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The good and bad of Arsenal’s £300m Adidas deal

Arsenal are set to announce a new kit sponsorship deal with Adidas, 24 years after swapping the German sportswear giant for Nike.

The 5 year deal is reportedly going to be worth £300,000,000, or £60,000,000 a year.

It will see Arsenal bring in £114,000,000 a year from its 3 main sponsors – Adidas, Emirates and Visit Rwanda. This represents a huge increase on the £16.8million Arsenal received in 2013 from Nike and Emirates.

Here are my thoughts:

Ivan Gazidis showing his worth?

Some will point to the huge deals as highlighting what Ivan Gazidis does. That in his time at Arsenal he has bought in record revenues to the club.

But as the aphorism go’s; “a rising tide lifts all boats”.

Whilst Arsenal have broken club records in terms of revenues, it is in an era that all clubs are doing similar. In fact, according to Swiss Ramble only Liverpool have had slower commercial revenue growth than Arsenal since 2009.

Manchester City’s figure has to come with a pinch of salt – their huge growth has come from their mega-rich owners sponsoring themselves.

Back in 2009, Arsenal’s commercial revenue was 68% of Manchester United’s. 8 years later it is just 42%.

Liverpool, Arsenal, Chelsea & Tottenham have all increased their commercial revenue by a similar percentage, whilst Manchester United have pulled away from the other 4.

So is it a success that Ivan Gazidis has kept us on par with other clubs? Or would this additional revenue have come in regardless? IE everyone’s has risen, so it is only natural that Arsenal’s would have risen.

The new mega-record-breaking shirt deal highlights this.

Is it a success to shout about a new £60million a year shirt deal when Chelsea have the same deal? And Manchester City are set to sign a £50million deal with Puma. Everyone else’s deals have risen, so it is only natural that Arsenal’s has.

Meanwhile Manchester United recently signed a £75million deal with Adidas

The fact we have let Manchester United get away from us is a complete and utter failure of our commercial department. One that has held the club back for a decade, and why I am not too bothered if Gazidis leaves.

Double Edged Sword

Shirt deals are always a double edged sword in my opinion.

On one hand, the increased revenue coming into a club is much needed. It will allow for better players to be signed, which in turn should lead to a higher chance of success.

On the other hand, Adidas will want to see a return on their investment.

These huge kit deals we are now seeing throughout European football are the reason why we now get 3 its a year, at a cost of £60.

Back when I grew up, Arsenal would bring out one kit a year.

A home kit this year, away next year. The 3rd kit was basically the previous 2 seasons away kit, got out of storage, washed and ironed.

This meant every I got the newest kit, usually for my birthday from a grandparent.

One new kit a year, it was financially viable for all involved.

Now if you want a child to have the latest kits – and lets be realistic here, you do not want your kids to go to football training or school with an old kit – you have to buy two kits a year; or even 3 if you get them the away kit.

Regardless of rising kit costs, just buying the home and away shirt each year for your child double’s the costs from when I was a child getting 1 kit a year.

Now imagine you have 3 children. That is 6 kits a year minimum you will probably fork out for.

By the time you get a name and number on the back, you are looking at £45 a shirt. Add the shorts and socks and you are looking at £95 each. That is £190 for both the home and away, or £570 both your 3 children. For clothes which in a years time will be “out of date”.

A full kit for a 6 year old child with their favourite player on the back now costs £65. £130 for both home and away.

And these costs do not even take into account buying the 3rd kit.

Every time the new kit is released, I see fathers moaning about how much it is going to cost them to ensure their son or daughter has the latest kit. And they are right. But have they then also “celebrated” when Arsenal announce a new record kit deal?

Unfortunately, you can not have it both ways.

You can not have a £60,000,000 kit deal without 3 kits a year costing nearly £100 each.

Adidas will want to continue to see revenues increase, and the only way they can do this is by producing 3 kits a season, at high prices.

Bubble Bursting?

A final thought on this.

There will become a time when the bubble bursts on kit deals. When manufacturers are no longer selling the units to cover the cost of sponsoring the clubs.

In 2016/17 Arsenal sold 1.3 million shirts. It is actually fairly a low number considering the club has 13.7million Twitter followers. It probably highlights how many shirts get sold in foreign lands that are fake. But that is another article.

So lets say in that in the first year of the Adidas deal, 1.5million units are shifted, that Adidas have invested £40 for every shirt sold.

Now of course, Adidas do not profit 100% from every shirt sold.

They have manufacturing costs and the retailer (whether the Arsenal store, Sports Direct, JD Sports or any other retailer) also make a chunk of profit.

At current prices (£55 for the current Adidas Manchester United shirt), we are probably getting very close to the point where what Adidas are paying clubs, and what profit they are making are pretty much equal.

This will cause another rise in shirt prices as Adidas look to increase what they are charging retailers, which in turn will push the charge to consumers up. But this will only work if the consumer are still happy to buy the kit at the new price.

Like with the increasing football ticket prices, eventually you reach a point where the buyer is no longer buying, and the bubble bursts.

I wonder how much more kit manufacturers will be willing to pay the clubs until it no longer becomes financially beneficial? Or how much more kit costs can rise until families just stop buying?


