Saint Domingo
Player Valuation: £80m
Should be ashamed by the stats around our Derby performances, should weigh on every single one of them responsible.
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summerisle
The rain, it raineth every day
Latest missive from theesk.org. some salient points I think.
https://theesk.org/2017/05/28/outsourcing-is-costing-everton-dear/amp/
Outsourcing is costing Everton dear
the esk
21 hours ago
In the second podcast of “Everton Business Matters” on The Blue Room Rodger Armstrong, John Blain and myself discussed the shirt sponsorship and launch. For those that listened to the podcast it was clear that none of us were overly impressed with the manner in which it was handled. The feedback from the show was similar also.
That got me thinking about why would an organisation like Everton perform in the manner it did?
Then the answer struck me, and it’s a fairly obvious one which I’m almost embarrassed to admit I didn’t think about when talking through the launch.
The fact is that there is no financial incentive to do anything other than what we’ve done.
Why would I say that? It’s the nature of the deal with Kitbag (now Fanatic) and Umbro. Through the outsourcing arrangement there’s no incentive to have the shirts available at the time of the launch, no incentive to have the kit available for the last home game of the season.
Not only does this create a poor customer and fan experience, it crucially impacts revenue, not only in the context of shirt and other kit sales, but in terms of the value of sponsorship arrangements.
Why would a premium brand pay top dollar in the knowledge that the outsourcing arrangements impact launch and follow on performance? Sponsors are obviously looking for greater exposure than just shirt sales, there’s the global television audience, media and print pictures, but also presence on the internet.
The outsourcing to Kitbag (now Fanatic) was done for a number of reasons. It de-risked the retailing arrangements for the club, allowed us not to have to carry stock, reduced premises and staffing costs and guaranteed a minimum level of income. At the time the deal was struck, these were all valuable benefits given the financial state of the club, preserving capital, reducing costs and guaranteeing income.
However today, and until the end of the contract in May 2019 we are paying the cost of the deal renewed in 2014, when arguably although pre-dating Moshiri we could have afforded to resume our own retailing arrangements.
The impact of our commercial income performance only becomes clear when it considered versus our competitors:
Commercial Revenues Financial Year 2015/16 (£m)
Manchester United £268,000,000
Manchester City £178,000,000
Chelsea £117,000,000
Liverpool £116,000,000
Arsenal £107,000,000
Tottenham Hotspur £60,000,000
Aston Villa £28,000,000
Newcastle United £25,000,000
West Ham United £22,000,000
Everton £21,000,000
Everton (Adjusted)* £24,500,000*
*The adjustment comes from adding back in gross revenues not accounted for because of outsourcing kit and catering, but also deducting £4.5 million which is the commercial element of broadcasting revenues. All other clubs include this in their broadcast revenues, we strip it out to bolster the commercial revenue performance.
Now what I consider to be our peer group are self-evidently miles ahead of us in generating commercial revenues.
Our closest rival financially among the top 7 is Tottenham Hotspur and it staggers me that they are generating commercial revenues nearly 2.5 times our adjusted figure. Of course, being in London helps, but it’s not just geography, as Liverpool and the two Manchester clubs demonstrate.
The biggest concern is that the Tottenham figure is before they move to their new stadium in 2018/19, and the end of their current shirt sponsorship deal in 2019.
Our stadium move (and corresponding match day and commercial revenue increases) is several years behind Tottenham’s and not likely to be before 2020/21 at the very earliest.
So how do we go about bridging the current £35 million gap between ourselves and Tottenham. The question is important because match day income is unlikely to increase significantly barring major cup runs at home and in Europe, and broadcasting revenues will only increase if we leap frog our rivals into a higher league place.
Firstly, the stuff we already know about.
The shirt sponsor deal with SportPesa and the USM Finch Farm naming rights deal works out at £15m (using Robert Elstone’s figures from the GM). That’s an increase of £9.7m per annum on the previous Chang deal.
Other partnerships. Although no figures have been given the Everton/Sure relationship is thought to be worth around £1m a year. Is it reasonable to think we can add a couple more similar arrangements?
The impact of European football is important. The 2015/16 commercial revenue figure fell by nearly £6m compared to the 2014/15 figure, the reason given being the absence of European football. With the higher value of new deals perhaps we can see further enhanced revenues in 2017/18, but let’s say somewhere between £6-8 million.
So, there’s an extra £18 million in commercial revenues which using the non-outsourced revenue figure reduces the commercial revenue gap of £35m by half. However, we are still £17 million short of Tottenham.
The only answer to bridging the gap further is in the retailing and kit supply deals currently set to run until the end of May 2019.
Several clubs have broken existing deals, notably Chelsea, in order to sign new more lucrative contracts. Of course, there is a cost to this, Chelsea broke their then existing deal with Adidas 6 years early to sign a 15 year £900 million deal with Nike.
Now we’re not in that league, but the paltry deal we have with Umbro is thought to be worth a maximum of £6 million a year, and with only two years to run must be ripe for review at least at the end of next season? (Tottenham receive £10m a year from Under Armour, Liverpool £24m from New Balance, Arsenal £34m from Puma, Manchester United £75m from Adidas)
Let’s assume we break the Fanatic and Umbro deal a year early, yes there’s a one-off cost which is treated as an exceptional item, but relative to the benefits it must be considered surely?
