Analyzing the Commercial Value of a Football Jersey

[Author: Arnav Joshi, a fourth-year law student at Jindal Global Law School. This article has been previously published at the Author’s Blog- Route One Sports Law]

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Introduction

For football fans across the globe, wearing their club’s colors is a matter of pride. It gives fans a chance to show their passion and loyalty towards their club. For potential sponsors too, the opportunity to have their brand logo embroidered on the shirt of a top-flight club is remarkably alluring. The fortuity is to put their trademark on a shirt that will potentially be sold to millions in every corner of the world. Whether fans loathe big brand logos on the front of the team kit or not, there is no denying that shirt sponsorship has become a big part of the game as a significant source of revenue for clubs. Major European clubs derive income from their kits through 3 main sources namely, the principal shirt sponsor, the merchandise manufacturer and the subsequent sale of kits to the fans. This article analyzes the historical growth and development of the commercial value of a football shirt, particularly of Premier League clubs. In the latter part, the author aims to show a shift from a traditional shirt sponsorship model and predict the future of football shirt sponsorships.

Historical Background

Shirt sponsorship deals have become almost synonymous with football, at least for top-tier European clubs. It is estimated that Premier League clubs generate about EUR 832 million annually from front-of-shirt sponsorships alone, as of the time of writing. However, it wasn’t until the 1980s when shirt sponsors became a common occurrence in the PL. The first-ever sponsorship deal in English football was made by Kettering Town with the local company “Kettering Tyres Ltd” in 1976. Funnily enough, at the time the club was fined £1000 by the English FA. This was the time when shirt sponsorship started booming in other parts of Europe, especially in the Bundesliga. It took Derek Dougan the CEO of Kettering Town with the support of bigger clubs like Bolton Wanderers and Derby Country to persuade the FA in making a sponsor’s logo an official part of the game for the 1977/78 campaign. It seems reasonable to assume that brands saw potential in associating with a football club only when live televised coverage of football matches started in the late 1960s. This would enable the corporations to advertise their brand to a much larger audience by taking advantage of the uprise of televised viewership of English football.

Would you be shocked to learn that before the 1980s every English football club would have to actually pay sportswear manufacturers for supplying them their kits for the season? Sportswear companies exploited football clubs simply because they understood the business better. Before the 1980s, big English clubs used to pay companies like Umbro to supply their clothing which was hugely advantageous for the company to advertise their brand. English football clubs realized that their shirts have some value only in the 1980s when they discovered that many fans were willing to buy replicas of their team shirts. This led to clubs now charging sportswear manufacturers instead of paying them for their gear. It is indeed surprising to see how late football clubs realized that their kit engineers a relationship between the fans and the sport.

The Growth

Since the 1970s and 80’s when English football clubs first started extracting revenue out of their kits, the commercial value of these kits has surged exponentially. According to KPMG Football Benchmark, the total value of sponsorship across the big five European leagues in 2020 is estimated to be more than EUR 3.3 billion per annum, with front-of-shirt sponsorships representing almost a third of this figure. Much of this increase in revenue is to be attributed to the rise of global viewership of the Premier League. English football steadily grew to become the most-watched league in the world due to its aggressive policies of broadcast redistribution to the clubs. These policies ensured minimal income inequality among clubs and therefore the Premier League was popularly regarded as the league where “anyone can beat anyone.” Hence, the Premier League attracted some of the biggest sponsorship deals in the sport. Most notably, Manchester United’s current shirt sponsorship deal with Chevrolet is in the region of $75m annually.

Recently, the Premier League allowed clubs to feature additional advertising on club kits apart from the main front-shirt sponsor. Starting from the 2017/18 campaign, brands were allowed to advertise on the left sleeve of a shirt replacing the Premier League badge which was relocated to the other sleeve. This meant an additional source of revenue for clubs along with more opportunities for brands to feature on a premier league shirt.

