clock menu more-arrow no yes

Filed under:

What Manchester United's record-breaking adidas deal means for Chelsea

New, comments
Alex Livesey

Manchester United and adidas have agreed on a record-breaking ten-year, £750m sponsorship deal, beginning in 2015-16. For perspective, at £75m per year, this deal more than doubles that of any other club's kit deal.

The next most valuable kit deals in terms of average annual value belong to Real Madrid (£31m), Chelsea (£30m), and Arsenal (£30m). Real Madrid and Chelsea are both sponsored by adidas and Arsenal is sponsored by Puma.

£30m per year might seem like a pittance now (as much as £30m can be considered a "pittance"), but keep in mind that Chelsea received more money from a kit deal than any other club in the history of English football last season (Arsenal's new deal doesn't kick in until this season).

Also, for this upcoming season, the only club in the world that will earn more money from a kit deal is Real Madrid, which will earn £1m more than Chelsea.

Does Manchester United's £75m annual valuation give Chelsea any leverage to renegotiate? Possibly, but it's tough to speculate without having additional details.

Depending on how the contract is structured, it could be possible for Chelsea to opt-out of the contract at a certain date while adidas retains the first right of refusal on any subsequent offer made. However, the details of the contract have not been made public, and as such, it's not worth speculating about at this point.

As it stands, adidas just handed Chelsea what was, at the time, a world-record kit deal in terms of total value just last summer. Further, this upcoming season represents year two of ten, and barring some contractual clause being triggered, the sportswear company doesn't really have any incentive to renegotiate anytime soon.

For what it's worth, Chelsea paid £24.5m to Umbro back in 2005 to get out of their kit deal at the end of the 2005-2006 season, instead of 2010-2011, when the contract was set to expire. This allowed Chelsea to sign with adidas. Again, details of Chelsea's contract with adidas have not been made public, but if Chelsea paid Umbro close to £25m back in 2005, it would likely have to shell out far more to get out of the adidas deal.

When it does come time for Chelsea to renegotiate, however, the Manchester United deal certainly helps Chelsea and the handful of other truly global clubs (though it may not have any impact whatsoever on clubs who don't belong to this elite group).

That said, we shouldn't expect Chelsea to earn what Manchester United earns when it comes to sponsorship deals. Manchester United is simply a more attractive brand to sponsors than Chelsea, and it has always been. For example, Samsung pays Chelsea £18m per year for a shirt sponsorship. Chevrolet is paying Manchester United an average of around £50m per year for a shirt sponsorship.

During the 2013 financial year, Manchester United earned £153m in commercial revenues, over 80% more than Chelsea's £84m.

United is a for-profit enterprise. Chelsea is a for-trophies enterprise.

Now that Manchester United has taken steps to clean up its very expensive debt problems, it could theoretically be a very dangerous club moving forward, and one that could vastly outspend Chelsea (especially with the financial fair play regulations preventing a club from spending much more than it earns). However, Manchester United is run as a for-profit enterprise, whereas Chelsea is run as a for-trophies enterprise. This is a huge distinction, as Chelsea and Roman Abramovich have demonstrated that the club will spend as much as it's allowed in the pursuit of winning. Manchester United, on the other hand, is run like a normal business, where the ultimate goal is to make money.

Despite the disaster on the field this season (by Manchester United standards), the club actually had record profits, earning over £115m in the most recent reporting period. While a prolonged absence from the Champions League could hurt the club's brand, and therefore its bottom line, Liverpool has shown that a temporary lack of Champions League football does not necessarily have to damage a club's well-established brand.

The club also carries over £350m in debt, which is expensive to finance (though its debt, and therefore financing costs are declining). Chelsea, conversely, lost nearly £50m last season, but remains debt-free.

The fact that Chelsea is extremely lucky to have an owner who is not only willing to put every penny the club earns straight back into the club, but also ensure that the club is debt free, and THEN go well out of pocket to pay for any losses cannot be understated.

If I could reverse Chelsea and Manchester United's ownership and financial situations, I wouldn't even consider it.

While Manchester United's ability to further monetise its brand could allow them to outbid Chelsea at will on the transfer market, especially as the debt is further reduced, it remains to be seen if the Glazers would rather see their money on the field or in their bank accounts.