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Liverpool v New Balance: six things we learned

Liverpool FC’s legal dispute with New Balance has provided unprecedented insights into the minutiae of a modern Premier League kit supplier agreement. Deal values, durations and distribution and marketing commitments all saw the light of day as the two parties exchanged arguments in the High Court. Ben Cronin looks at some of the details from the case and examines what they say about the club and the brands involved.

Liverpool won, but not in the way it expected

The disagreement began when the club announced plans to end its seven-year kit supplier deal with New Balance and enter a new five-year agreement with Nike. Boston-based New Balance argued this ran contrary to the terms of its current contract, citing a clause that entitled it to match any bids from new suitors.

At the start of the trial, New Balance’s barrister Daniel Oudkerk QC said the crux of the trial would be whether the Boston-based brand had been able to meet “the material, measurable and matchable terms” of Nike’s offer.

Liverpool FC’s barrister Guy Morpuss succeeded in proving that the brand wasn’t, but only via a secondary argument that both sides had dismissed as unimportant in the early part of the case.

Morpuss thought he would make the most headway challenging New Balance’s ability to match the product distribution network offered by Nike. The barrister accused executives with the brand of acting in “bad faith” in stating that they could meet Nike’s commitment to sell Liverpool shirts in 6,000 retail outlets globally. The judge dismissed this argument in his final judgment, finding New Balance’s distribution offer to be genuine and concluding that the brand had therefore matched Nike’s distribution promises.

The judge gave much more credence to Morpuss’ suggestion that New Balance would be unable to meet Nike’s marketing commitments. These included a promise to promote the Liverpool brand using “not less than three non-football global superstar athletes and influencers of the calibre of LeBron James, Serena Williams and Drake”.

New Balance had argued that these promises were “too vague”, but Mr Justice Teare determined that Nike’s influencer marketing promises were “measurable” and the Boston brand’s offer was therefore “less favourable”.

Drake cheering on the Toronto Raptors in game five of the 2019 NBA Finals against Golden State Warriors. (Photo by Gregory Shamus/Getty Images)

New Balance still thought the relationship was redeemable

New Balance didn’t give up the fight easily. After losing the High Court battle, the brand immediately appealed the decision to the same court. After this was rejected, it filed a written submission to the Court of Appeal, which has also now been rejected.

It was clear from the original case, and the appeal, that the brand still believed the relationship with Liverpool was redeemable and that the two parties could work together moving forward. New Balance did not seek damages and demanded that the first case in the High Court was dealt with on an expedited basis because it would soon need to make payments to ensure it could manufacture the necessary Liverpool products in time for next season.

Given the rancorous nature of the court dispute, sponsorship experts found it hard to imagine the two parties could have put their differences behind them and enter into a new agreement if New Balance had won. “Maybe they would have produced a hair shirt,” jokes Phil Carling, managing director, football, Octagon Worldwide.

A more likely scenario is Liverpool would have tried to come to a settlement that allowed it to continue working with Nike.

Liverpool taking a punt on shirt sales

Football clubs tend to favour guaranteed income over more speculative revenue streams, so it came as a surprise to learn that Liverpool has decided to accept a relatively low minimum guarantee from Nike in return for a larger share of royalties on shirt sales.

According to data from sister product SportBusiness Soccer, Nike’s base offer of £30m (€34.74m /$38.79m) a season is only marginally more than the £25m a season New Balance is currently paying and falls well short of the largest kit supply agreement in the Premier League, Manchester United’s £75m-a-year deal with adidas. To offset the lower fee, the brand is offering a 20 per cent royalty on net sales.

“If you compare it with other deals, the actual fee is slightly on the low side,” says Carling. “But there is a lot of evidence, not so much in this market, but internationally, that Liverpool’s performances on the pitch are attracting a whole new fanbase. I think over the next two to three years, particularly if they win a title, they will reap the benefits of that policy of having a higher percentage of sales.”

One merchandising expert said Liverpool would currently expect to sell between £80m-£90m worth of shirts every year, ranking it in the second tier of football clubs for global sales. (The top three clubs – Manchester United, Real Madrid and Barcelona – generate between £100m and £150m in shirt sales revenues). That means the club could expect to make around £18m a year from the 20 per cent royalty clause in the Nike deal, based on its current level of sales.

