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Mailbag: Nike deal, Oscar to China, lost Champions League revenue, Chelsea LFC

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Last week, we asked you to submit questions for a new mailbag feature, covering off the pitch issues as they relate to Chelsea.

To our pleasant surprise, we received dozens of questions, all of which we appreciate, and some of which we will tackle below. If your question wasn't answered, we apologise. It's not that your question wasn't excellent, it's just that we can't cover them all in one 'bag.

Tell me more about Nike deal pls - BridgettL

While technically not a question, it's definitely an interesting topic.

Agreed to earlier this year and formally announced in October, Chelsea and Nike have signed a fifteen-year kit deal worth an initial £60 million per year.

This is double the amount Chelsea was receiving from adidas under their deal.

However, Chelsea just recorded a £70.6 million loss for 2015/16, due in large part to the buyout it had to pay to get out of the adidas deal. Buyouts are not uncommon, and Chelsea also had to pay £24.5 million to Umbro back in 2005 to get of that kit deal in order to sign with adidas.

The adidas deal was set to run until 2023, or six more seasons after this one.

Under the terms of the adidas deal, Chelsea would have earned £180 million.

Under the terms of the Nike deal, Chelsea will earn £360 million over that same period.

Chelsea recorded £75 million in exceptional items (i.e. one-time payments) for last season, the bulk of which the club attributes to the adidas buyout. However, exceptional items can include just about anything, and there were likely substantial payments made to former staff members last season, including Jose Mourinho, coaches, and Dr. Carneiro. Estimating a £60 million buyout, Chelsea will "net" £300 million over the next six years from the Nike deal, a substantial £120 million improvement over the adidas deal.

Back in 2014, I wrote that Manchester United's £75 million annual deal with adidas was going to be great for Chelsea. Of course, it made Chelsea's £30 million per year from adidas look tiny by comparison, but during the first year of the deal, Chelsea received more money from a kit deal than any other club in the history of English football. Additionally, in year two, only Real Madrid had a more lucrative kit deal, at just £1 million more than Chelsea (£31 million per year).

So, if the Nike deal looks huge now, it's because it is. Kind of. It's on-par with Bayern Munich as the fourth-biggest deal in football, but behind Manchester United (£75 million) and well behind Barcelona and Real Madrid (well over £100 million each). However, what about in three years' time? What about fifteen? It may seem tiny again. As Chelsea have done with Umbro and now with adidas, expect another buy-out in the future, or if Chelsea have learned from the previous deals, there will simply be opt-outs included in the contract.

Why would Nike pay Chelsea £60 million per year? It is not because that's how they value Chelsea's brand. Rather than a traditional sponsorship deals like those Chelsea have with Yokohama, Carabao, Beats, Hublot, Singha and the like, kit deals are, first and foremost licensing deals that the kit manufacturers directly profit from.

Naturally, every sponsor will "profit" from their deals with Chelsea, but profitability with regards to kit deals are not measured by a subjective "brand value" or "business development" calculation. They are simply measured by revenues less expenses. Any brand value is an added bonus.

The industry standard sees clubs earn 10-15% of shirt revenue, while the manufacturer (Nike, adidas, Under Armour, Puma, etc.) keeps the rest. It is primarily shirt sales that drive the value of kit deals, not the desire to associate the brand with certain clubs. As an example, adidas pays Manchester United £75 million per year, but it keeps 100% of the shirt revenue until a very large number of kits are sold. As a result, when the deal was signed, adidas projected that the deal would see adidas earn £1.5 billion over the course of the ten-year deal, or twice what it is paying Manchester United.

Or simply put, there's a reason why adidas has earned more in the last six months than Manchester United has earned in its 138-year history. The same goes for Nike, which will earn more this quarter than every Premier League club combined will earn this year.

Why do clubs agree to these deals? Aside from the fact that kit deals are the single biggest source of commercial revenue for top clubs, they need the kit manufacturers a lot more than the kit manufacturers need them. Football clubs simply do not have the infrastructure to manufacture and distribute millions of kits per year worldwide. Many can't even handle running their own online shops, which are regularly outsourced.

If you're interested in more, I did some stuff around last summer's transfer window on kit deals, including this video and this article.

Why would Oscar, or a similar player, accept a China deal? - SoNoGo

What do you do for a living? If someone offered you the opportunity to do that same job and earn in three years what you'd otherwise be earning in twenty, would you do it? If your answer is "yes", then you know why Oscar would entertain a move to China.

