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Record deal reinforces confidence in Manchester United’s global brand
The news that Nike would not be extending its kit manufacturing deal with Manchester United may have come as a disappointment to some fans, but the blow was softened by the swift announcement of a record-breaking new deal with German manufacturer Adidas, starting in the 2015/16 season.
Nike has supplied United’s kit for the previous 13 seasons, and some had pointed to their reluctance to extend the deal as evidence of a slump in United’s brand power after a less than impressive showing last season. Indeed, in a statement Nike concluded that a ‘renewed contract did not represent good value for Nike’s shareholders’. Although Manchester United regularly ranks in the top three of Deloitte’s Football Money League, the failure to secure Champions League football for the 2014/15 season is expected to affect the club’s revenues significantly. Lack of exposure in one of the world’s premier club competitions may have been one of the reasons Nike decided to cut its ties with the club.
Sponsorship provides an extremely important source of revenue to Manchester United (£90.9m in FY2013, 25% of total revenue), and the club has worked hard to establish itself as a successful and recognisable global brand, as analysed in the MarketLine case study: Manchester United: Monetizing a successful football club . Therefore an inability to secure new and profitable sponsorship deals could potentially put the club under financial strain. This is now more important than ever, as since the club’s listing on the stock exchange (NYSE: MANU), it also has shareholders to satisfy.
With this in mind, fans must have breathed a sigh of relief when the club announced the new ten-year deal with Adidas worth a reported £75m per year. This is a record amount for a deal of this kind, eclipsing the £23.5m Nike paid for the privilege of supplying the kit as well as dwarfing the five-year £150m deal Arsenal recently signed with Adidas’ German rivals Puma.
The unprecedented scale of the deal stands testament to the work that Manchester United has undertaken to strengthen its brand, demonstrating that the club’s global appeal is robust enough to withstand a poor season on the pitch. This bodes well for the future as the club undergoes a period of transition with a new manager at the helm. The 2014/15 Premier League season is shaping up to be one of the most competitive ever and, with clubs scrambling to tie up ever-larger commercial deals, United’s considerable brand power – and the premium it commands – could prove to be the difference between success and failure both on and off the pitch.
Manchester United Profile