Anta shrugs off short-seller report, targets Zion Williamson for shoe deal

The China Sports Column is a SupChina weekly feature in which China Sports Insider Mark Dreyer looks at the week that was in the China sports world.

It’s not often I get to connect Chinese President Xi Jinping and generational basketball talent Zion Williamson in the same sentence, so please bear with me here.

First, some history.

Anta is one of China’s top sportswear brands and will serve as the country’s official sports apparel partner at the 2022 Beijing Olympics — having fulfilled the same role at Sochi in 2014 and Rio in 2016 — and is also a sponsor of more than a dozen domestic winter sports teams.

There’s a pretty good reason why the company is so patriotic: it’s based in the southeastern province of Fujian, where Xi Jinping served for 17 years (1985-2002), the last three years as governor.

Not only is the Xi connection evident at Anta HQ in the city of Jinjiang, but the Chinese president wore an Anta jacket while inspecting some of the 2022 Winter Olympic venues a couple of years ago, an image that was broadcast at length on CCTV, sending Anta shares up 3 percent as a result.

That very same share price has been in the news again this week, after the company was targeted by notorious short seller Carson Block and his firm Muddy Waters with a report that was released on Monday.

In summary, while the 106-page report — provocatively titled “Turds in the Punchbowl” — admitted that Anta was a real business (unlike some of the total fakes it has exposed over the years), it alleged that the company fraudulently boosts its profit margins, disguises its subsidiaries as independently-controlled distributors, and publishes financial numbers that cannot be trusted.

Muddy Waters has promised to release a series of reports on Anta in due course, which will no doubt further foster its fecal portrayal of the Chinese firm.

It’s the nature of the business that short sellers — i.e. firms or individuals who place large bets that a company’s share price will fall in value immediately before releasing reports outlining why that company’s share price is overvalued — will swing and miss from time to time, but Muddy Waters’s reputation continues to be solid among the industry.

In other words, they are right — and make money — more often than not.

It was no surprise, then, that the stock price took a dive on Monday morning, initially plunging more than 8 percent before the company voluntarily suspended trading before lunchtime and vowed to investigate the reports.

That might sound drastic, but companies tend to take decisive action when $1.5 billion in value is wiped out within a couple of hours.

So far, it seems to have been a pretty smart move.

After stemming the tide, the company declared that the Muddy Waters report was ”incorrect and misleading,” before shares resumed trading on Tuesday.

The share price has stabilized — and is still well up for the year as a whole — as Anta weathered what was the third targeted attack on the company in a little over 12 months.

But with all this going on at home, Anta has been keen to make a splash abroad.

The brand already sponsors Klay Thompson of the Golden State Warriors, with whom it signed a 10-year shoe deal in 2016, and has had tie-ups with Kevin Garett and Rajon Rondo, among others.

Klay Thompson Anta

And while Thompson is a three-time NBA champion, a contract with New Orleans Pelicans center Zion Williamson — one of the most hyped athletes in years — would be a significantly bigger deal.

The 2019 No. 1 draft pick famously tore through his Nike shoe during a college game at Duke earlier this year, and has been trying out various brands, including Nike, in recent weeks before he signs what some are expecting to be an unprecedented $100-million rookie shoe deal.

Despite the rising status of Chinese sneakers relative to their U.S. counterparts — helped by stars like Dwyane Wade, who pioneered the NBA-to-China trend with Li-Ning — Chinese companies still have to overpay to lure U.S.-based talent away from the more established brands.

Anta has reportedly offered Zion a four-year deal worth $80 million, well above what the Western brands are prepared to shell out on an annual basis and double what was being discussed just a few months ago.

For reference, LeBron James got $87 million from Nike in 2003 in a seven-year deal ($12.4 million/year), while Kevin Durant received $60 million, also from Nike, in a seven-year deal in 2007 ($8.5 million/year).

Anta’s $20 million/year offer blows those two deals out of the water, but it’s been overshadowed by a domestic rival.

Li-Ning has gone all in with a reported $250 million, 10-year deal, though locking Williamson in for a far longer term perhaps still leaves Anta as the top Chinese option.

Anta is still considered an underdog for Zion’s signature, given the reputational risk involved with partnering with a lesser known brand, but what a story it would be if the Xi-backed sneaker company from Fujian shrugged off multiple attacks on its financial credibility to land the contract of the decade.

The China Sports Column runs every week on SupChina. Follow Mark Dreyer @DreyerChina.