Show Me The Money: Investigating Arsenal’s unfavourable shirt sponsorship deal

Show Me The Money: Investigating Arsenal’s unfavourable shirt sponsorship deal

AFCB’s resident football economist Aaron Gordon looks at Arsenal’s unfavourable shirt sponsorship deal…

There hasn’t been much of anything to speak of in terms of sponsorships and Arsenal over the past 5 years. Before the 2005/2006 season, Arsenal and Emirates agreed to a shirt sponsorship deal for a record 90 million pounds (using today’s conversion it would be 102.5 million Euros). The deal extends through 2014, which is considered quite a long-term deal for a shirt sponsorship, because of the rapid upward trend in price. Arsenal saw security in the long-term deal at a time where financial security was at a premium.

Emirates are getting a very favourable deal with Arsenal

However, concerns about the rapid inflation of shirt sponsorships were justified in retrospect. Now a quick glance around the EPL will find Arsenal well below the other big-revenue clubs in terms of shirt sponsorship revenue. Here are the top 8 shirt sponsorship deals in the EPL going into the current season (all figures in millions of Euros annually):

Liverpool-Standard Chartered-22.75

Manchester United-Aon Corp.-22.75

Chelsea-Samsung-15.7

Tottenham-Autonomy-11.4

Manchester City-Etihad Airlines-8.5

Arsenal-Emirates-6.25

Aston Villa-ExPro-5.68

Fulham-ExPro-4.55

Liverpool and Manchester United got brand new deals this off-season, contributing to their significant jump over Chelsea’s deal with Samsung. (Standard Chartered must be absolutely livid with the results Liverpool has handed thus far, and are probably employing a small army of lawyers to try and leverage the new ownership transfer as a way to back of out of the sponsorship.) However, it doesn’t take a Wenger (perhaps more of a Redknapp?) to see that Arsenal’s exposure and international following are not in line with their sponsorship revenue.

In fact, the Arsenal deal is so favorable to the sponsor that the head of corporate communications at Emirates has confirmed Arsenal’s shirt sponsorship is worth more than the company is currently paying. Meanwhile, Arsenal and Emirates are “in negotiations” for an extension to the 2014 deal. This report has been linked to the news that Emirates might not renew their naming rights to the stadium when the agreement expires in 2021.

The thought process may be that Arsenal will be seeking to recoup some of the “lost” revenue in their next shirt sponsorship which might make it “cost-prohibitive” for Emirates to renew the sponsorship. It is quite clear Arsenal’s board is not pleased with the fall in corporate revenue (4 million pounds, year to year) despite record profits. The majority of the corporate sponsorship lag behind Manchester United, Liverpool and Chelsea is due to this favorable shirt sponsorship deal. (The big rivals have commercial revenues of 70 million, 68 million, and 53 million respectively.)

To be perfectly honest, Arsenal will get a fair market deal for their next sponsorship and this will be a lost point in a few years’ time. Because of Arsenal’s record profits and fiscal responsibility, missing out on commercial revenue is not as significant as it would be for other clubs. But, there are two areas in which shirt sponsors have an impact: merchandise sales and shirt aesthetics. Quite obviously, if a team changes sponsors, they experience a rise in merchandise sales, since supporters desire the most up-to-date kits. Also, since sponsors are putting their name on the product, they often request (or demand, depending on the situation) input in the aesthetics of the jersey.

It also raises an interesting point about stadium naming rights. It is largely acknowledged the first naming rights to a stadium are the most important, and often the only one that matters. When stadiums change corporate sponsors, they are often still referred to by their original name. Do you think this will happen with Emirates? Will it always be Emirates, or will fans adjust to a new name, since it is just a corporate name anyways, and holds no character with the club?

Thoughts?

Have your say on Aaron’s article by leaving a comment.

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23 Responses to “Show Me The Money: Investigating Arsenal’s unfavourable shirt sponsorship deal”

  1. Naylyn
    October 14, 2010 at 4:08 pm #

    Interesting article Aaron. Do you know what people were saying about the shirt sponsorship deal at the time? I can’t remember. It think that since the shirt deal (and the naming rights) really helped us get financing for the stadium we shouldn’t be upset with the money lost.

    I think that it will be hard for people to adjust since it has always been known as the emirates but I don’t think it will be impossible.

  2. Adam Sommer
    October 14, 2010 at 4:16 pm #

    Corporate names for stadiums just plane suck. Naming a structure that has nothing to do with a corporation other than advertising is balls in my opinion. But everyone needs money so what do you do?

    Party On!

  3. jenaldo
    October 14, 2010 at 4:30 pm #

    Nothing wrong with your arguments….I just think there is too much focus on finances at our club at the moment. It seems finances have become the all and be all much to the detriment of performances on the pitch. I think we got the fair value from emirates at the time and our current perfromances in the league and UCL are commensurate to what we are getting.
    Obvioulsy we are making up for the lost revenue through changing shirt designs almost evry other season. New away shirts every season and a new home design every two seasons or so.

