Thursday, October 4, 2012
Manchester United to cash in on next deal
By Kristi Dosh
Manchester United has been sitting idle as its competitors have signed new deals with apparel companies worth double United’s current yearly paycheck from Nike. When the club enters its exclusive negotiating window with Nike in February, however, experts say the deal will set the market for the foreseeable future.
Just months after Manchester United executives celebrated the club being listed on the NYSE, the club is expected to ink a new kit deal that will set the apparel market.
“We are in a period during which the optimum length and value of a kit deal have really yet to be established,” said Simon Chadwick, chairman in sport business strategy and marketing at Coventry University Business School in the United Kingdom. “Any Manchester United deal is thus likely to be a barometer of the way in which the market is likely to develop over the coming years.”
The current Nike deal pays United approximately 23.3 million pounds ($37.5 million) per year. It pales in comparison to the eight-year extension Real Madrid recently signed with adidas, worth 32 million pounds ($51.5 million) annually. Even Liverpool, which finished with its worst record in nearly two decades this past spring, scored 25 million pounds ($40.3 million) per season during the next six years thanks to a new contract with Warrior, a division of New Balance. Liverpool’s new deal was more than double its previous yearly compensation from adidas.
New Balance isn’t the only company trying to gain market space in European soccer. Under Armour signed Tottenham last year, adding it to a stable that includes teams in Germany, Greece, Japan and Mexico. Add others already in the market such as adidas and Puma, and there’s stiff competition, which experts say will benefit United.
“Nike knows better than any other company what competition is,” Michael Desbordes, a professor of sports marketing at ISC School of Management in Paris, said in an email, referring to Nike’s own entry into the market in the mid-1990s. “They were successful because they picked the best teams thanks to huge financial means.
“If the new competitors are strong enough to pay more for Man U, maybe they can win this bid, but I am quite sure it will not happen.”
Desbordes points out the popularity of United's Wayne Rooney as a key reason Nike won’t risk losing the kit sponsorship. According to social media analytics company SocialBakers.com, Rooney is one of the most popular athletes on Facebook, with more than 9.8 million followers.
In April, the Premier League announced more Rooney jerseys had been sold than any other in the league’s 20-year history.
“They can help Nike sell shirts worth 80 [pounds] each,” Desbordes said. “So, the power of Man U considering merchandised products is unequaled.”
Chadwick agrees with Desbordes that Nike will fight to keep United.
“The European market is an incredibly lucrative one for sportswear manufacturers,” Chadwick said. “At the same time, European football, and the league and clubs within it, benefit from significant brand equity in markets across the globe. This means that a Nike deal with a club like Manchester United can potentially deliver competitive and financial benefits that will extend beyond Europe.”
United recently released its financial results from its 2012 fiscal year, reporting a 3 percent decline in overall revenue. The club lost out on valuable television and gate revenue when it was knocked out in the group stages of the Champions League in December and then exited the FA Cup early. Overall broadcasting revenue for the year fell by 11 percent but is expected to increase this year.
Outside of television, sponsorship and merchandise are the other major sources of revenue for European teams. United did see 14 percent growth last year thanks to a new seven-year deal with GM worth approximately 30 million pounds ($48.3 million) annually, which included an upfront 64 million pound ($103.3 million) activation fee. Experts expect they’ll see even more growth with a new Nike contract.
“In the light of new kit deals being signed by the likes of Liverpool, Manchester United will be seeking to ensure that they are able to at least match, if not surpass, the revenues being secured by their rivals across Europe,” Chadwick said.
“There is also some pressure on United to improve their financial performance, hence when the club sets out to negotiate a new kit deal, they are likely to play hardball with their prospective suits in order to generate as much money as possible.”