May 28, 2017
In the second podcast of “Everton Business Matters” on The Blue Room Rodger Armstrong, John Blain and myself discussed the shirt sponsorship and launch. For those that listened to the podcast it was clear that none of us were overly impressed with the manner in which it was handled. The feedback from the show was similar also.
That got me thinking about why would an organisation like Everton perform in the manner it did?
Then the answer struck me, and it’s a fairly obvious one which I’m almost embarrassed to admit I didn’t think about when talking through the launch.
The fact is that there is no financial incentive to do anything other than what we’ve done.
Why would I say that? It’s the nature of the deal with Kitbag (now Fanatics) and Umbro. Through the outsourcing arrangement there’s no incentive to have the shirts available at the time of the launch, no incentive to have the kit available for the last home game of the season.
Not only does this create a poor customer and fan experience, it crucially impacts revenue, not only in the context of shirt and other kit sales, but in terms of the value of sponsorship arrangements.
Why would a premium brand pay top dollar in the knowledge that the outsourcing arrangements impact launch and follow on performance? Sponsors are obviously looking for greater exposure than just shirt sales, there’s the global television audience, media and print pictures, but also presence on the internet.
The outsourcing to Kitbag (now Fanatics) was done for a number of reasons. It de-risked the retailing arrangements for the club, allowed us not to have to carry stock, reduced premises and staffing costs and guaranteed a minimum level of income. At the time the deal was struck, these were all valuable benefits given the financial state of the club, preserving capital, reducing costs and guaranteeing income.
However today, and until the end of the contract in May 2019 we are paying the cost of the deal renewed in 2014, when arguably although pre-dating Moshiri we could have afforded to resume our own retailing arrangements.
The impact of our commercial income performance only becomes clear when it considered versus our competitors:
Commercial Revenues Financial Year 2015/16 (£m)
|West Ham United||£22,000,000|
*The adjustment comes from adding back in gross revenues not accounted for because of outsourcing kit and catering, but also deducting £0.6 million which is the commercial element of broadcasting revenues. All other clubs include this in their broadcast revenues, we strip it out to bolster the commercial revenue performance.
Now what I consider to be our peer group are self-evidently miles ahead of us in generating commercial revenues.
Our closest rival financially among the top 7 is Tottenham Hotspur and it staggers me that they are generating commercial revenues over twice our adjusted figure. Of course, being in London helps, but it’s not just geography, as Liverpool and the two Manchester clubs demonstrate.
The biggest concern is that the Tottenham figure is before they move to their new stadium in 2018/19, and the end of their current shirt sponsorship deal in 2019. (Update – Spurs have signed a multi-year sponsorship deal worth £25m a year with Nike)
Our stadium move (and corresponding match day and commercial revenue increases) is several years behind Tottenham’s and not likely to be before 2020/21 at the very earliest.
So how do we go about bridging the current £31.4 million gap between ourselves and Tottenham. The question is important because match day income is unlikely to increase significantly barring major cup runs at home and in Europe, and broadcasting revenues will only increase if we leap frog our rivals into a higher league place.
Firstly, the stuff we already know about.
The shirt sponsor deal with SportPesa and the USM Finch Farm naming rights deal works out at £15m (using Robert Elstone’s figures from the GM). That’s an increase of £9.7m per annum on the previous Chang deal.
Other partnerships. Although no figures have been given the Everton/Sure relationship is thought to be worth around £1m a year. Is it reasonable to think we can add a couple more similar arrangements? (Update – we know have Blackwell Global as a new partner)
The impact of European football is important. The 2015/16 commercial revenue figure fell by nearly £6m compared to the 2014/15 figure, the reason given being the absence of European football. With the higher value of new deals perhaps we can see further enhanced revenues in 2017/18, but let’s say somewhere between £6-8 million.
So, there’s an extra £18 million in commercial revenues which using the non-outsourced revenue figure reduces the commercial revenue gap considerably, but we would still be £13.5 million short of Tottenham. (Up-date £28m short following the Spurs Nike deal)
The only answer to bridging the gap further is in the retailing and kit supply deals currently set to run until the end of May 2019.
Several clubs have broken existing deals, notably Chelsea, in order to sign new more lucrative contracts. Of course, there is a cost to this, Chelsea broke their then existing deal with Adidas 6 years early to sign a 15 year £900 million deal with Nike.
Now we’re not in that league, but the paltry deal we have with Umbro is thought to be worth a maximum of £6 million a year, and with only two years to run must be ripe for review at least at the end of next season? (Tottenham receive £10m a year from Under Armour, Liverpool £24m from New Balance, Arsenal £34m from Puma, Manchester United £75m from Adidas)
Let’s assume we break the Fanatics and Umbro deal a year early, yes there’s a one-off cost which is treated as an exceptional item, but relative to the benefits it must be considered surely?
The benefits would be ability to control own sales, run own campaigns and massively increase the distribution base for kit sales at a time when our profile should be rising strongly on the back of European football, continued advances in our league position, and the publicity and excitement surrounding the (by then) impending move to Bramley Moore Dock.
It should mean an end to the farce that was the launch of our 2017 kit and new sponsors.
Realistically the only way to bridge the commercial gap between us and our next commercial rival is to bring retail activities back in house and seek an improved deal with a shirt manufacturer on the back of our much improved and increased profile.
We’ve a year to sort it out given next season’s arrangements are in place, in my opinion it should be a major priority for the club and board.