Comment & analysis – Milan extend Adidas deal

In case you missed it, Milan and Adidas officially announced the renewal of their deal that sees the German sportswear brand supply all sporting kit for the club. The previous agreement still had four years to run, expiring in 2017, but the two have decided to renew early, extending the expiry to 2023.

They were keen not to reveal financial details in the 50-odd minute press conference that took place at Milanello on Tuesday, with Adriano Galliani simply describing it as “an important contract.” La Gazzetta dello Sport, who we know have been wrong in the past, claimed that Milan would receive around €180-190m over the 10 years, which equates to €18-19m a season. Odd given that they thought Milan’s old deal was worth €20m less than two months ago.

Of course, we know the old deal wasn’t worth €20m – probably more around €14m basic plus bonuses. If La Gazzetta is to be believed this time around it means the new deal is a slight improvement on the old terms, but in the grand scheme of world football is actually quite disappointing given that most of the big clubs are on deals worth at least €20m or more, including the other three major European teams in Adidas’ portfolio (Chelsea, Real Madrid and Bayern Munich).

Until we see the 2014 and 2015 financial statements, it’s going to be difficult to ascertain the value of the deal. In the meantime, there were a number of interesting comments in Tuesday’s press conference at Vismara from both Galliani and Adidas Group CEO Herbert Hainer, which are worth exploring in more detail.

“Milan are part of our portfolio with Real Madrid, Bayern Munich, Chelsea and Flamengo, and Milan belongs on the first level with all of these clubs.” – Hainer

You’d expect nothing less than platitudes like this from the CEO of the company who have just signed a new agreement with a client, but it is nevertheless reassuring to see that they still view Milan as a top tier club commercially. That’s a testament to the hard work the club have put in over the last few years to grow this area of the business – Galliani made a point of singling out the marketing and sponsorship teams later on in the conference, praising their efforts. Milan still generates more commercial revenue than Chelsea, so it is not as if they are lame duck in this prestigious group.

“It is more than a sponsorship. It is a partnership.” – Hainer

This sounds like it could be the usual management speak you would typically associate with business-types like Hainer. But Milan’s Report of Sustainability, released in the summer, suggests that there is some legitimacy to the claim. Adidas do have the freedom to propose commercial partners to the club and their technology is used at MilanLab (though perhaps not something they want to be bragging about at this moment in time).

“I believe that the great symbols – and Milan is one of these symbols – have developed in the last 10-20 years an international network and have become a global brand, and this is what we are looking for. We want to be associated with brands that are international. We as Adidas can help them to be international, but they will develop the international network, which in turn will help us.” – Hainer

Similar to the first quote, it suggests that Adidas still see Milan as a worthy global brand, one that have moved themselves into the top tier through mostly their own work. And, importantly, they still have faith in the Milan brand, the potential for that brand to grow and the direction the club are heading off the pitch. The value they place on it will only become clear once we have an idea of the financials, but for now let’s enjoy the fact that it is still worth something in the world market, despite a downturn on the pitch.

“I believe our brand, regardless of sporting results, is so strong. It’s not so dependent on results or victories – sales continue because our brand is formidable. Ferrari went 20 years without winning a title and it didn’t affect the strength of the brand.” – Galliani

Standard Galliani – putting a positive spin on matters. He raises an interesting point with the Ferrari example – he’s right that the lack of success didn’t hinder the brand, but at the same time Ferrari still produced great road cars away from Formula 1, which more than offsets sporting performance. If Milan isn’t winning, what do they have to offset that? They don’t produce F50s or anything remotely close to that, there’s no separate arm to the business that can compete with the football – the team on the pitch is all they have to represent Milan globally.

This debate is double-edged sword in many ways, and it is not just a case of winning = strong brand, losing = weaker brand. Liverpool haven’t won anything of note for a while, yet their brand overseas is still incredibly strong – when they were with Adidas the sold considerably more shirts than Milan, which is why they were then able to squeeze almost €30m out of Warrior for their new kit deal once they had decided not to renew with Adidas.

A contrasting example is Manchester City – a team who have enjoyed great success over the last few years, but who are reportedly struggling to replace Etihad as a shirt sponsor due to concerns over the club’s direction and, despite those trophies, a lack of ‘historical presence’ compared to other clubs. You only have to look at the shirt deal the club signed with Nike recently – worth £12m (around €15m at the time) a season. A comparative pittance with other leading clubs.

It’s demonstrative of Liverpool’s prestige and history counting for a lot. Milan will have a similar advantage. And it is important not to underestimate that, despite the disparity in the ‘product’ between the Premier League and Serie A. Put simply, the Milan brand should able to absorb the hit of a decline in sporting results for the next few years at the very least.

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