Arsenal recently announced that their new kit supplier deal with Puma, slated to start in 2015, the deal saw the Gunners guaranteed £30m a season for the duration of the five-year contract, worth a total of £150m to the London giants.
That deal put them ahead of current Premier League big shirt deal earners Liverpool, whose deal struck with Warrior in 2012 saw them earn a guaranteed £25m a year until 2015. Manchester United, who have a £23.5m a year deal with Nike, are also said to be looking to renegotiate a far better deal when their contract expires in 2015.
Indeed, reports are suggesting that Manchester United could be seeking a deal worth double the current record deal of £31m per season paid to Real Madrid by Adidas. Early indications are that Manchester United are seeking a deal with interested parties, believed to be Nike, Adidas, Puma and Warrior, of over £65m per season.
These are staggering sums of money simply for the right for the clothing manufacturer to supply kit to the team and of course, the pay off for these companies is that they will recoup this cash in shirt sales across the duration of the contract.
In the past, that has never been an issue, but are we reaching a point now where some clothing companies may effectively be providing a kit for free without making their money back from sales to fans across the globe?
Let’s use Manchester United as an example, as we revealed earlier, reports suggest that the minimum amount United are seeking for their new deal in 2015 is £65m a season. Do their global shirt sales make that amount an attractive and realistic proposition for companies like Nike, Puma, Adidas and Warrior?
As this insightful report from the sportingintelligence.com website shows, in the five years from 2007 to 2012, Manchester United sold on average a total of 1.4 million shirts a year annually.
Furthermore, the author of the report, Dr Rohlmann, revealed that for the 2011-2012 season, Manchester United had actually sold 1.5 million, so it appears that sales of their shirts around the globe are increasing annually.
So let’s assume some figures for 2015. Let’s say United agree a deal worth the £65m per season and that they are likely to sell 1.5m shirts per season over the course of the five-year period. Let’s also assume that the average cost of a shirt is around £40, a figure which takes into account the fact that many shirt sales are for children, whose shirts are generally available at a discounted price compared to the £50 an adult would pay for their shirt.
How do these numbers stack up?
Any company who agrees a deal with United would need to sell enough shirts to generate the £65m to pay United, then to pay advertising and production costs not to mention all other business overheads and then still post a profit.
By selling 1.5 million shirts a year for an average price of £40. This would generate revenue of around £60m per year.
This is a shortfall of £5m.
However, move the price of the shirt up to £50 on average, and sales per year now generate £75m, which is a £10m profit on sales (though there would be deductions to be made from that figure).
So, can anybody see what is going to happen next if this situation comes to pass? It looks like the humble Manchester United fan will likely be paying a good £10 to £15 more for their shirt over the next few years in order to help pay for the staggering cost of their new shirt deal.
Of course, as the report above showed, Manchester United shirts are increasing in sales in general terms each year, though it would be interesting to see the impact on sales if David Moyes team continue their recent slump. Especially if they were not as prominently featured on TV due to a sustained absence from the Champions League, or if they are not involved in the Premier League title race for the next few years.
This is not by any means a Manchester United issue alone. Arsenal’s deal with Puma is reckoned to be worth £30m a year, but Arsenal only sell around 800,000 shirts a year compared to Manchester United’s 1.5m.
At those levels £40 a shirt for 800,000 people per season adds up to just £32m, meaning that at that level, Puma are likely going to be barely breaking even at this margin, hence when Arsenal’s new shirt is released, what are the odds the price will likely increase by £5 to £10 per shirt?
That is the knock on effect these deals have. The companies know to generate sales they need to keep the big clubs on their books, the clubs want more money based on projected sales but to ensure profitability at the amounts clubs want, the manufacturer must sell the kits at an increased price.
Yet here’s the thing, football fans keep buying the shirts every year despite the price rise, but does loyalty ever reach a breaking point?
Personally, I think it does. When these new round of negotiations for deals for the major European sides starts around 2015, I fully expect to see the likes of Manchester United and Liverpool strike lucrative new deals which puts them ahead of teams like Barcelona and Real Madrid whose current deals do not expire until 2018 and 2020 respectively.
Yet all this will do is kick-start a new round of increased prices for football shirts as it will be the fans that are forced to pay the extra to make up the shortfall in profits caused by the vast increase in the cost of kit supplier deals.
With shirts currently around £50 for an adult and around £35 for a child, the odds look good that within two years those prices could rise to around £60 for an adult shirt on average and around £40 – £45 for a child’s.
Is that really sustainable in this economic climate?
My fear is that in by chasing what they view as a “fair” price for their endorsement, clubs are not seeking a fair deal from manufacturers, but are indirectly levying a tax on their fans support in the all-too likely event of a hike in shirt prices.
Is a breaking point approaching? Well that depends on one thing, how much you love your club, or rather, how much you are duped into believing that unless you buy these shirts, your love for the club somehow isn’t complete.