 

So there we have it, the good, the bad and the ugly of Arsenal’s new £300million kit sponsorship deal…

Keenos

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Arsenal set for “double your money” kit deal

In 2014, Arsenal announced a new, long term partnership, with Puma. A deal worth £150m, or £30m over 5 years. It was, at the time, one of the largest deals of its kind in football.

Arsenal had been with Nike for 20 years, but in the early 2010’s, had decided to seek a new kit manufacturing partner. Adidas were in prime spot and were expected to sign a deal, until Puma swooped in late, gazumping the money Adidas had put on the table.

At the time, Cardiff City and Newcastle United were the only Premier League clubs to have their kit made by Puma, so the Arsenal deal was a massive coup for the German company.

“Arsenal represents a major commercial and marketing opportunity to reinforce Puma’s credibility as a global sports brand,” chief executive Bjoern Gulden said in a statement.

The deal Arsenal signed with Puma back in 2014 was one of the largest in world football lat the time. But as with our shirt sponsors, we are always at the beginning of the new cycle of mega-deals, and it was soon gazumped by Manchester United and Adidas:

It is clear that Arsenal are getting well below from Puma than what they could command in the current market. Half the value of Chelsea, 40% of the monster Manchester United deal. Not much more than the likes of Liverpool and Tottenham; whom we sell significantly more shirts than.

One interesting thing to note is the Chelsea deal. It is massive. Worth £900m at the time. But it is also a deal signed until 2032.

Whilst they might be getting more than they would “naturally” command now, you have to think in 5 years time, that deal could be considered poor.

Clubs usually sign 5 or 6 year deals, to enable themselves to not be caught out if there is jump. Arsenal suffered when they signed a long term deal with Emirates to help finance the stadium, and found themselves receiving a lot less than other sides in commercial revenue.

The Chelsea deal will be judged in the course of time.

Despite being fairly average, Arsenal are still amongst the runners for most shirts sold. It is this that makes Arsenal such a good proposition for manufacturers, rather trophies won.

Reports are that Puma and Manchester City have entered negotiations. With Manchester City looking to cut their £18m a year Nike deal short, and sign a £45m one with Puma.

This rumour is interesting, as it shows that Puma are concerned about not sponsoring a top Premier League team. Were the Arsenal deal to end, they would not have a major club in England wearing their shirt.

It also highlights how poor Manchester City are still seen abroad.

Despite running away with the league this year, the deal with Puma will still be a lot less than the Chelsea and Manchester United ones.

Puma base what they are willing to pay on the shirts they can sell – and not on the trophies won. Manchester United outsell every team in the Premier League (and the world) hence where there deal is the biggest.

It should also be remember that clubs do not get a “cut of global sales”. The only extra money a club makes on top of the licensing and manufacturing agreement is when they sell the shirts in the club shop or online. “Buy Direct” as Arsenal say.

When it comes to selling shirts, Arsenal or Manchester United are no different to Sports Direct or JD Sports. They make their money on the difference between what Puma (or Nike) sell the shirts to them for, and what they sell them on to us, the consumer, for.

Sorry for digressing.

Despite not winning a league title since 2004, Arsenal will still be considered by the likes of Nike and Adidas as a premium band. Someone that they want to supply, and pay big bucks to supply. Only 5 clubs in world football sell more shirts.

Barcelona have recently signed a £150m deal with Nike. Manchester United’s is at £75m a season. Chelsea £60m a season.

Adidas pay Bayern Munich £65m a season.

It is the Bayern Munich deal that is most comparable.

Arsenal sell a similar amount of shirts as the German giants, and Adidas want a London Premier League club after losing Chelsea to Nike. The deal will be done between Arsenal and Adidas.

Munich is the jewel in the crown for Adidas. A German based company, German’s biggest team. It is a match made in heaven. Despite this, they get less from their deal than Manchester United. Ultimately it comes down to business. Manchester United sell more shirts, so get more money.

Personally, I can see Arsenal signing a deal with Adidas in the region of £60m a season, doubling our current Puma deal.

I also do not think we will join Chelsea in a 15 year long deal. We should look at the Manchester United deal, expiring in 2024, and look at an expiry date of around that time.

In 2024, Manchester United might double their deal again, taking themselves to £150m. That would dwarf every other side in the Premier League.

Arsenal would not want to be sitting there in 2024 on £60m a year with 8 years to run, whilst Manchester United have a £150m a year deal. That could create a long term deficit of £720m. A lot of money.

Arsenal need to close that commercial gap between themselves and Manchester United. House deals with Emirates and a new kit manufacturer need to be just the beginning.

Keenos

The catch 22 of a new kit supplier for Arsenal

“I told you all that the Puma deal was not very good” is what GC said to me a few days ago when it was announced that Arsenal were considering pulling the plug on the deal with Puma that was agreed in 2014.

The Gunners agreed a £150m contract with the German firm in 2014, following a 20-year association with Nike.

At the time, the deal was widely hailed, with Puma confirming it was the biggest ever for both itself and Arsenal.

But the £30milllion-a-year deal has since been dwarfed by Premier League rivals.

