The commercial challenges facing Everton (part 1)

In our most recent #EvertonBusinessMatters podcast we looked at the commercial performance of Everton relative to the 6 clubs (our peer group) currently dominating the financial and footballing tables.

moshiri-kenwrightrobert elstone

In the podcast we gave the headline figures in £m for commercial revenue generation as follows:

commercial revenues

A health warning – these figures will rise significantly for season 16/17 and 17/18 with numerous new deals coming to fruition. For Everton, the rise will see us break the £25m barrier for 16/17 and more than £30m for 2017/18. Whilst we have attracted new partners whatever the figures, the gap between us and those above us will increase.

 Commercial revenues can be broken down as the following:

  • Kit manufacturer deals
  • Kit sponsor deals
  • Naming rights
  • Commercial partnerships

 Let’s start with kit manufacturer deals:

Kit manufacturers

Kit manufacturer deals are dominated as you would expect by the largest global producers of sports clothing and equipment. The deals they strike with Premier League clubs are not, as is often thought, determined by shirt sales, but by an assessment of the amount of exposure a particular club will give the brand.

The deals themselves are complex arrangements, not only covering the manufacturing of shirts and training equipment plus leisure wear but multi-level licensing and distribution arrangements which differ depending upon the strategy determined by the host club.

Singularly, the kit manufacturer has become the most important commercial contract (outside of the PL broadcasting arrangements). The importance of the deals to the manufacturers can be seen in the amounts they’re prepared to offer, and their willingness to buy out existing contracts.

Manchester United £75m pa with Adidas, contracted to 2024
Manchester City £20m pa with Nike. Reportedly switching to Under Armour in 2018
Liverpool £28m a year with New Balance, reported as a 10 year contract to 2027
Chelsea £60 m pa with Nike, reported as a 15 year contract to 2032
Arsenal £30m pa with Puma. Reportedly switching to Adidas in 2018, estimated £60-90 m p.a.
Spurs £25m pa with Nike, “multi-year” contract
Everton £6m a year with Umbro, contracted to 2019

Kit sponsor deals:

Kit sponsor deals now fall into 3 categories, shirt front, sleeve and training kit deals. As with kit manufacturer deals, their value has inflated enormously in recent years.

What started initially as relatively simple contracts for placing a sponsor’s name on the shirt front has evolved into increasingly complex deals, some of which are bundled with naming rights deals (Arsenal & Emirates, & Manchester United & Aon). As a result, the comparisons are not always comparing apples with apples but it’s the final figures that tell the story.

Shirt sponsorship Sleeve sponsor Training kit sponsor Total (including estimates)
Man. United £47m pa with Chevrolet, contracted to 2024 Est. £20m pa – tba £15m pa Aon £62-82m pa
Man. City £30m pa with Fly Emirates, possibly renegotiated next year £5m pa Nexen Tires none £35m pa
Liverpool £30 m pa with Standard Chartered to 2019 £5m pa Western Union Est £8m pa BetVictor £43m pa
Chelsea £40m pa with Yokahoma, reported as a 15 year contract to 2032 £8m pa Alliance Tyres £10m pa Carabao £58m pa
Spurs £35m pa with AIA “multi-year” None permitted by main sponsor  none £35m pa
Arsenal £30m pa with Fly Emirates, potential renegotiation next year None permitted by main sponsor none £30m pa
Everton £10m pa with Sportpesa until 2022 Est. £2m pa Angry Birds none £12m pa

From a competitive position the most worrying aspect is that not only are Everton lagging existing deals by a huge factor but Liverpool, Arsenal and Manchester City will have negotiated new main sponsor deals before the expected conclusion of Everton’s existing deal with Sportpesa in 2022.

As discussed previously whilst the Board is right to claim that the current deal represents a “record-breaking deal”, in the context of our peers it is a huge reflection on the deterioration of our relative attractiveness to sponsors. Something for which the Board must take full responsibility in my opinion, and account to shareholders.

Naming Rights

Often seen as a great source of income, as huge contributors to the costs of new stadia, the reality is actually quite different. In fact, it is arguable that the market for naming rights has got tougher at a time when other sponsorship deals have inflated in value.

Currently Arsenal and Manchester City have naming rights’ deals albeit for different reasons. Arsenal as a condition of their lenders were tied into a long term contract (to 2028) with Emirates, and Manchester City as a result of their ownership.

Others have struggled. If there was a company called “Big Stand” then perhaps Liverpool would have got their dream naming rights deal for their new extension. They have not however looked for a full naming rights package for Anfield, and as yet have not attracted a naming rights partner.

Similarly West Ham United have struggled to find a naming rights partner perhaps because of the strong association of their rented stadium with the Olympics, but the £20m 6 year deal which fell through with Vodafone was far from what was once imagined.

