?"

Li Yidong did not think much about it at the time, as he always believed that LeTV Sports would pay the money. It was not until January 2017 that Lagardère Group and Ti Ao Power began to have pragmatic communication. At that time, Lagardère Group gave LeTV Sports a one-month buffer period, but the funds still did not arrive during this month.

The breach of contract termination letter was issued by the AFC after the first round of the AFC Champions League was broadcast on LeTV Sports on February 23. However, LeTV Sports did not release any public news about this. Instead, it publicized that the revenue from new members in the first round of the AFC Champions League exceeded 7.5 million yuan. The membership payment business on the LeTV Sports page still included AFC Champions League rights and interests in the following days and was still on sale. It was not until February 28 that the termination of the copyright cooperation was officially announced.

In the past month, Li Yidong began to communicate with broadcasting platforms including Suning Sports. Li Yidong asked them "will you bite?" and the answer he received was "yes!"

The word "bite" is like a fight and encirclement. Whoever makes a mistake first will easily fall. Obviously, LeTV Sports made the first mistake. "Low-level mistake." This is Li Yidong's evaluation of LeTV Sports in this fight. "I can't imagine that they will lose."

You should know that the AFC copyright is exclusively broadcast on the LeTV Sports platform, which is the product with the highest barrier and the easiest to drive payment. Apart from this, neither the Chinese Super League nor the Premier League has such a barrier advantage.

"It's shocking but also understandable," said Liu Fei, a former employee of LeTV's event operations center. LeTV Sports had shown such signs in its previous performance, but it was still unexpected to lose the AFC Champions League.

LeTV Sports was somewhat lucky in that it paid off its overdue payments for F1, ATP and Premier League copyrights almost immediately after the suspension signal was given. But this time, the AFC copyright holder was obviously more proactive.

"Lagardère's mentality is the same as ours. They always procrastinate. Are they in a precarious state every season?" Li Yidonggang said that the Chinese Super League also has such considerations when choosing new partners.

LeTV Sports has not yet made any clear statement on the broadcast of the 2017 Chinese Super League, but according to the contract with Ti Ao Power, LeTV Sports had actually breached the contract on March 2.

In fact, before this, LeTV Sports had already shown its intention to "not take the Chinese Super League". After Sunac China became the second largest shareholder of LeTV, Sunac China Chairman Sun Hongbin said in a telephone conference with investors, "LeTV Sports does not need to buy the Chinese Super League this year. I think the tens of billions of yuan for the Chinese Super League is meaningless."

Ti Ao Dongli had already sensed something was wrong. In fact, from the moment the contract was signed, the relationship between the two parties was not as close as it seemed to the outside world. At the press conference in 2016 when LeTV Sports won the Chinese Super League copyright, Li Yidong quoted a poem by Bei Dao: Where rivers freeze, roads begin to flow.

Now, the road has changed. "My speech was very short," Li Yidong recalled, "At that time, I didn't know how long they could last." In fact, LeTV Sports was not the best choice for Ti'ao Power. It was more like an unplanned cooperation, which was related to the relationship between Ti'ao Power's shareholders CMC and Tencent and Alibaba. "The reality pushed the result to this point."

Shortly after the signing of the Chinese Super League copyright, Suning Group executives invited Li Yidong to watch Jiangsu Suning's Asian Champions League match. The executive clearly told Li Yidong, "We also want the Chinese Super League." Li Yidong also had a bottom line in his heart, "I know they will accept."

The Chinese Super League can be said to be the most benchmark and commercially valuable product in China's sports industry. LeTV Sports itself does not want to give up. Both Liu Jianhong and Lei Zhenjian hope to continue to fulfill their contracts. "The problem lies at the group level."

LeTV Sports has always existed as a sub-ecosystem under LeTV Group, but like other sub-ecosystems of LeTV, the boundary between the listed and non-listed parts is unclear. Take Sun Hongbin's talk about LeTV Sports as an example. He only invested in the listed company LeTV.com, which has nothing to do with LeTV Sports. Logically speaking, Sun Hongbin is not qualified to participate in the business of LeTV Sports.

