Manchester Utd. May Squeeze Nike After Record GM Jersey DealTariq Panja
Manchester United convinced General Motors Co. to pay a record $559 million to have its Chevrolet brand on the team’s red jersey. Now, the 19-time English soccer champion is ready to play hard ball with Nike Inc., its maker.
United, which this week announced its first results since August’s initial public offering, got 33.8 million pounds ($54.7 million) in retail sales for the year ended June 30. That’s mainly from its 13-year, 303 million-pound contract with Nike, which gives the Oregon-based company control over the club’s complete merchandise sales operations, including the jersey.
“We continue to believe that there will be an opportunity to reset our existing deal with Nike to market rates,” United’s executive vice chairman Ed Woodward said on a conference call with analysts after the team announced a fourth-quarter loss of
14.9 million pounds. “There have been many changes to the world of football since this deal was negotiated in 2001.”
Woodward’s optimism may have been fueled by the seven-year GM deal, which the club says is the largest such agreement in sports. The carmaker will pay more than double current jersey sponsor Aon Corp.’s 20 million pounds a season when it takes over in 2014. Even before then it’s paying almost $18 million for each of the next two seasons as part of the agreement.
United is owned by the Florida-based Glazer family, who also control the NFL’s Tampa Bay Buccaneers. In its earnings statement, the club announced full-year revenue down 3 percent at 320.3 million pounds, the first decline in sales since the Americans bought the club in 2005. The team last night beat Galatasaray 1-0 in its first Champions League match of the season. Its failure to make it out of the group stage last year cost millions of dollars in lost television and matchday revenue.
When United enters its exclusive negotiating period over a renewal with Nike in February, Woodward may point to new entrants in the soccer apparel market from the U.S.
Under Armour Inc. signed with Tottenham Hotspur, while Warrior, a unit of New Balance Athletic Shoe Inc., is paying five-time European champion Liverpool 25 million pounds for each of the next six seasons even though the Reds had their worst English Premier League finish since 1994 in May and are yet to win after four matches this campaign.
Liverpool had been getting about 12 million pounds a year from Adidas AG, soccer’s leading brand by sales.
Europe’s leading teams are no longer restricted to a choice between Nike or Adidas, according to Andy Anson, chief executive officer at online sporting goods retailer Kitbag Ltd.
“The main impact of the new entrants, such as Warrior and Under Armour, has been to create a greater market for the clubs,” Anson, United’s former commercial director, said in an interview. “As we’ve seen with the Liverpool shirt deal, where Warrior outbid Adidas, the clubs now have more options and can drive up the sports marketing fee they are getting from the brands.”
In June, Nike announced its soccer business generated sales of $2 billion for the first time. The world’s biggest sporting goods maker entered the sport in the mid-1990s when it signed contracts with Germany’s Borussia Dortmund, London club Arsenal, Paris Saint-Germain and Brazil’s national team.
Sales of United’s home and away jerseys are among Nike’s best sellers alongside those of Spanish club Barcelona. Replica shirts with United striker Wayne Rooney’s name on the back have sold more than any other in the Premier League’s 20-year history, the league said April 30. United doesn’t break out total jersey sales.
Nike’s deal with United is made up of a minimum guarantee, with any additional revenue generated from retail sales split 50-50. How much more the company would be prepared to pay depends on the business case, according to Nike brand President Charlie Denson.
“It’s their job to create demand for their product and that’s what they’re doing,” Denson said in an interview last month. “At the end of the day, the merits of the quality of the opportunity and what it’s worth will play itself out.”
Denson said changes in the way companies interact with consumers today meant he didn’t think United, or any other property, is a “must have.”
“There’s so many different properties, so many different ways to communicate with the consumer that there’s no ‘have to haves’ in the world today,” he said. “I think there’s a lot of ‘like to haves’ and we certainly have our share of things that we like to have.”