A record-breaking sponsorship deal with Adidas has made a significant financial impact on the club, but it’s not the only reason it’s doing so well.
Commercially, the club operates differently from the rest of the Premier League.
There’s a risk of diluting the value offered to existing sponsors and licensees, as overseas markets become saturated with merchandise, sponsor-led content and memorabilia
According to Deloitte’s 2015 Annual Review of Football Finance, commercial revenue accounts for just 27% of revenue for all Premier League clubs.
For Manchester United, that figure is 50%. That tells us the club is making considerably more of its global profile, and its global and regional sponsorship portfolios.
At £75m a year, the lion’s share of that commercial revenue comes from the Adidas sponsorship, marking a significant jump over what the club was earning under its previous deal with Nike.
Under Adidas, Manchester United has taken ownership of key commercial ventures previously operated by Nike, like the club Megastore. While the club now has to bear the cost of operating its retail and merchandising arms, it now retains 100% of the profits.
Compared with Nike, the Adidas deal has led to direct and indirect benefits in terms of sponsorship revenue, minimum guaranteed revenues from replica kit sales, and the freedom to operate and control merchandising.
Given the profile of Manchester United in overseas markets, this ability to control merchandise sales is a huge bonus, and one which it effectively manages through both in-house operations and specific-market licensing deals.
As one example, in the quarter to 30 September, the club signed a licensing deal with Sbenu for the right to produce Manchester United branded casual footwear in South Korea.
By building a portfolio of regional licensees and sponsors, Manchester United capitalises on its global brand equity and boosts its bottom line. The club managed to sign a further four sponsorship deals that same quarter.
Commercial revenue, then, has bolstered the money flowing in from broadcast rights and match days, with a headline revenue figure of £124m.
Where next for Man U’s sponsorships?
With the Adidas deal, a large proportion of Manchester United’s sponsorship income is guaranteed over the next nine years.
Any continued growth will have to come from the more uncertain enhanced revenues associated with progress in competitions like the Champions League or the more controllable increases in additional commercial revenue, through sponsorship and licensing deals. These currently show little sign of slowing and the club appears to be happy to build an ever-expanding portfolio of partners.
But there’s a risk of diluting the value offered to existing sponsors and licensees, as overseas markets become saturated with merchandise, sponsor-led content and memorabilia.
Given that category exclusivity is highly prized by sponsors, a gradual move, in maturing markets, to a less-is-more approach to sponsorships might serve the club well in terms of extracting greater value from each individual relationship, while ensuring the brand retains its prestige.
The Adidas deal highlights the extended value that clubs can extract from a smaller number of high-profile deals.
While a deal of this size is unattainable for many clubs, even in the Premier League, being able to offer a meaningful degree of category or market exclusivity will allow clubs to offer a package from which potential sponsors can see long-term value and which is more appealing than being just one of many sponsors in a diverse and perhaps incoherent portfolio.