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NBA Gets Assist from China

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Stake in Cleveland Cavaliers just the latest Chinese hoop dream.

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Cavaliers
There's a question haunting our halls of government: Just who's going to finance the US's ballooning debt? In other words, who's going to keep buying US Treasury bills?

Until now, it's been China. Though it isn't clear whether that will continue, the Chinese government is finding more subtle ways to pick up little pieces of America.

Last weekend, the NBA's Cleveland Cavaliers agreed to sell a 15% stake in both the franchise and its arena to a group of Chinese investors. The agreement represents the first significant investment in a major sports franchise by Chinese investors.

The deal has been characterized as an ambitious move by American sports, and as an attempt to tap into the vast Chinese marketplace. The NBA is incredibly popular there; at the Beijing Olympics, the American basketball team drew nearly as many Chinese supporters as the Chinese team itself. The NBA has already established a joint venture in China to develop a basketball league and attendant professional arenas.

NBA commissioner David Stern told the New York Times that the deal would be "the natural next step in our relationship with China" and "very much a validation of our business expansion there."

From another angle, the deal seems like more of a coup for the Chinese investors. Buying the Cavaliers means buying a piece of pure Americana -- a hard-luck franchise in a hard-luck, Rust Belt city -- and also offers a greater potential return than those pesky Treasury bills.

The group also, by extension, gets a piece of Lebron James - the best player on the planet. (The Cavs are doing everything they can to ensure that James will re-sign as a free agent after next season.) Again, a wiser investment than Treasury bills - or investing in Blackstone (BX) and Morgan Stanley (MS), as one Chinese sovereign wealth fund did at the stock market's apex in 2007.

The only thing more wholesomely American than team sports? Owning your own home. And Chinese investors are getting in on that act, too. As I wrote in China Goes Shopping for Subprime, several American and Chinese companies have set up tours to show foreclosed properties to Chinese buyers, mostly in American cities.

Those tours might want to turn their attention to Cleveland, where 1 out of 13 homes stands vacant as a result of foreclosure, and property is selling for $5,000 a pop. Chinese fans could scoop up houses for less than the price of season tickets.

For a hard-luck city like this one, it may be the only viable redevelopment strategy.
No positions in stocks mentioned.

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