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A kit of parts | Fanatics shakes up the sports merchandising market

Historians may look back on 2016 as the year the three-way dynamic between sports rights-holders, their official kit suppliers and replica-kit-buying fans was reshaped. Matt Cutler looks at what’s driving change and what the implications could be for the three parties.

WHEN MAJOR LEAGUE BASEBALL’S (MLB) Chicago Cubs won their first World Series since 1908 last month, fans were able to celebrate in style by opening their Uber app. Not to book a taxi to Wrigley Field and join the party at Cubs HQ, but to get their hands on official merchandise that could be bought and delivered in a matter of minutes through the taxi app.

Many saw the Uber initiative as a PR stunt, particularly given that an identical set-up took place three weeks earlier around the Los Angeles Rams’ first regular-season National Football League game at the Memorial Coliseum since 1979. But the reason it was successful goes much deeper than that: online retail giants such as Amazon have set new standards in the Western world with their next-day and even next-hour delivery services, putting a spotlight on just how antiquated the supply chains for sports merchandising are.

This so-called ‘hot marketing’ – supplying merchandise in response to high levels of demand, more often than not in sport following an unanticipated on-pitch success of a team – is one of the elements of licensed sports merchandise provider Fanatics’ new partnership with the National Hockey League, signed at the tail end of October.

In the reported 16-year deal starting from the 2017-18 campaign, Fanatics will continue to operate the league’s online retail platform – as it has been doing since 2005 – while it will become the official manufacturer of ‘hot-market merchandise’ around the Stanley Cup play-offs and final. That means during the season climax Fanatics can produce ‘commemorative’ gear that can be marketed and shipped immediately.

Significantly, Fanatics’ deal also goes alongside one signed by sportswear giant Adidas last year. While Adidas will supply official on-ice uniforms for seven years from 2017-18, Fanatics will exclusively manufacture and supply replica jerseys, carrying the branding not of Adidas, but its Fanatics Branded division. There’s also been speculation around a similar deal with MLB, where, from 2020, Under Armour will reportedly produce on-pitch jerseys and Fanatics Branded replica jerseys with no Under Armour branding.

With Fanatics Branded, which operates out of the San Francisco Bay Area under the stewardship of Raphael Peck – the former senior vice-president of product creation and merchandising for Under Armour – Fanatics has made a significant investment in digital printing to become a high-quality manufacturer of sports merchandise, rather than simply a distributor. And it’s seen by many in the sports retail sector as a game-changer.

Market dynamics

The structure of Fanatics and Adidas’ deals with the NHL – in particular the splitting of elite and replica supplier rights – is the result of several developments in the sports retail and merchandising space, and experts say it’s a model that could soon be adopted by major rights-holders across the world to help them overcome a number of challenges.

Firstly, rights-holders are becoming frustrated with major sports brands’ inflexible supply chains. Typically, official kit suppliers produce replica kits and jerseys in batches months and even seasons in advance of them being available to fans through physical or online retail. This makes ‘hot marketing’ nigh-on impossible and means retailers often sell out of merchandise if a team does well, or are left with large amounts of stock at the end of the season that they have to sell at a discount.

Big brands do make money from the replica business, but really they’re looking to drive other parts of their business by having a partnership with a major rights-holder

Compare that with high-street fashion retailers – who replenish stock on an almost weekly basis according to fashion trends and what goods are selling well or not – and you can see how far sport has been left behind. Being able to react nimbly to spikes in consumer demand is a natural progression for sport and having a company specialising in fan merchandise to meet demand better is therefore attractive to a rights-holder.

Secondly, sportswear brands are having to spend wallet-busting amounts to partner with the world’s biggest sports properties, as seen recently with Nike’s deal with football club Barcelona – costing Nike €155m ($168m) per year, according to mainstream media reports, blowing out of the water a previous record partnership between Adidas and Manchester United for around half that. Firms such as Nike and Adidas are paying a premium to be associated with the biggest and most iconic sports brands, and therefore are looking at new models that help them reduce or recoup their initial investments.

Andy Anson – who as president of Fanatics International heads the company’s activities globally outside North America – also argues that the main element of a sportswear giant’s deal with a major team or league is marketing exposure, rather than the cash they can recoup through the sale of replica shirts, meaning they’re open to ways they can help bring costs down.

“Big brands do make money from the replica business, but really they’re looking to drive other parts of their business by having a partnership with a major rights-holder,” says Anson, whose former roles in sport include commercial director of Manchester United and chief executive of the ATP World Tour in Europe. “This is why we believe the Fanatics-NHL model can work for other rights-holders,” he adds. “Adidas want the on-ice exposure to drive sales of other products like footwear, while we are geared towards creating fanwear. By splitting it in this way, we’re taking a lot of the risk away from them.”

There’s a rights-holder angle here, too: as the bigger, more established rights-holders secure the more lucrative deals, second and third-tier properties are left to deal with less established sportswear brands that do not have the same financial muscle.

This is causing a market fragmentation, which can be seen in the Premier League this season. Despite the global exposure that comes with being a Premier League team, clubs like Bournemouth (JD Sports), Crystal Palace, Stoke City (both Macron), Swansea (Joma) and Watford (Dryworld) have all signed less lucrative supplier deals with less familiar manufacturers. It is these types of clubs that will be most open to splitting their rights in the first instance, experts say, as they can offer more established brands a lower price point.

Fans first

It is of course the fans who, in theory at least, rights-holders and sportswear brands have at the top of their list when forming their retail strategies. The cost of replica kit has shot up globally over the last decade, with the average replica home English Premier League shirt – which almost always changes every single season – bought from the club shop for £49.68 (€57.78/$62.60) in 2015, according to the BBC’s annual Price of Football report.

That represented a year-on-year increase alone of five per cent, with price increases partly down to brands offsetting increasing rights-fees on the fans. Splitting rights, therefore, should help reduce – or at least keep stable – the costs for replica-kit-buying fans.

And ultimately it will be the fans who determine whether this new model works in the long term. Part of the reason fans rush to buy replica shirts and jerseys is because they want to express their support by wearing the exact gear their heroes are wearing on the pitch, track or rink.

Will they be willing to buy fan merchandise – which is identical, albeit without, critically, the official performance brand’s logo – in the same volumes? Or will they see them as only a tier above fake replicas you can buy down the market or online for a fraction of the cost of their official counterparts?

Watch this space, but it’s something Fanatics – and others – are conscious of.

“Fan merchandise is where we have expertise and the Fanatics Branded logos are representative of a quality fan gear brand,” Anson says.

“That’s why in the States we’ve been undertaking an advertising campaign to both drive fans to, but also to position the company as one that produces high-quality fan merchandise.”

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