Apart from shirt sponsorship and kit manufacturing deals, a club may also derive revenue through the sale of kits to fans through their kit supplier. That being said, there is a huge shirt sales myth that needs to be busted. A star player’s transfer to a new club is often followed by headlines on social media that the enormous shirt sale spike is enough to cover the entirety of the transfer fee of the respective player. However, these claims are absolutely wrong. How this structure of payments based on shirt sales works is that clubs may earn about 20% of all net sales only once a large, predetermined number of shirts are sold, say 2 million shirt sales. Therefore, clubs receive more ‘upfront payments’ from kit suppliers rather than a royalty-based payment. Upfront payments also constitute a hefty chunk of a club’s revenue through a season. Some remarkable kit supplier deals within the premier league are that of Manchester United ($105m), Chelsea ($84m) among other clubs, all of which are annual up-front payments. The royalty bonuses in these contracts only kick in once a certain million number of shirts are sold.

Intriguingly, a recent example has shown a shift from the traditional kit supplies deal. Liverpool’s recent supply deal with Nike is reported to contain a relatively smaller base figure (£30m) but stated that Liverpool will earn 20% of all net sales through both official stores and third-party retailers. The upfront base amount is comparatively smaller than its direct rivals in the league, however, the fact that Liverpool will earn royalty payments on every shirt sold makes this a unique case. Analysts estimate that with this callus, Liverpool is likely to earn north of £65m from shirt sales which exclude the guaranteed base amount. It is evident from this example how much of a massive increase in revenue this could be for clubs rather than the traditional model. It will be interesting to see if more clubs follow this model in the near future.

The Future

The commercial value of a football shirt has certainly come a long way in the past few decades with sponsorship and kit manufacturing deals skyrocketing through the roof. For the first time in the history of English football, a second shirt sponsor is being allowed to feature on a shirt. This in turn raises a lot of skepticism as to what lies ahead in the future. It wouldn’t be too far-fetched to question if in the future footballers will become walking billboards for brands? This model is prevalent in lower divisions of European football and in other sports tournaments like the Indian Premier League, where teams try to derive the maximum income physically possible from their kits. Every inch of the shirt is draped in brand logos which, to say the least, makes it an unpleasant sight for spectators. Besides, nobody would enjoy purchasing and wearing shirts that are engulfed by sponsor logos all around.

That being said, Premier League clubs cannot feature additional brand logos than what is prescribed as per the Football Association. The English FA administers this through the FA Kit and Advertising Regulations which lays down the specific area of a shirt permissible to embroider a logo upon. The FA rules exist to protect the integrity of the competition, to ensure that teams are not covered in sponsorship detracting from the spectacle of the game. Some clubs have also started realizing that shirt sponsors don’t go well with fan culture. West Ham is one of them and has shown so by giving supporters the option to purchase kits without the sponsor logo on the shirt, gaining praise from fans across the sport. Paddy Power, an online bookmaker recently started a unique initiative “Save Our Shirt Campaign” and removed its logo from club kits which they were sponsoring. They are also encouraging their rivals to remove their brand logo from the front of other football shirts to effectively ‘return the shirt back to the fans.’

English football clubs like any other sports team in the world will undoubtedly want to further improve their revenue generation to try and accumulate the best resources and talents increasing their chances of winning competitions. However, various clubs and brands have ascertained that shirt sponsors don’t go down well among fans. Therefore, it remains highly unlikely that PL clubs will be adding more brands on their kits (to boost income) anytime soon owing to the potential viewer backlash. To generate greater income from their kit, it is plausible that more clubs follow Liverpool and shift to a royalty-based payment model through their kit rather than the traditional approach. Looking forwards, curbing shirt sponsors will not only keep the sacred bond between fans and their team’s shirt intact but will boost shirt sales generating more profits for clubs if they do shift to the royalty-based payment model in the future.

*For any query, feedback or discussion, Arnav can be contacted at [18jgls-arnav.joshi@jgu.edu.in]

PREFERRED CITATION: Arnav Joshi, Analyzing the Commercial Value of a Football Shirt, ROUTE ONE SPORTS LAW BLOG, <https://routeonesportslaw.wordpress.com/2021/05/13/analyzing-the-commercial-value-a-football-shirt/> May 13, 2021.

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