Updated at 14.52
LAST WEEK SAW the much anticipated and highly-publicised release of the new adidas Manchester united kit with the German sports giant replacing Nike as the official kit manufacturer.
Nostalgic United fans will not need reminding that the last time a United shirt was adorned by the famous adidas trefoil (back then adidas had only one logo) was between 1980-1992.
This was a time when the romance of the beautiful game was intact, when it was untainted, by and large, from the huge commercial reward of salivating sponsors. There was no Sky TV money, no live streaming, no MUTV, no match selection on demand.
Fans were lucky to see their team play live once in a blue moon on ITV’s The Big Match, other than that you were confined to the highlights. There was no Champions League, no stadia naming rights, no corporate hospitality suites, no megastore (the Manchester United club shop was a portacabin) and no multi arrangement commercial sponsorship deals.
Back then even copyright law seemed to be laissez-faire, I remember having an O’Neill’s Manchester United jersey rather than having the official one; it was legally for sale in sports stores throughout the country alongside the adidas ones! It was the best of times, it was the worst of times.
Back then, a shirt sponsor could proudly, albeit ridiculously, display their whole array of electronics in the official team photo á la Sharp Electronics:
Adidas have reportedly paid a mind-boggling £750million in a 10-year deal, making Nike’s previous £23m-a-year deal look like chump change. But is this good business, good marketing, or both?
Given the going rate for kit manufacturing deals it’s a statement of intent by Adidas, a brave move showing how badly adidas wanted this deal. This deal even dwarves other mega club shirt deals such as Real Madrid’s at £34m a year for eight years, Bayern Munich’s 15-year deal at £43m a year and Chelsea’s £30m a year 10-year deal, all coincidentally adidas kit deals.
And what about Barcelona, how could they be expected to survive with a mere £28m a year for 10 years from Nike? On the face of it, given the going rates for other clubs of similar stature, this looks like a large gamble, particularly given that United have not won a single trophy in two seasons and failed to qualify for the Champions League last year. So at a time when United appear to be on a downward trajectory they manage to pull off the biggest kit deal in history.
It’s not surprising given the club’s commercial nous, this is the club who struck a £47m-a-year shirt sponsorship deal with Chevrolet, replacing AON’s £20m a year deal. But wait, it gets better. At the same time, they managed to maintain AON as official sponsor of their training kit and the Carrington training ground. So AON essentially paid the same as before for everything except the official kit, allowing United to sell that for a 135% premium.
Manchester United had allegedly told suitors that starting bids for their kit deal were a minimum of £65m a season, so Nike walked away, adidas stepped up and the rest is history. Firstly, does this make commercial sense? Manchester United replica shirts consistently sell around the 1.5 million mark every year over the past five years. If we assume average jersey price of £50 (slightly cheaper if bought online and more expensive if bought in the official Manchester United Megastore or adidas stores) and we assume a retail margin of 25% mark-up that means adidas could make around £40 on a shirt.
I have no idea on the cost of materials but let’s assume it costs no more than £5 to make at scale (it’s made in Vietnam). Now if we assume that this rate of sale (1.5m shirts annually) continues, which is conservative given the growth of Premier League football to new markets , and we assume a moderate inflation of 5% yearly on kit prices then adidas' £750m investment will have recouped £660m in jersey sales alone after 10 years.
Now let’s look at peripheral branded wear, training tops, tracksuits, base layers, etc etc.
United have 659 million fans worldwide (source BBC.com) so if we assume that just one in every 500 of these fans buys any adidas official Manchester United piece of kit apart from the jersey and adidas only make £10 profit on this that’s now worth a compound profit adjusted for inflation of an additional £151m over the duration of the deal. So purely on Manchester United-related merchandise alone adidas will wash their face and this deal will make a profit as peripheral sales (which even as a conservatively estimate) will be huge.
And it has already started, Adidas have taken a bit of stick from people about their, ahem, plunging neckline lower cut female fan shirt. Everyone is up in arms about it, unfairly so if you ask me.
What’s the problem with supplying choice? Female fans who don’t want the men’s jersey now have a choice; it’s not mandatory, female fans who would have never worn the men’s jersey now have a choice, simply buy whichever one you prefer.
At least now female fans who would have never worn the men’s jersey now have a choice. And what’s even more interesting is that this has cause a social stir for Adidas on the Manchester United kit. Practically every big team, (including Arsenal, Chelsea, Real Madrid, Barcelona and Bayern Munich) has a female fit version of the replica shirt; all are more tailored with a lower neckline. But nobody cared before now, why? Because there was never as much publicity around a new kit as there has been around this one, more good news for Adidas as there’s no such thing as bad publicity!!
This deal makes sense on a commercial argument alone and to this point I have only counted the jersey sales and official Manchester United merchandise. From here on the marketing and non-Manchester-United-related impact is all pure icing on the cake. The publicity alone surrounding this new kit has been nothing short of phenomenal, as confirmed by the female jersey fiasco.
What value can be placed on the brand equity increases adidas will enjoy through all the marketing hype surrounding an association with the biggest club in the world? And outside brand equity, what’s this worth to adidas in incremental sales of regular products? How many United fans will now buy into the adidas brand for non-United related sports apparel? How many United fans will buy Adidas over Nike now?
Think about it, if only 1% of the 659m Manchester United fans buys just one pair of £50 adidas trainers a year that otherwise would have been a Nike purchase then it’s now worth an additional £415m in incremental revenue.
