The High Court case between New Balance and LFC/Nike commenced today, and it revealed some interesting information. Most interesting, for me, is that 2.9m replica shirts will be sold this season. That fact puts the Nike deal into a new light for me.
If LFC were to win the case and move to Nike for next season, it would be reasonable to expect shirt sales to increase given their much stronger market presence and marketing power. Let's assume a conservative 10% increase in shirt sales, to 3.2m.
Working to an average price of £70 (including badges, lettering for names, etc.), that's gross sales of £224m. LFC have agreed a deal of a 20% cut of net sales (this is gross sales less returns and discounts). On that basis, fair to assume a net sales figure of at least £200m.
20% of that net sales amount equates to £40m. Add that to the guaranteed £30m figure and LFC's earnings from the Nike deal would be £70m- that's before any revenues from other clothing, apparel and footwear is taken into account.
If Nike were to produce a strong and marketable line of non-kit clothing, such as hoodies, tracksuits, hats, football boots, trainers, etc., then LFC could make substantially more than the £40m they should make just from their cut of shirt sales.
It's no wonder, then, that some projections have pegged LFC's earnings from the Nike deal as high as £100m- that amount of revenue is entirely achievable if the club continues to be successful, picks up more trophies and adds marketable Nike-sponsored footballers to the squad. 👀
The flipside is that if the club's fortunes in, say, five years time were to fall away then sales of Nike-produced merchandise would inevitably decrease. Were that to happen, the revenue figures would fall to a much lower figure- perhaps in the region of £50m-£60m.
LFC is clearly confident in being able to sustain success, however- and grow its following in emerging markets like China and India. Given Nike's much stronger presence in those markets alone, LFC would be confident of blowing the 2.9m sales number out of the water next season.
This brings me onto today's court proceedings. It was a very bad day for New Balance. They were made to look like a company with a poor grasp of its own global presence, lack of clear internal direction and almost delusional targets for achieving distribution to satisfy LFC.
On that last point, the facts shared about the number of 'doors' New Balance have made available for LFC merchandise only prove the point I was making last year that the club's current New Balance deal is a bad one. Really, their scale can in no way match LFC's current status.
It's not surprising New Balance are fighting this all the way to the courts. I estimate LFC account for between 5-8% of its total turnover, so losing such an important client would affect profitability as well as the company's share price.
There's still more to come early next week, but if the first day is anything to go by then LFC and Nike are well placed to emerge triumphant. If and when they do, based on the information that was revealed today, a partnership with Nike will be a big game changer for LFC.