    The challenge fro Wenger and his team is to really win something ………the club will make so much money if they can win something.

  4. Clive
    October 14, 2010 at 4:30 pm #

    Scary, yet another boost to revenue once the property revenue drops. As well as the extra cut we will be taking on the sale of shirts.

    However we do need some silverware to make sure that fans want to buy shirts and come to the stadium.

  5. Ian Botannic Gooner
    October 14, 2010 at 4:33 pm #

    The sponsorship situation just sums up the current Arsenal board and managements attitude. There are no risks taken, no spending on players and worst of all they’re not listening to the fans. I’m not suggesting they bust the club but a couple of world class players isn’t a lot to ask for? When you see what we could have initially signed Shay Given for and you look at the current crop of no-hopers between the posts, they aren’t doing enough to secure a squad that will win something.

  6. rich
    October 14, 2010 at 4:33 pm #

    All my droogies call it “the Grove” or “Ashburton Grove”. Like Adam, I agree, corporate names blow, Maybe after 2021 we can drop it all together and give it a real name.

  7. Filipino Dan
    October 14, 2010 at 5:10 pm #

    Excellent article.

  8. Aaron Gordon
    October 14, 2010 at 5:20 pm #

    @naylyn:
    Since it was the largest deal at the time, the reaction was mostly positive, although the length of the deal was a concern, because any appreciation in the market would be unrealized by Arsenal, and they would be left with a below-market deal (which is precisely what occurred.) However, you are right, the revenue needed for the stadium payments was quite important at the time, so Arsenal was in a poor position to leverage.

  9. Seymour Wang
    October 14, 2010 at 5:22 pm #

    The stadium will always be Ashburton Grove to me.

  10. Carlos
    October 14, 2010 at 8:58 pm #

    Next time we have to avoid long term sponsorship deals, but we will not be in need to accept everything. That’s clear. In my opinion the stadium should be renamed after Herbert Chapman (our first great manager) or Arsene Wenger or somebody who was really important for the club when possible (it seems it will be after 2021; by that time unfortunately Arsene will be history too, but he could run for the honour).

  11. gooner in belfast
    October 14, 2010 at 10:08 pm #

    Remember that the Emirates and Nike deal money went to help us to a new 60,000 seater stadium. Without this money the move would never have been possible. We can always look back with hindsight and say they were bad medium term deals, but they were very good short term deals. The Spuds, Poo and Chavski’s are all looking to move stadiums to increase revenue.
    But are finding it very very hard to rasie the money (the poo are moving to a green field site and still can not raise the money required!)

    We would never have raise £100 a year revenue at Highbury like we do at the Emirates. Remember any new money sponsorship will go straight to the bottom line and increase the profit. Remember a sponsorship deal of £20M would increase the profits to £71M (£5M for the cuurent one).

    To raise to the next level we must invest the profit in quality players to help us win the CL and EPL.

    Overall the board and Arsene have done a great job building a new stadium and keeping us at the top while all other clubs that have build a new stadium have been relegated shortly afterwards.

  12. Feehily
    October 14, 2010 at 10:58 pm #

    I for one don’t care about it not being The Emirates, why? Cos I still say Highbury, The Grove or The Arsenal. The only one’s who would have a problem are the newer fans, but who cares?! I’m not a fan of naming a stadium but understood the need for extra income.

    But is this even a story? We got the best deal at a time when we needed a sharp injection of cash. And if Emirates don’t want to up the cash then we will look elsewhere (JVC), I doubt we’ll have a hard time finding a sponsor for a globally recognized brand such as Arsenal.

    All that matters now is the team and bringing it success and now the financially ship has settled in our favour maybe the timing is right, no more “maybe next years”, now is our time!

  13. Carlos
    October 14, 2010 at 11:41 pm #

    @Feehily The article said:”This report has been linked to the news that Emirates might not renew their naming rights to the stadium when the agreement expires in 2021.” So that means (for me), that they might not pay and you can do what you want. So it seems you did not read it carefully.

    You said:”I for one don’t care about it not being The Emirates, why? Cos I still say Highbury, The Grove or The Arsenal. The only one’s who would have a problem are the newer fans, but who cares?! I’m not a fan of naming a stadium but understood the need for extra income.” First see my answer above. Then:

    1.) I disagree with your tone, as this blog usually does not have guys, who belittle others. That’s why I like it. 2.) If you call yourself a real fan you do not belittle your fellow supporters. 3.) It can stay Emirates, but if it’s free to rename a stadium why don’t we do so? Or you think our greats don’t deserve that? And why do you think only new supporters would change the name. We are different mate. It’s a question of respect and that’s what you seem to lack toward your club’s greats and fellow supporters, unless I misunderstood you.

    “But is this even a story? We got the best deal at a time when we needed a sharp injection of cash. And if Emirates don’t want to up the cash then we will look elsewhere (JVC), I doubt we’ll have a hard time finding a sponsor for a globally recognized brand such as Arsenal.” Nobody said that naming the stadium is a priority over cash. Yes at that time they helped out, but you cannot live in the past. Apart from that you can still look around, if you can. Yes they helped with the stadium, but the next contract has to be much better/progressive from them or from somebody else.