However, this is the reality of LeTV Sports. From the very beginning, LeTV Sports has relied heavily on the blood supply of LeTV Group. The fate of LeTV Sports has not been in its own hands since the beginning, even from the beginning of financing.

An investor who has seen LeTV Sports' financing documents told CBN Weekly that LeTV Sports' financing all included a commitment to go public. At the same time, if it fails to go public, the investor has the right to require the major shareholder to repurchase the shares at a certain price.

"It looks like a form of equity financing, but in fact it is Jia Yueting's personal credit loan." The above-mentioned investor said that this form of financing is most popular among third-party financial management institutions, so a large number of financial products will be sold.

In his opinion, LeTV Sports did not have many core businesses, and copyright monetization required strong operational capabilities, which LeTV Sports did not have. However, thanks to the sports investment boom at the time and the accumulation of copyrights, LeTV Sports' valuation increased nearly 10 times in less than a year.

However, the 8 billion yuan of financing was not fully used in the subsequent business. Sun Hongbin made it clear in the conference call that 3 billion yuan of the 8 billion yuan of financing was used for other purposes. Jia Yueting said that after the sports financing was completed, the money borrowed from the holding company in the early stage would be repaid.

"After raising funds through sports, they quickly moved the money away." A Le Sports shareholder told CBN Weekly that only a small amount of funds was left for Le Sports.

This also explains why LeTV Sports was short of money in copyright payments right after it completed its financing. One fact that can be confirmed is that LeTV Sports’ 8 billion yuan in financing was not fully used for subsequent business. “If the funds were there, they wouldn’t be in the situation they are in now,” said the above shareholder.

Comparing LeTV Sports' two rounds of financing and copyright purchases, CBN Weekly found that after the A round of financing of 800 million yuan, LeTV Sports won the exclusive rights of the Premier League in Hong Kong, with an amount close to 400 million US dollars, and a bank guarantee was required, which means that LeTV Sports' own financing ability alone cannot fully pay the copyright fees. This is the fate of every LeTV sub-ecosystem, and it is still controlled by LeTV Group.

When LeEco's overall funding was in trouble, LeEco Sports was inevitably implicated. One month after Jia Yueting released his internal reflection letter, LeEco Sports also released its own internal open letter.

LeTV Sports re-divided its internal structure to establish a new media and online business group, an offline commercial business group and a sports consumer business group. It re-divided the previous four major copyrights of event operations, content media platforms, intelligence (sports venues, hardware) and value-added services. Among them, value-added services belong to the new media and online business group, and intelligence belongs to the sports consumer business group. Two of the four major businesses have been shrunk.

Wang Yong, an early mid-level employee of LeTV Sports, told CBN Weekly that LeTV Sports did not define itself as a sports media platform. During 2015, LeTV employees tried to avoid talking about media attributes during meetings. As an Internet sports company, LeTV Sports believes that it should be more associated with intelligence, technology and other factors.

Even Internet sports companies still have to return to the logic of the sports industry itself. Sports is not like other Internet industries that can grow at a high speed, but an industry that takes time to develop.

Running like crazy in an industry that requires marathon-like long-distance running may result in sudden death. Qiu Zhiwei and Liu Zhijie, who were in charge of event operations, resigned in the first half of 2016. In the intelligent business, although LeTV has bicycle products, the sales volume is not ideal. "Except for LeTV employees, I have not seen anyone riding LeTV bicycles on the street." Wang Yong said.

Many former employees said that there was a big gap between what they had imagined before joining the company and what actually happened after joining. "Many things are only at the design level." Liu Yong gave an example, when he was in office, the e-commerce business had been discussed for a long time, but until now, not many products have been sold.

This is also a problem encountered by senior executives. In addition to Qiu Zhiwei and Liu Zhijie, LeTV Sports editor-in-chief Ao Ming left after six months in office, and president Zhang Zhiyong also chose to leave within six months.