Would Oscar really earn seven times more in China? At least. Keep in mind that English wages are reported as gross figures, whereas the figures he's been reportedly offered in China are in net figures. Additionally, the commercial potential in China is massive, and he ticks all of the boxes to be a huge star, both on and off the pitch. Even if he only stays in China for a few years, as long as he and his team are smart, he could build the foundation to become a long-term football icon there.

There is a very finite window for which players can earn money playing professional football and they owe it to themselves and their family to maximise earnings within this window, which can be permanently closed at any time. If you see anyone question Oscar's decision or worse, his "character,"  "heart," or "will to win," just ask them if they wouldn't do the same in their position. Unless they're doing something important in their community (i.e. military) or have roots firmly planted in that community, if they say they wouldn't, they're either lying or severely lacking in common sense.

BUT, over half of his wages go mostly to taxes, but also to agents, lawyers, advisors and potentially friends and family members he helps support. As many young footballers have done, he may have also made some lavish purchases. His Chelsea contract is guaranteed through 2019, so if he's been fairly reasonable, while still allowing for some extravagant, but depreciable, purchases, he'll have around £10 million in the bank from his football career. If he sustains a dramatic injury prior to a new contract, that could be just about it in terms of income from playing professional football (any insurance policy against future earnings notwithstanding).

Now, is £10 million enough to live on and support your family? Of course it is. With sound financial advice, is it enough to live very comfortably, where "very comfortably" is defined by something resembling his current lifestyle? Most definitely. But is it enough?

"Enough" is a funny thing. When applied to others, it almost always is. When applied to yourself, the opposite tends to be true.

He may have the opportunity to take home £20 million in just his first year in China. Twenty million pounds. No one needs to justify taking that money, least of all Oscar.

I'll also note that while I thought a move to China unlikely, last month I cited Shanghai SIPG as the only realistic destination for Oscar. Why? Possibly another question for another mailbag.

How much of a hit is Chelsea's lack of European competition going to run us for this year? - yatcli

It would depend on how well Chelsea performed and where the club finished in the table the previous season (i.e. first, second, third, or fourth), but based Champions League revenues earned by the four Premier League clubs last season (we're in year two of a three-year rights deal so year one is indicative of this year's revenue projections), the average take was £51.3 million based on today's exchange rate (the money is disbursed in euros).

So, assuming an average performance (and Chelsea tends to perform much better than average in the Champions League), the loss is over £50 million in prize money and broadcasting revenue. This doesn't include the lost match day revenue - assuming four games, that's over £10 million - or commercial revenue. All in, Chelsea is looking at a considerable hit of at least £65 million.

Fortunately, that lost revenue stream looks like it will be recovered next season.

A detailed look at the impact of the Women's team, financially and how much we're investing into it compared to other clubs around the country, Europe and the world? - HazardAhead

At a conference back in September 2015, I attended a panel discussion on the commercialisation of women's football, which featured Chelsea manager Emma Hayes. She recounted a conversation she had with Chelsea chairman, Bruce Buck in which she guaranteed that they would win the title if given more resources. Buck was convinced, gave Hayes the resources she needed, and less than a month after the conference, Chelsea won their first-ever league title.

In England, Chelsea is rivalled only by Manchester City in terms of resources allocated to their women's team. Chelsea have made a number of high-profile signings in recent years, including Karen Carney, Fran Kirby, and most recently, Maren Mjelde, a centreback remarkably similar to David Luiz.

Additionally, Chelsea LFC have an academy that trains 70 players aged between 7 and 16. The most notable player to come out of Chelsea's academy is likely Hannah Blundell, who was shortlisted for the PFA Young Player of the Year award in 2015.

Chelsea has had a tough run during the Champions League, drawing with Wolfsburg in the knockout rounds in consecutive years (Chelsea's first two years qualifying for the tournament). Wolfsburg won the Champions League in 2013 and 2014 and lost on penalties in the final last season. This season, they are currently in the quarter-finals, having beaten Chelsea 4-1 on aggregate in the round of 32 and Swedish club Eskilstuna 8-1 on aggregate in the round of 16. They're very good.

In terms of revenues, all profits generated from the women's team are donated to the Chelsea Foundation, the club's charitable organisation. Additionally, expenditures on women's football are exempted from UEFA's break-even calculation for financial fair play purposes.

Women's football is one of the safest investments clubs and sponsors can make. I have seen attendances, media coverage, commercial opportunities and revenues increase with my own eyes and we've only just scratched the surface.

That's it for this week, but please drop questions in the comments for the next mailbag!

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