    “All that matters now is the team and bringing it success and now the financially ship has settled in our favour maybe the timing is right, no more “maybe next years”, now is our time!”
    I think we all agree with that.

    @ Aaron “Will it always be Emirates, or will fans adjust to a new name, since it is just a corporate name anyways, and holds no character with the club?” If you change the name it will take time to get accustomed to this and will take (half) a generation until nearly everybody calls that. In this one Feehily is right. Most of the oldies will call Emirates for a long time.

  14. Ianinja
    October 15, 2010 at 5:50 am #

    Its all down to the inept of previous CEO Keith Edelman, playing safe and not being aggresive enough to broker deals that can put Arsenal on the world map and at the same time maximising profits.

    Arsenal may be known in Europe but there have not been much interest in Asia after Henry, Bergkamp and the so called ‘stars’ left. Asia will always be liverpool territory, due to the fact that they have been coming to Asia since the 80s.

    For Arsenal to be a global brand they have to do pre-season tours. I know Arsene has said in previous interviews that he sees pre-season tours as meaningless and taking a toll on players. However I don’t see any change in the injury situation of our club in the last 6 seasons, in fact it has become much worse since Henry left. Chelsea,ManU,Liv does pre-season tours and their players seems to be less injured than ours.

    I’m not advocating these tours but it makes very good business sense if that is what Arsenal wants to achieve financially. I forsee a spike in shirt sales if Arsenal actually did this, its quite a no brainer that merchandise is the number 1 source of constant revenue pull.

    For now Arsenal is a global brand due to our champions league place and the exposure of the Epl in Asia. However that will all change soon if we drop out of the champions league and finish out of the top 4.

  15. Carlos
    October 15, 2010 at 11:10 am #

    Asia is a good business and it should be exploited, as I mentioned that before. But if we do tours we have to take most of our best players, as well. Barca went to South Korea and failed to play the biggest stars (the world cup players were missing). Messi was there, but he did not play through the full match. The whole tour backfired and not only the team is not more popular, but they see them as arrogant liars and thiefs. These tours should not have an effect on the injuries. It needs a proper investigation why we have an abnormal number of injuries (apart from the obvious cases like Ramsey or Eduardo was).

  16. GazzaJ13
    October 15, 2010 at 2:12 pm #

    I don’t think that Arsenal fans look at the sponsorship on the shirts anymore. I think its all down to the style that makes fans buy it. If it looks good people want it!

    On that I also think fans are more interested in supporting their favourite player these days, especially the younger generation. I know my boy runs around thinking he is Jack Wilshere all the time which I think is great. Even though he the sport he plays is Rugby!! 🙂

  17. VCC
    October 15, 2010 at 11:26 pm #

    I thought at the time it wasn’t a good deal and the consensus was Arsenal sold the rights on the cheap.
    I agree with Feehily that this is a non story. It also makes me seethe when I see prices quoted in Euros when the deals would have been concluded in sterling. I actually live in Ireland so I use the euro on a daily business so I am not on an anti Euro rant.

  18. Aaron Gordon
    October 16, 2010 at 12:06 am #

    @VCC:
    I used Euros because the website I got the figures from is a European sports business website that gave the figures of all major shirt sponsorship deals in top division European football, so the figures were all in Euros. I see your point that they perhaps should have been provided in GBP.

  19. Aaron Gordon
    October 16, 2010 at 12:09 am #

    As for the concept as this being a non-story, that is a story itself. If consumers don’t care about sponsorship deals, then that is quite important, because businesses spend tens of millions of pounds/euros/dollars annually on sponsorship deals, sometimes even in the hundreds of millions. If they are doing that spending on something consumers don’t value all that much, then that is quite a story indeed, at least from my perspective.

  20. VCCC
    October 16, 2010 at 12:19 am #

    It’s a non story as I don’t see it as an issue at present as the current deal has several years left to run and is not really an issue for most fans at the moment.
    As you point out Aaron:
    “To be perfectly honest, Arsenal will get a fair market deal for their next sponsorship and this will be a lost point in a few years’ time.”

    Arsenal didn’t get a great deal and in 2014 have the opportunity to correct that. That’s basically it.

  21. Anton Bashtavy
    August 9, 2012 at 1:25 am #

    Comparing annual numbers when in one case the whole sum is given straightaway, while in the others those are distributed in equal parts during the whole period, is, well, quite stupid. Google what Net Present Value is and try to rethink what you’ve written.

  22. Windell
    August 28, 2012 at 1:49 pm #

    What is done is done already with the Emirates deal so we let it run and find another when its done.i am curious as to know how is our deal with Emirates compared to Milan& PSG and if I am correct Hamburg? Last but not least I wish we could dump Nike and sign with Adidas when contracts expires.

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