Earlier this month Manchester United announced the largest kit supplier contract in history, with the club receiving a massive £75m (~$125m) annually from soccer giant Adidas.
Today Mark Ogden of The Telegraph reports on some of the more intricate details of the partnership related to the club’s UEFA Champions League status. United must find their way back to the Champions League by the end of the 2016-17 season or face a 30% reduction in the Adidas payments. Specifically, the clause will be triggered if the club fail to qualify for the CL in two consecutive seasons beginning from the 2015-16 season.
In a situation where the club is unable to secure a spot in the competition Adidas’ annual payments would be reduced from £75m to £52.5m. Other clauses contained in the contract include a £4m payout for any win of the Premier League, FA Cup or Champions League and a 50% reduction in the contract should relegation occur.
The lucrative contract shows the extent to which Adidas is willing to pay for a global brand like United, but also how it does so in a way that controls for volatile league and tournament performances from its club partners. Given the increasing sophistication of branding partners it seems likely that performance based contingencies are going to be increasingly common in licensing agreements.
We all know that Europe means money. Lots of money. As a top-ranked UEFA association England holds the maximum number of European spots possible (four in the Champions League and three in the Europa), guaranteeing that seven clubs will collect the riches of continental competition each season. In 2010-11 the European adventures of just 6 clubs alone (Aston Villa did not make it through the Europa qualification round) contributed almost 7% of the Premier League’s total revenue!
The four Champions Leaguers earned €158.8m, while the two Europa clubs brought in €12.3m, in total the six clubs grossed €171.1m from the continental season. These figures only represent the TV money distributed by UEFA and do not include the extra matchday receipts, commercial partnerships, etc. The clubs are undoubtedly delighted to have done so well but there is a problem which takes some of the shine off their European bonanza; they are earning less because Europe is a mess. Distributions from the UEFA competitions are denominated in euros which English clubs must translate this back into British pound either for accounting or actual liquidity purposes. The need to exchange euros for pounds exposes the clubs to foreign exchange risk. Continue reading “England’s Declining European Fortunes”
So what happened to all the Manchester United IPO chatter? Last we heard the Glazers were in the middle of trying to price a deal in Singapore to sell between 25-33% of the club into the market.
The market indigestion of last fall, caused by the unpalatable downgrade of the United States’ credit rating and exacerbated by Europe’s continuing refusal to eat its peas, dropped these plans straight into the tank. Since then equity and credit markets have largely recovered their losses and are off to their best start to a year since 1994. I updated the graphic from last time to show market performance and some key events which have occurred since:
As it is likely that the Red Devil IPO-talk will start cooking again I thought it might be valuable to review the background and details of the transaction.
Continue reading “Summing Up the Manchester United IPO”
A monthly compilation of interesting business news related to soccer. January 2012. Continue reading “The Month in Soccer Business: January 2012”