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Talk of kit deals can be confusing at times. Manufacturers can be called kit suppliers, kit sponsors or technical sponsors, but what exactly are they paying for in these deals?
Well it depends a lot on the size of the club involved. When it comes to the lower divisions, we shouldn’t really be calling them sponsorship deals at all, but rather kit supplier deals or licensing deals. For example, it’s fair to say that Adidas aren’t making Accrington Stanley’s kits this season in order to enhance the Adidas brand (no offence Stanley fans!).
Instead, what Adidas are doing is producing football kits and training gear for Accrington featuring the club’s logo, which is licensed to Adidas. The club will then receive a small percentage on each shirt sold, known as royalties. Of course, there will be a minimum guaranteed amount so the club is not left empty handed if the shirt doesn’t sell well.
But the fact that football clubs receive only a very small amount on each shirt sold (likely not more than £5 in most cases) leads to the question of why don’t they just make their own shirts? (Southampton did this back in 2014/15). After all, with a football shirt costing at least £70 nowadays there is a huge margin of profit to be made when you consider how cheap it must be to have some t-shirts made and slap the club’s logo on it.
The problem is not so much the profit margins but the time, effort and expertise involved in the distribution and commercialisation of the product. Not only do you have to manufacture the shirt yourself but you must also take a risk on the amount of stock that you order. Every shirt ordered has to be sold through retailers (and finding agreements with these is another job) or by the club itself, with any remaining stock at the end of the season effectively being money thrown down the drain.
This is why it’s often best to let a sports manufacturer handle things, relying on its own supply chains to manage the distribution.
Now, when it comes to the really big clubs we often hear of huge multi-million kit deals, with the deal between Barcelona and Nike reportedly being worth over £100m. But these fees have nothing to do with the royalties that are paid on each shirt or piece of merchandise, but should instead be seen as a sponsorship fee.
The big brands like Adidas, Nike and Puma compete for the chance to have the best players in the world wear their kit in official matches, not to mention the chance to use the club’s players in advertising campaigns from time to time.
And when it comes to the elite clubs, the amount of money to be made from selling official merchandise is astronomical. It has been reported that more than 1 million Real Madrid, Manchester United and Barcelona shirts are sold each season, and that’s before we even consider training gear and other types of licensed merchandise.
So does that mean that these clubs can recoup large transfer fees through shirt sales? The truth is that this is a myth. Even though the big clubs do tend to receive a decent percentage through royalties (in the region of 10% to 20%), this percentage is based on the kit manufacturer’s wholesale price, and not the price paid by the final consumer.
In fact, by the time the shirt is sold to the final consumer, the retailer (a sports shop for example) will also have added on its margin and after that VAT is added as well. So the margin the club finally makes on the RRP of the shirt in reality can be as low as 6% or 7%.
That said, the club can of course increase its slice of the pie if it sells the shirt in its own club shop or on its website, making a profit by selling the shirts at a higher price than the wholesale price it paid to the supplier. It is this lack of a middle man that also explains why kit manufacturers often offer shirts at such a discount at the end of the season. Once you’ve set aside the production cost, the small royalty to be paid to the club and VAT, the rest is all profit.