Season Investments


Bending The Knee

Posted on October 15, 2019

“I understand there are consequences from his freedom of speech and we will have to live with those consequences.” – NBA Commission Adam Silver

2019-10-15_china.jpgA little less than two weeks ago, Houston Rockets General Manager Daryl Morey released a tweet that sent shockwaves around the world. What, you might ask, could an NBA General Manager possibly tweet that would have such an impact? Just a two sentence, seven word statement: “Fight for Freedom. Stand with Hong Kong.” The tweet went fairly unnoticed here in the US, but it sparked outrage and spread like wildfire throughout mainland China.

For those that aren’t entirely up to speed on their geo-politics, protests have been raging in Hong Kong since June over a proposal to allow criminal suspects to be extradited to China. Up until 1997, Hong Kong was a British colony under British rule before returning to rule by the Chinese. Since then, it has operated under a “one country, two systems” arrangement where the rule of law and government more mirrors its British rather than its Chinese ancestry. When the extradition bill (Fugitive Offenders and Mutual Legal Assistance in Criminal Matters Legislation (Amendment) Bill 2019) was introduced in April, a wave of dissention quickly grew over the fact that it would give China greater influence and potentially expose the citizens of Hong Kong to unfair trails and violent treatment.

The Chinese police have had a number of violent interactions with protestors including an incident in which an 18 year old was killed when live bullets were fired into a crowd.  The mob of protestors have also been assaulting police with petrol bombs and other weaponry. Although the proposed bill was dropped in September, protests have continued to escalate with demands for a full democracy and a full accountability of police actions. Just yesterday, the protestors came out in force urging the US Congress to pass a bill that would sanction and penalize any Chinese or Hong Kong officials who suppress their efforts for full democracy.

For even more background information which everyone already knows, the Communist Party of China (CPC) has a long history of authoritarian rule with human rights violations and free speech censorship. China is also a massive country with four times as many people as we have here in the US, and the Chinese happen to love the game of basketball! Last year, Chinese internet company Tencent streamed NBA games to over 500 million Chinese people…that’s roughly 160 million more people than every person living in the US! As such, China is a tremendously valuable market to the NBA. So when a General Manager of an NBA team posts a tweet in support of a group of individuals who oppose the Chinese government…things escalate quickly.

Shortly after Daryl posted the tweet he deleted it from his feed, but the proverbial cat was already out of the bag at that point. Many Chinese fans were outraged, swearing off of ever watching the NBA again. Meanwhile, here in the US, social media was ablaze in support of Mr. Morey’s right to free speech including a statement from President Trump about how he felt the league was pandering to China. While walking the fine line of supporting the right to free speech, NBA Commissioner Adam Silver immediately entered damage control mode stating that Mr. Morey didn’t speak on behalf of the entire league.

But the fun doesn’t stop there! In the week that followed, there was even more fall-out:

  • Chinese owned CCTV which holds the broadcast rights to the NBA, decided to pull the plug on airing multiple NBA pre-season games taking place in China.
  • Chinese internet company Tencent announced it would stop airing the ESPN show Woj in the House because the host of the show (NBA analyst Adrian Wojnarowski) “liked” the tweet in question before it was deleted. Tencent also announced it would no longer air any Houston Rockets games.
  • The Chinese Basketball Association cancelled planned exhibition games with the NBA G League.
  • Members of the U.S. Congress penned an open letter to Adam Silver calling for the league to suspend all business with China until “government-controlled broadcasters and government controlled commercial sponsors end their boycott of the NBA activities and the selective treatment of the Houston Rockets.”

And the list goes on.

Generally, where the dissemination of information continues to be more and more decentralized, the awkward intersection of business and politics will continue to become more and more prevalent. Maintaining good business relations with China by bending the knee to their wishes isn’t something that is isolated to the NBA. Apple has a long history of giving in to Chinese demands including censorship and the recent removal of the Quartz app which included coverage of the Hong Kong protests from the Chinese app store. Additionally, Hollywood continues to filter blockbuster movies through Chinese colored glasses by including Chinese products and actors as well as even removing potentially offensive imagery such as the Japanese and Taiwanese flags from the back of Maverick’s jacket in the new Top Gun reboot.

It wasn’t long ago when business and politics were very much two separate things that rarely mixed (at least in the public eye). But this isn’t the case anymore. The U.S. consumer today is more informed and interested in the political views of the companies which they support. As such, the dance of navigating business interests (i.e. profits) simultaneously with political posturing will continue to be a tricky one. The explosive situation within the NBA highlights a rising tension between our ideology of free market capitalism and our belief in the individual’s right to maintaining their own personal ideologies and exercising free speech. I guess time will tell which force with eventually bend the knee to the other.

elliott_headshot_bw.jpgAuthor Elliott Orsillo, CFA is a founding member of Season Investments and serves on the investment committee overseeing the management of client assets. He spent nearly ten years as a financial analyst and portfolio manager working primarily with institutional clients prior to co-founding Season Investments. Elliott earned a bachelor's degree in Engineering from Oral Roberts University and a master's degree from Stanford University in Management Science & Engineering with an emphasis in Finance. Elliott and his wife Gigi have three children and like to spend their time outdoors enjoying everything the great state of Colorado has to offer.

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