Dash for cash hastens Euro League arrival
How time flies when you’re raking in the cash. It was back in 2002 that Manchester United signed a 13-year “sponsorship” deal with Nike worth £303 million, a deal that also included a 50 per cent profit split from all merchandise sold. Although the current deal doesn’t expire until 2015, both parties have just entered an exclusive renegotiation period.
And there is a huge amount at stake.
The gamble for United, if reports turn out to be accurate, lies in weighing up to what extent Nike’s brand complements their own. That is to say, how many new fans, in emerging markets, will buy United merchandise because it is currently adorned with the familiar swoosh.
Trying to put a figure on that is a lot harder than answering the question that results – surely, a club as big as United, could cut Nike out altogether and absorb 100 per cent of the profits?
According to those in the know, it is a question that is being taken very seriously across both sides of the table. So seriously, in fact, that the figure being mooted for a new 10-year merchandising and sponsorship deal is said to be close to £1 billion.
There are justified arguments for doing both and weighing up the pros and cons of each will have been going on well before either party got anywhere close to that six-month renegotiation period.
Nike’s relationship with its global wholesalers is tight. In the same way that Coca-Cola provided free Coke-branded refrigerators to independent newsagents that stocked its product, Nike have ensured that many of its premium brands are stocked by sporting goods stores around the world by leveraging its footwear division.
The result of this approach greatly defines Nike’s business strategy and subsequent performance. Nike’s footwear business, which has lower margins than apparel, represents 64 per cent of its overall revenues.
But brand association has long been a driving force of the Portland powerhouse, too. From sporting heroes such as Michael “Air” Jordan to its latest flag bearer, Real Madrid’s Cristiano Ronaldo, the careful balance behind Nike’s ability to innovate, associate, market and deliver its products to worldwide audiences is much of the reason why global revenues grew last year to $5.8 billion. There is an impressive know how and relevance to Nike’s business strategy and, up until now, the world’s biggest sporting franchises were only too happy to benefit from it.
Nowhere is that business strategy better emphasised than in Nike’s run at China, an emerging market that is also hugely significant in the growth prospects of Manchester United. Nike has seen its growth in China surge to the point that sales now represent more than 11 per cent of its global sales.
The most impressive part of this performance is that Nike’s approach has largely mirrored its approach in its strongest markets, most notably the United States. Only last month, “Forbes Magazine” reported that NBA star Kobe Bryant now sells twice as many Bryant sports shoes in China than he does in the US.
Considering that most of the world’s population growth, not to mention growth of the middle class, is happening in Asia, it would be a bold decision on the part of United to disassociate itself from a brand that is so obviously adept at exploiting huge untapped areas of potential growth.
Furthermore, the money on offer from any Nike deal would be guaranteed and not dependent on performances on the pitch. It may not sound like a deal breaker but such guarantees are hugely valuable to any sports franchise, particularly, if like United, they also happen to be listed on the New York Stock Exchange. Any decision by United to operate its merchandising arm independently is likely to be met with shock and derision on Wall Street.
United’s star is undoubtedly rising, even if reports turn out to be true that Barcelona and Real Madrid have now surpassed them in terms of merchandising revenue. The Manchester club remains one of the world’s most recognisable and valuable sporting brands, a fact emphasised by the recent announcement of a seven-year sponsorship deal with Chevrolet worth £375 million.
Although the deal with General Motors for the Chevrolet logo to be worn on United’s shirts for seven seasons from 2014 is undoubtedly the club’s marquee commercial tie-up, in the financial quarter including November 2012 United entered into no fewer than 10 sponsorship arrangements.
The Chevrolet deal alone was so extraordinary that it prompted the club to buy itself out of an existing training kit sponsorship deal with DHL. In fact, it was so extraordinary that only 48 hours after it was announced, General Motors sacked the man behind it, Joel Ewanick, after it was revealed that GM would be paying £6 million a year more than current shirt sponsor Aon.
But putting that embarrassment aside, the ability of United to profit from its brand remains unparalleled in the history of British football. Manchester United the brand is as rampant as its team has been in the Barclays Premier League this season; last year, the club opened an office in Hong Kong and announced that staff costs had risen to £40.3 million “primarily due to growth in commercial headcount”.
And with more commercial staff there follows an ever-increasing amount of commercial deals – £1.3 million due to their players being selected for Euro 2012, £2 million as a result of Old Trafford being an Olympic venue and a rise in matchday revenue to £19.6 million. United estimate overall income will reach somewhere between £350 million and £360 million over the entire financial year to June 30, 2013, while its debt has shrunk to a similar figure.
When people ask me where I think football will eventually end up, I have to weigh up what I actually think will happen and how much abuse I can take given my answer. But with half a dozen clubs in each top European league all chasing the same commercial success, I’m afraid that when I look down the track the only thing that I can see coming is a speeding commercial freight train.
The glory of winning in battle still exists in football but it is a glory that is increasingly driven by people behind glass-tinted boxes wearing very severe suits. But I’m not saying that there is anything wrong with that … for now. I am happy to follow football as long as what is being offered on the pitch is entertaining.
And therein lies the crux.
There will come a time when the only way to push financial figures skyward, particularly TV revenues, will be to play more matches against the top teams. And my guess is that this will lead to two things:-
Firstly, the Champions League will be temporarily revamped so that the top teams compete on a league basis in what were the knockout rounds. And when this approach fails, the top European clubs will reject Uefa, thrash out their own TV deals and create their own league – a league in which Financial Fair Play rules do not exist and the Champions League is truly a league of the world’s championship-winning clubs.
As my father very often says when we are discussing the state of football around the family dining table: “It doesn’t matter, son. It’s all going to disappear up its own arse, anyway”. Not long from now, it will be difficult to argue.