It seems that the Manchester United brand is bulletproof, despite back-to-back trophy-less seasons. But adidas know what they are doing here and it’s not a case of being duped by a savvy Manchester United corporate team, on the contrary. It may well be the case that adidas, despite what initially looked like a risky venture paying £75m-a-year for something Nike had paid £23.5m a year for in the previous deal, have made a shrewd investment and may have got this deal on the cheap in the long-term.
And if early sales figures are any indication, then this year could be the biggest year in United’s history for shirt sales. Herbert Hainer, Adidas’ chief executive, has revealed that sales of the new kit have broken all previous sales records for a shirt launch with sales at the official megastore up almost 50% up on the previous record and online orders four times higher than the previous record for any kit launch.
Adidas are expected to reveal United's two away kits on 11 August. There aren’t many teams with the global footprint of Manchester United but you can rest assured that once all significant existing kit deals are due for renewal, the United deal will have set a new precedence in Premier League sponsorship.
Dave Winterlich is Chief Strategy Officer at Dentsu Aegis Network & Carat Ireland as well as being a massive Manchester United fan
Thats some serious deals Man U negotiated. Wow
add the 30 odd million a year from Chevrolet and its about 110mil from the shirt alone. no arab sugar daddy. wish idiot pundits (Niall Quinn) would remember this when moaning about spending. it’s earned fairly so let’s bloody spend it
It’s a fantastic deal for both ADIDAS and United. No reference was made in the article to the second and third jerseys which, as far as I know, are yet to be unveiled. this has to happen soon as United are away to Villa on Friday week and will need second kit for that. Many fans like to have both first and second jerseys and sometimes all 3 so I’m sure this will significantly increase the estimated sales as referred to in the article.
You seem impressed United pulled this deal off even tho you say they are on the down and haven’t won trophy for two years but this deal was agreed over 12 months ago so they were still English champions also you say they missed out on champions league but if that happens again they will lose out on a big chunk of that £750 million.. It’s a great deal for both parties tho
It’s an amazing deal that was put in place by Ed Woodward over 2 years ago the only way it can go down is if United miss out on the champions league 2 years in a row even then it’s only a 10% decrease maximum 20% drop if United fall of the face of the earth . The deals Woodward signed as commercial director are stunning he needs to transfer his skills to buying players , but United revive £3 million a year from there official mobile network in Nigeria , £6m a year for there official beer supplier in China and over 70 “small” deals internationally that add up to over £100m a year
Agreed Colm , credit where credit is due. Woodward has been a class act .
McGrath had a serious ‘fro back in the day
Great deal and will give United massive spending power, also will make any player at or going to United want top dollar in transfer fees and salary.
Ed is not too hectic at the transfers but his expertise as a commercial head is second to none.
On the down side, there is no chance now that the Glazer family will sell the goose that’s laying a very sizeable golden egg. They will continue to take vast amounts of money out of the club. I wonder if the large debt that the Glazers attached to United has now been paid or is there an ongoing depth?
*debt
Still there, went to a peak of 800m pounds and now around 350m pounds. Still massive debt on the club but hasn’t perturbed the club spend on transfers which I think is around 80m this window alone.
Man Utd have absorbed the manufacturing costs so will get a greater share of the profits.
Both obviously but overpriced like all replica kits.
the 750 is made up of add ons like winning the champions league, premiership etc reduced further if don’t qualify. so the big 750 figure is a bit misleading. also you didn’t take into account the price difference in jerseys worldwide people in Asia Africa don’t pay 50 for a jersey so your figures are way off.
My figures are probably way off as they are veering on the side of conservative. They sold 2million shirts last season and early sales of this kit have smashed all previous records of United shirts. Megastore sales up 50% on the previous record and online orders x4 times previous records. That will more than account for a small percentage of Asian sales under £50 average. I’m only assuming 1.5m sales @ run rate of £50
the 750 is a minimum price United will reciwve. amazingly that price will increase with winning competitions and for getting to certain stages of the CL.
A great deal negotiated by the club but surely Adidas didn’t fall for the whole “659 million fans” myth? United readily admitted in their documents as part of the share IPO that this total number includes people who didn’t state United were their favourite team. Have a read of this (http://www.sportingintelligence.com/wp-content/uploads/2012/06/Man-Utd-IPO-explan-of-659m.jpg), the club state that actual projected number of people who claim United as their favourite team is closer to 277 million and not 659 million. I wonder what Adidas have based their projections on?
And as for Ed Woodward, he is not responsible for any of the commercial deals, including Adidas. That is being done by Richard Arnold (Commercial Director) and a commercial team based in London.
Nice work by them and Kantar you’d have to agree Gar, 277k fans say United are their favourite, 382k say another team are their favourite but they “follow” United. Loose definitions indeed, but I still reckon Adidas will make a fortune on United merchandise alone, their selling jerseys like crazy already according to a report given to the London stock exchange by their CEO and last year official jersey sales were 2m at that rate they make £990m profit on shirts alone not £660m so they can’t lose
£880m even!
Also a record breaking first day for a New Jersey, beating other newly released Jerseys by 50%
Bring back Sharp! Are they even making sh!t stereos anymore? When I loved United as a kid/teenager Sharp was always there. Wish they would reissue some more of the older kits.