"It's like a black hole," Wang Yong said when describing this phenomenon. "Many executives come here not because they don't want to do the job, but because they can't do it at all." After leaving, he occasionally meets with LeTV Sports employees. Recently, he has heard more about their reflections and analysis. "If LeTV still has money, these problems will be covered up."

Extensive is another obvious feeling of the resigned employees. An obvious example is that this company, which was spun off in 2014, did not establish its own human resources and financial departments until a year later. Before that, it was managed by LeTV Group.

The new structural adjustment is to some extent a negation of the original business model. However, the original four major businesses supported LeTV Sports' valuation of more than 20 billion yuan. Lei Zhenjian has repeatedly stated one point: LeTV Sports' goal is not just ESPN.

Now it seems that LeTV Sports' pragmatic goal may be to become ESPN first. In terms of overall business, LeTV Sports can only show off its media sector, and the person in charge of this sector, Liu Jianhong, has been promoted to co-president, and Yu Hang, who is in charge of copyright, has been promoted from vice president to chief operating officer before leaving.

"In fact, LeTV Sports is still making crude purchases," said Wang Yong. It can be said that copyright is the most important barrier for media platforms, but once there is a problem with funding, the barrier will disappear.

Looking back at LeTV Sports' history since the completion of its Series A financing, a crucial node was the cancellation of the International Champions Cup originally scheduled to be held at the Bird's Nest in July 2016. Since then, bad news has come one after another.

"The Bird's Nest was a watershed. From then on, it was a heavy blow to both investors and cooperative partners." Li Zheng, a former employee of LeTV Sports, told "First Financial Weekly".

After the International Champions Cup, Liu Shijie, general manager of the event operation center, chose to resign. Many employees of LeTV Sports' event operation department also resigned. Liu Fei was an employee of the event operation center at the time, and he also witnessed the ups and downs of the event operation department.

At the beginning of 2015, Liu Fei joined the event operation department of LeTV Sports, which had less than 10 people at the time. By April and May, there were already 40 to 50 people, which was equivalent to LeTV Sports temporarily setting up a team for the International Champions Cup. According to Liu Fei, throughout 2015, in addition to the International Champions Cup, the event operation department also organized road running and other projects, which were basically in a state of slight loss.

In 2016, with the cancellation of the International Champions Cup at the Bird's Nest, the entire team disbanded. "It was already difficult to promote new events at that time." Liu Fei sensed that this was a change in the company's strategy and quickly transferred to another department.

Almost at the same time, the copyright division where Li Zheng worked also encountered problems. He had as many as 50 to 60 copyrights that needed to be maintained and managed later. "The rights and interests of many copyright contracts were not clear and were quite messy."

While there are so many copyrights, LeTV Sports has not set priorities, which makes Li Zheng feel at a loss. "Why not develop high-quality copyright resources first?" This is the question that Li Zheng has been asking himself during his six months of work at LeTV Sports.

The reason why he chose to leave LeTV Sports was that LeTV Sports was in arrears with copyright fees. "The sports industry is so small and everyone knows each other." Such arrears have affected his personal integrity. Li Zheng's previous sports media had almost no arrears of fees. This is not a normal phenomenon in the industry, but it has become the norm in LeTV.

Lei Zhenjian said at the all-staff meeting that temporarily losing the copyright would allow for more refined operations. But perhaps he also knew that losing the top copyright meant losing several years of opportunities, and LeTV Sports was no longer on the table.

Lei Zhenjian, CEO of LeTV Sports, said at a staff meeting that the temporary loss of copyrights would allow for more refined operations. However, after losing the top copyrights, LeTV Sports can no longer become a major player.

Li Yidong revealed that the cooperation with Suning Sports will be a long-term cooperation. In addition, CMC and Suning Sports are negotiating the transfer of shares. This means that the AFC's event copyright for the next three years, the Chinese Super League copyright for the next four years, and the La Liga copyright up to the 2019/20 season will all be broadcasted on Suning Sports. In addition, it also includes the Premier League copyright from the 2019/20 to 2021/22 seasons.

