Commercial Income/Reserves Move Behind Closed Doors

If you haven’t already found it for yourselves, I start today by recommending another blog, that of the “Swiss Rambler”. The person who writes it is anonymous but he is a Brit who lives in Switzerland. His stuff on the business and economics of football is well-written and well-researched. His latest blog is on Internazionale, a massive on-field success last season. Off the field, not so much. In the financial year ended 30 June 2009, they lost €154 million (around £132 million). 

You can find the blog here: 

http://swissramble.blogspot.com/ 

His piece about Inter contains figures from the Deloitte Football Money League 2010 which make very interesting reading. Bayern Munich raked in £135.7 million, compared to £48.1 million at Arsenal. Manchester United managed £70 million. We’re even beaten by Chelsea at £52.8 million. 

As many Gooners have been saying this is an area where the club can and must do MUCH better. Emirates Airline has recently announced it wants to renew its naming rights deal for the Grove when it expires is 2021. The airlines executive vice-chairman Sir Maurice Flanagan is quoted in the United Arab Emirates daily English language newspaper The National as saying, the deal is a “fantastic bargain….. It is an extremely cost-effective way of maintaining worldwide exposure for brand Emirates,” The associated shirt sponsorship deal ends in 2014. 

This may be the leverage we’re looking for to get a much better deal on both the jersey sponsorship and naming rights. The real plum for Emirates is the stadium naming rights, although the jersey rights are also very valuable. The only uncertain factor is how the economy will look in 2014. There’s every chance of another dip into recession. I think there are reasons not to completely rule out a full-blown depression. In the latter case all bets would be off.

Let’s for a moment assume however that Emirates continues on its upward path. That’s not absolutely certain but is a reasonable bet. The airline is wholly owned by the government of Dubai  (which is an absolute monarchy ruled by the Emir and his family, and federated with six other small Gulf emirates as a member of the United Arab Emirates). It made a profit of United Arab Emirates Dirham 3.538 billion (about £620 million) in the financial year 2009/10. It has been profitable in eleven of the last thirteen years. Emirates is expanding rapidly. It was the first airline in the world in the world to order the new super-jumbo Airbus A380 aircraft. It has just made the world’s single biggest commercial aircraft order for 32 A380s. The order is worth nearly £7.5 billion. 

It’s safe to say that Emirates isn’t short of a few bob. It’s pumped a lot of money into sports sponsorship as part of its advertising and marketing strategy. The only slight question mark is over the financial future of Dubai which unlike some of the other emirates like Abu Dhabi isn’t awash with oil. We’ve seen the recent meltdown of the property market in Dubai and problems in its financial sector. Tourism has also taken a hit with the recession. 

The airline is financially self-sufficient however. We should be able to “lever” a good deal for ground naming rights if we handle the expiry of the jersey sponsorship deal right. Nike has taken up the option to extend its kit sponsorship deal until 2014. We should see a substantial increase there too if we play our cards right. Combining the deal on jersey name sponsors and the ground naming rights should provide a synergy leading to a better deal than having two different sponsors in this area. 2014 isn’t too soon to be looking at testing the market on ground naming rights. 

If I was negotiating for the club I’d do try to do the vest best deal possible for a MAJOR increase for Emirates in shirt sponsorship from summer 2014 AND for naming rights from summer 2021. I’d include a clause allowing Emirates to match any improved offer we might attract for naming rights between 2014 and 2021. That would allow them to drop out and allow in another naming rights sponsor if what we were offered was much more than the maximum they were prepared to pay, whist giving us some certainty of increased income upon which to plan. 

£72 million of the £90 million due from Emirates under the combined current deal will have been paid by 2012, leaving £18 million to come in between 2012 and 2021 – an average of only £2 million a season. This is a big gap we need to plug. Profits from property sales at the old ground and the Ashburton Grove triangle will plug some of that but it’s something for which we have to plan. I’d be trying to seize on Emirates evident enthusiasm without locking ourselves in too much. It’s a delicate balance between guaranteeing income from a partner that is likely to be able to deliver and not losing out by being too conservative. If I had to bet I’d say that the world economy is going to go through some very difficult times in the next decade though. A little less cash for certainty might be a good bet. Like all things in a free-market economy there’s no certainty however. We should certainly be out there – discreetly – testing the market right now. 

I’ve blogged before that one area we should look at is the commercial impact of not having a sponsor’s logo on the playing jerseys at all or a much smaller one (like the small Etihad logo under the club badge on Manchester City’s  current white with red and black sash change strip). There’s also Racing Club in Argentina whose sponsor Banco Hipotecario (the country’s biggest mortgage lender) has paid NOT to have its logo on the club’s playing jerseys). It may be that the Etihad decision on the Manchester City change strip is not a strictly commercial one. The Banco Hipotecario one with Racing Club is however. Neither the home nor the change strips carry the bank’ logo. 

One potential sponsor for stadium naming rights and jersey sponsorship we should look at is Nike. Their last accounts show annual profits of over £950 million. A package of kit, jersey name sponsorship and stadium naming rights might just be very attractive to them. What we don’t want is the tail wagging the dog as we’ve seen with their sponsorship with the CBF (Confederação Brasileira de Futebol, the Brazilian Football Confederation) for the Brazilian national teams. This deal has seen the senior men’s national team sent around the world to play lucrative friendlies. Decisions on friendly matches must take into account the commercial needs of the club. The decisions must be made by the club, not the sponsors however. They need to reflect the primary objective of the club which is to win trophies, not make money. Money is a means to an end, not an end in itself. 

The objective has to be getting far closer to Bayern Munich’s benchmark in commercial income however, which even exceeds the £111 million plus that Real Madrid managed in the latest period. 

On a completely different subject I’m disappointed to see that we’ll only be playing four reserve team matches open to fans at Underhill this season. The balance have been scheduled to be played behind closed doors at the Shenley training ground. This follows a change in the Premier Reserve League rules to allow closed door matches. 

The reserves might not draw huge crowds – not that we try very hard to get a crowd to them – but they’re a cheap (admission has been free for many seasons) and accessible way for fans locked out of the Grove by either price and/or availability to get to see Arsenal. I remember a reserve match against Spurs at Underhill a few seasons ago which drew an excellent crowd. There was even singing, unheard of at the stiffs! 

I was also disappointed to learn that we’ve asked for a fifty percent share of the net receipts from our annual first-team friendly against Barnet. The deal over the seasons that the reserves have played their home games at Barnet has been that we paid actual costs for each game there. Barnet has got its profit out of the arrangement by keeping all the receipts after match expenses from the annual friendly. Asking for half of the receipts for this year was cheap of us I think. The sum involved will only be £25,000 or so, hardly a fortune for us but an important income source for Barnet who average about 1,600 souls a game. 

We’ve done a deal with them now that they keep the money “on account” to be disbursed game by game as we play reserve and FA Youth Cup matches at Underhill. I think we can do better than that and continue to give them the full gate receipts from the annual friendly (assuming we agree to keep playing it). Of course we have to look after ourselves but let’s give a little back to the grass-roots too. 

As I finish this blog there are reports that our biggest shareholder Stan Kroenke is on the verge of completing his takeover as sole owner of the St Louis Rams of the National Football League in the USA. The NFL’s finance committee has approved the Kroenke purchase which will now go before a full meeting of NFL owners today in Atlanta. More on that on Friday. 

Keep the faith! 

vic@arsenalinsider.com

{jcomments on}

Vic Crescit

More Posts