However, Liverpool is thought to be banking on Nike’s retail footprint – in China in particular – to exceed these sorts of figures. Court documents revealed Liverpool has already received pre-orders from 8,000 stores around the world, while Nike has reserved factory space to produce 2.9 million units.

The club will also hope the Nike marketing clout that proved so pivotal in the High Court case will improve brand recognition for the club outside of football.

“What the case told me was this is a club that is very confident about the future and its trajectory in terms of performance,” says Carling.

Matching rights clauses unlikely to make a comeback

“I’ve always been very wary of matching rights clauses on the basis that they are often very difficult to draft in a way that is watertight, and they can lead to disputes,” says Alex Kelham, head of the sports business group at law firm Lewis Silkin. She says the New Balance and Liverpool dispute demonstrates how important it is to clearly articulate exactly what a sponsor needs to do to trigger a matching right when drafting a sponsorship contract.

As an example, she says any marketing commitments of the kind outlined by Nike should be articulated in the contract in a way that is measurable. This should include attributing a media value to the exposure that can be verified by a single third-party agency clearly specified from the outset.

But Carling says he was surprised Liverpool had agreed to a matching clause with New Balance at all. In his experience, such clauses fell out of vogue in the 1990s.

“I think they were generally recognised as being anti-competitive,” he says. “The moment a competitive bid knew that there was a first and last matching right, it tended to kill off competition for the rights.”

In all likelihood the deal included such a commitment because it was negotiated in the US, where matching rights clauses are more common, by Fenway Sports Management, the sponsorship sales division of Liverpool’s parent company Fenway Sports Group.

“Smart lawyers come up with these clauses in the original instance and then they become fashionable and then people realise what a pain in the neck they are,” says Carling. “I think the only benefit of them is if it’s a buyers’ market, and you want to do something to reward loyalty.”

But elite-level clubs like Liverpool are in a sellers’ market which suggests Fenway might be reluctant to structure a deal like this again. “I don’t think they’ll be doing another one,” says Carling.

Club will be disappointed not to have attracted a bid from adidas

For all Liverpool’s on-field success, it will have been disappointed that it could not turn the competition between New Balance and Nike into a three-cornered fight including adidas. SportBusiness Soccer data indicates the German sportswear company is the biggest spending brand in European football, investing €384.9m ($430m) a year in kit supplier agreements. It is also responsible for four of the eight biggest deals across the continent, the largest of which is its €110m-a-year partnership with Real Madrid.

“I think that had more to do with adidas having a strategy in football that is built around major cities, and Liverpool didn’t qualify in terms of being on brand,” says Carling. “They have a very strict criteria that was developed through a research and insight piece that they did…it’s about targeting young urban consumers who are 15 to 20 years old.”

New Balance could soon have money to spend

New Balance will most likely receive overtures from other football clubs now that it has failed to win its appeal. The High Court case, and its refusal to give up the Liverpool contract lightly, demonstrates its appetite for football and its spending capacity.

The brand’s kit supplier deal with Liverpool was its first meaningful foray into football merchandising but has proved to be an unqualifed success. The last two Liverpool kits it produced have been the highest selling shirts in the club’s history and next season’s kit is expected to beat records as well.

SportBusiness Soccer data indicates New Balance has only one other kit supplier agreement in the top four European football leagues, a six-year partnership with La Liga side Athletic Bilbao worth €3.5m a year.

The brand is now known to have £30m a year plus add-ons burning a hole in its pocket, but it will struggle to identify a club on such a clear upward trajectory as Liverpool at a similar price point. Perhaps its desperation to explore every avenue in court showed its awareness that an opportunity like this won’t arise again soon.

Created specifically for football clubs, federations and the brands that sponsor them, SportBusiness Soccer is a brand new tool to benchmark your assets, spot gaps in your portfolio, identify new markets, hear the moment a new deal is announced and understand what your competitors are doing. To request a demo, please click here.

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