In Li Yidong's view, only top resources can allow a sports media platform to quickly build a moat, but at the same time it also needs to bear early losses. "It's hard to play without money."

Tencent Sports and Suning Sports have almost won all the top copyrights in the Chinese market at this stage. Tencent focuses on basketball, while Suning has taken over football. The dual platform of the sports media market has gradually emerged. The platform with the top copyrights has more bargaining power. The copyright holders not only pay attention to the copyright fees, but also care about the broadcasting platform's dissemination of the event. The only opportunity left for LeTV Sports may be the CBA bidding this year.

In China, ESPN is the goal of all new sports media platforms and the easiest story to present to investors. However, China's sports media platform has always been undertaken by free TV organizations, and it is not easy to establish a new order.

The most important obstacle facing them is CCTV 5. Liu Jianhong, co-president of LeTV Sports, publicly stated at a sports forum hosted by LeTV at the end of last year: "We have raised the copyright to a sky-high price, so the product should conform to commercial logic. I think that there should not be so many TV stations broadcasting the Chinese Super League for free. This is the biggest damage to the commercial value of the Chinese Super League."

This was interpreted by the outside world as a pressure on the Sports Olympic Power. Li Yidong admitted that this was the current situation caused by the long-term broadcasting pattern, and it would take time to change. Take the Chinese Super League as an example. Due to historical reasons, the Chinese Super League matches are broadcast on both Gansu Satellite TV and Qinghai Satellite TV. The possibility of paid broadcasting this season is not high.

However, in the next season, Ti Ao Dianli, which fully owns the copyright of the Chinese Super League, will readjust its broadcasting strategy and cooperate with new media platforms to promote payment. "The contract stipulates that local sports channels must broadcast it, but it does not say live." One envisioned method is that local sports channels broadcast at the end of the first half, and new media and local sports stations form differentiated services.

A little-known fact is that although LeTV Sports and Lagardère signed an exclusive all-media copyright agreement, there is still a clause for broadcasting on CCTV Sports Channel. In the actual broadcast, LeTV Sports did not broadcast on CCTV in order to promote paid services. The reason for the termination of the contract is also related to this to a certain extent.

"It's the same for us," said Li Yidonggang. "It's very strange. The copyright owner asked me to pay according to the market price, but also wanted to ensure exposure on free platforms." This is equivalent to a dead end. CCTV relies on its own advantages to broadcast at a low price, while new media platforms broadcast at a high price.

The sports media copyright market in China is not a fully commercialized market. LeTV Sports was the first to break into the market, but suffered a terrible failure.

LeTV Sports launched a 590 yuan annual membership last year, claiming that users can watch more than 50 football events alone. However, the reality is cruel. These games are not very attractive to users, which is determined by the Chinese sports consumption market environment. Take the Premier League as an example. This is the most popular sports event in China, but the number of paying users per year is only 1.03 million, including users who purchase single games.

This is the story of the video industry. Everyone knows where the road is, but everyone also needs to endure the endless darkness before reaching it. Those who cannot bear high bidding and losses will be driven off the table by newcomers.

Several former employees who were interviewed by China Business Network Weekly said that LeTV Sports provides the best platform for young people like them, which is a resource that traditional sports media cannot access.

The business world is cruel but fair. If a company does not have sufficient funds and a sustainable business model, it can only leave the center of the industry.

At the staff meeting that day, LeTV Sports Vice Chairman Ma Guoli was also present. The industry leader, who once served as director of the CCTV Sports Center, told his young employees that new sports media platforms would definitely emerge in China and that he was still optimistic about LeTV Sports.

A new sports media platform will emerge, but will it be LeTV Sports? At least not yet.

At the request of the interviewees, Liu Fei, Wang Yong and Li Zheng are pseudonyms in this article.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.