To a point, GC is right. At the time, only Real Madrid and Barcelona earnt more from their kit supplier. But within a year, Manchester United had shown the Puma deal up, signing a £75m a year deal with Adidas.

We are earning over 50% less than Manchester United’s deal signed in 2015, and half of what the new Chelsea deal is worth. That £30m could go on new players (although we have plenty of money for new players) or could go on bringing Arsenal’s wage bill closer to the likes of Chelsea, enabling us to offer Alexis Sanchez and Mesut Ozil what they really want.

£30m is a big chunk of cash.

It feels with Arsenal’s deals, we are always behind the curve. The Puma deal was the 2nd time we had signed a big money deal, one of the best in the world at the time, only for it to be dwarfed by other clubs within a year. The same happened with the Emirates deal when it was resigned.

It feels like we are always at the end of the cycle of deals. We are the last to get the deal agreed before everyone re-agrees new deals on even bigger money. And we are losing out big time.

Over the two years Manchester United have had their deal, they have earnt £90m more than Arsenal. This season will take it over £135m. That is a big chunk of cash.

But then we come to the catch 22.

We all moan about our kits:

  1. 3 kits every season
  2. The cost of the kits
  3. The design of the kits

But all 3 of these are linked to the deal.

3 kits every season – With a deal at £30m a year, or in Manchester United’s case, £75m a year, the supplier is going to want to maximise their profits. It is them, not Arsenal, who insist on 3 kits a year. If Arsenal wanted to play hardball, and demand only 1 kit change a year; which most fans want – then they would have to accept a vastly reduced sponsorship deal. You can not on one hand demand more from Puma (or Nike or Adidas), but then restrict them to one kit a year. That equates to less sells which in turn returns less profits.

Cost of the kits – The manufacturer, not Arsenal, sets the cost of the kits. They sell kits to Arsenal, and other retailers, who then mark up the kits accordingly.

The kit suppliers need to make back the money they have spent on sponsoring the individual club. If they have spent £30m a year to supply Arsenal with their kits, they are going to need to make that money back in sales. And remember, they have costs to design and manufacture the its. Even if they are using a Chinese Sweatshop.

The cost of the kits to fans is linked to what it has cost the supplier to sponsor and manufacture the kits. A Leyton Orient kit is half the price of an Arsenal kit – although an Orient kit is still way to expensive.

Like with the 3 kits a year, you can not wish for Arsenal to increase their income from kit sponsorship, whilst also moaning about the price of the kits.

Kit design – our kits this season are wank. Even though I believe if you have no plan to buy one, have not bought one for decades, and mock adults for wearing them, you should not really moan about the design, I still have the opinion that they are awful.

The problem once more is the more you demand in £££, the less editorial control you have.

The majority of kits supplied by manufacturers follow just a couple of designs. Note how the Spurs and Chelsea Nike kits are identical bar the colour.

Manufacturers are not going to design 3,000 kits for the 1,000 teams they sponsor world wide. They keep it simple, using a few different designs and just change the colours.


Whilst I am on about kits, here is some education for you all. Some fans believe that when you sign a new player, they pay for themselves in shirt sales. We saw this with Puma. But it is stupidity.

PSG sold 10,000 Neymar on the first day at €140 a piece. Some fans then did the math and worked out that PSG had made €1.4m from shirt sales on the first day, and that if that rate continued, they would have paid for the Neymar deal within the first year.

Utter stupidity.

Firstly, the sales rate will not continue for a year. Most shirt sales will happen on the day the shirt is released, or when a new player is bought. Then they dwindle. Secondly the majority of people only buy one shirt. So whilst 10,000 Neymar shirts were bought, it will mean less di Maria, Draxler, Cavani, etc shirts will be purchased. That is the basics.

We then come to costs. The shirts were not free. A club does not get 10,000 Neymar shirts from Nike or Adidas (or whoever the sponsor is) for free. They have to buy them from the supplier.

When it comes to selling shirts, a club outlet store is no different to Sports Direct, Soccer Scene or whoever. They purchase shirts from the manufacturer, and then sell for a marked up price. They then make the profit on the bit in the middle. It is simple. Not hard to understand.

Infact, the likes of Sports Direct probably get the shirts from the supplier for cheaper as they buy a lot more than a single club. They might not buy as many Nike shirts of Adidas than Manchester United, but by the time you add the shirts manufactured by Adidas from every other club, they will lend up purchasing more.

It would not surprise me if there is a 100% mark up on kits. Therefore, PSG bought the kits off the supplier for €70. That means they will make €70 a kit. Still a decent profit. So in the first day of sales, PSG made £700,000. Just about enough to cover Neymar’s wages for a week.

Kit suppliers pay clubs a big upfront lump sum for the kit license to manufacture and distribute the kits. This is where the majority of the profit from clubs come from when it comes to selling kits. Club shop sales are negligible in comparison. Not player has ever had his transfer fee paid for by kit sales. It is an internet myth.

 

So it is a bit of a catch 22, we want the club to maximise its commercial deals, but in doing so, we open ourselves up to more kit changes and higher kit costs.

Keenos