Spurs suggested at the time of their planning application that they would have secured a naming rights partner for the new White Hart Lane stadium before or at least by the half way stage of their build. It was suggested that the naming rights might be valued at £300m. However the stadium is past the half way built stage and there is little or no chatter as to a naming rights partner being announced, let alone any value attached to it.

This is perhaps one of the few opportunities Everton have over their rivals. It is arguable that an iconic stadium on the banks of the Royal Blue Mersey will have strong appeal given the attractiveness of the stadium and the lack of associated former names associated with the stadium or location. What the value is is difficult to say, but the £5m naming rights deal by USM with Finch Farm suggests a figure of £10m pa may be achievable. If achievable it should contribute around 50% of the financing costs of the new stadium.

Other commercial partners

This is worthy of an article in its’ own right. Led by Manchester United, all the clubs above us have excelled in building commercial partnerships at several levels, often using global brands in highly specialised regional & local sponsorship campaigns.

In the podcast we have talked about Liverpool’s approach to the US where they have identified that the Premier League has a predominantly young following and therefore sought brands for whom this is their core market. The other key point about using US brands is that they can only seek global awareness through foreign (to the US) sports teams. The sponsorship of US based basketball, ice hockey and American football is an almost entirely domestic affair. US companies seeking global awareness through sports should look no further than the Premier League. How galling is that when we had such key US sporting superstars playing for our beloved Everton.

Elsewhere our peers have successfully used local language, market and localised social media to promote brands never heard of in the UK, yet all contributing significantly to the football clubs’ bottom line. For example, Chelsea have had a deal in Myanmar with a whiskey producer “Grand Royal” – Chelsea’s tipple of choice, completely unknown here, but that’s not relevant.

In terms of number of partners, Manchester United have 60 commercial partners and continue to grow their portfolio. Chelsea in the words of their new commercial director will grow their portfolio from a dozen to somewhere between 30-35, possibly increasing their commercial revenues from this source by a factor of 4 over the next 7 years.

In the meantime, Everton have a portfolio including Sure, Blackwell Global, William Hill, The Protein Works, and Davanti Tyres. Interestingly as at the time of publication, Davanti Tyres do not feature on Everton’s official partner page on http://www.evertonfc.com.

The future

In the podcast, we forecast that Everton FC had to increase their commercial income (including shirt sponsors and manufacturer contracts) as well as global partners, by an annual increase in excess of 50% per annum to stand any chance of competing in 5 years time at Bramley Moore.

I believe 50% per annum is possible. It is not predicated by winning trophies (although obviously that helps and is what we as fans are wanting more than anything) – Liverpool and Spurs have proved you don’t need to win anything to be successful commercially. It requires a vision, expectation and ambition plus individuals with the necessary skills to conclude their deals.

Whilst we hope to achieve the above (and I’ll write more on the subject in coming weeks – part II) as things stand Manchester United will earn more than £2bn more than Everton in the next 5 years, Liverpool approaching £1bn and Spurs £700 million – that is the scale of the challenge.

 

 

 

 

 

 

3 thoughts on “The commercial challenges facing Everton (part 1)

  1. If the podcast wasn’t clear enough Esk, this is sobering reading, a stark and graphic depiction of the magnitude of the tasks facing the club.

    It convinces me even more that the need to recruit a complete new Commercial Division is required. Such a new division would need to have an absolutely global remit, to boldly go where nobody (from Everton) has been before, and if they have been before, to go again and start afresh.

    It won’t be easy catching up with the clubs in that peer group, but if we don’t try we risk everything.

    As with the challenges currently facing the club on the football field, the challenges in the business world must faced head on with strategies and tough, very tough targets set.

    The immediate timescale for a dramatic, staged improvement has to coincide with the development of the Royal Blue Mersey stadium at BMD, it offers a physical mark against which improvement in commercial activities and success can be measured.

    As each stage of the new stadium construction is entered into, so should a new level of commercial success be achieved, the two projects could be so linked to keep minds focussed on achievement.

    I have no doubt that in the construction project, all elements will have target dates and budgets with bonuses/rewards available for early completion and budget savings so in similar fashion, a new Commercial Division should be targeted and rewarded for deals completed ahead of time and for greater values than set as minimum requirements.

    Early in his tenure as majority shareholder Mr Moshiri spoke of a ‘window of opportunity’ – that opportunity is right now and must be realised.

    .

    Liked by 1 person

  2. Thoroughly enjoy your articles. Excellent research and ease of explaining your findings. Are you aware we are featured on the next panorama programme regarding moshiri and usmanov?? Alleged flouting of premier league ownership of two clubs.

    Liked by 1 person

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