The benefits would be ability to control own sales, run own campaigns and massively increase the distribution base for kit sales at a time when our profile should be rising strongly on the back of European football, continued advances in our league position, and the publicity and excitement surrounding the (by then) impending move to Bramley Moore Dock.
It should mean an end to the farce that was the launch of our 2017 kit and new sponsors.
Realistically the only way to bridge the commercial gap between us and our next commercial rival is to bring retail activities back in house and seek an improved deal with a shirt manufacturer on the back of our much improved and increased profile.
We’ve a year to sort it out given next season’s arrangements are in place, in my opinion it should be a major priority for the club and board.
Categories: Everton finances
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the esk
Blog at WordPress.com.
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https://theesk.org/2017/05/28/outsourcing-is-costing-everton-dear/amp/
Outsourcing is costing Everton dear
21 hours ago
In the second podcast of “Everton Business Matters” on The Blue Room Rodger Armstrong, John Blain and myself discussed the shirt sponsorship and launch. For those that listened to the podcast it was clear that none of us were overly impressed with the manner in which it was handled. The feedback from the show was similar also.
That got me thinking about why would an organisation like Everton perform in the manner it did?
Then the answer struck me, and it’s a fairly obvious one which I’m almost embarrassed to admit I didn’t think about when talking through the launch.
The fact is that there is no financial incentive to do anything other than what we’ve done.
Why would I say that? It’s the nature of the deal with Kitbag (now Fanatic) and Umbro. Through the outsourcing arrangement there’s no incentive to have the shirts available at the time of the launch, no incentive to have the kit available for the last home game of the season.
Not only does this create a poor customer and fan experience, it crucially impacts revenue, not only in the context of shirt and other kit sales, but in terms of the value of sponsorship arrangements.
Why would a premium brand pay top dollar in the knowledge that the outsourcing arrangements impact launch and follow on performance? Sponsors are obviously looking for greater exposure than just shirt sales, there’s the global television audience, media and print pictures, but also presence on the internet.
The outsourcing to Kitbag (now Fanatic) was done for a number of reasons. It de-risked the retailing arrangements for the club, allowed us not to have to carry stock, reduced premises and staffing costs and guaranteed a minimum level of income. At the time the deal was struck, these were all valuable benefits given the financial state of the club, preserving capital, reducing costs and guaranteeing income.
However today, and until the end of the contract in May 2019 we are paying the cost of the deal renewed in 2014, when arguably although pre-dating Moshiri we could have afforded to resume our own retailing arrangements.
The impact of our commercial income performance only becomes clear when it considered versus our competitors:
Commercial Revenues Financial Year 2015/16 (£m)
Manchester United £268,000,000
Manchester City £178,000,000
Chelsea £117,000,000
Liverpool £116,000,000
Arsenal £107,000,000
Tottenham Hotspur £60,000,000
Aston Villa £28,000,000
Newcastle United £25,000,000
West Ham United £22,000,000
Everton £21,000,000
Everton (Adjusted)* £24,500,000*
*The adjustment comes from adding back in gross revenues not accounted for because of outsourcing kit and catering, but also deducting £4.5 million which is the commercial element of broadcasting revenues. All other clubs include this in their broadcast revenues, we strip it out to bolster the commercial revenue performance.
Now what I consider to be our peer group are self-evidently miles ahead of us in generating commercial revenues.
Our closest rival financially among the top 7 is Tottenham Hotspur and it staggers me that they are generating commercial revenues nearly 2.5 times our adjusted figure. Of course, being in London helps, but it’s not just geography, as Liverpool and the two Manchester clubs demonstrate.
The biggest concern is that the Tottenham figure is before they move to their new stadium in 2018/19, and the end of their current shirt sponsorship deal in 2019.
Our stadium move (and corresponding match day and commercial revenue increases) is several years behind Tottenham’s and not likely to be before 2020/21 at the very earliest.
So how do we go about bridging the current £35 million gap between ourselves and Tottenham. The question is important because match day income is unlikely to increase significantly barring major cup runs at home and in Europe, and broadcasting revenues will only increase if we leap frog our rivals into a higher league place.
Firstly, the stuff we already know about.
The shirt sponsor deal with SportPesa and the USM Finch Farm naming rights deal works out at £15m (using Robert Elstone’s figures from the GM). That’s an increase of £9.7m per annum on the previous Chang deal.
Other partnerships. Although no figures have been given the Everton/Sure relationship is thought to be worth around £1m a year. Is it reasonable to think we can add a couple more similar arrangements?
The impact of European football is important. The 2015/16 commercial revenue figure fell by nearly £6m compared to the 2014/15 figure, the reason given being the absence of European football. With the higher value of new deals perhaps we can see further enhanced revenues in 2017/18, but let’s say somewhere between £6-8 million.
So, there’s an extra £18 million in commercial revenues which using the non-outsourced revenue figure reduces the commercial revenue gap of £35m by half. However, we are still £17 million short of Tottenham.
The only answer to bridging the gap further is in the retailing and kit supply deals currently set to run until the end of May 2019.
Several clubs have broken existing deals, notably Chelsea, in order to sign new more lucrative contracts. Of course, there is a cost to this, Chelsea broke their then existing deal with Adidas 6 years early to sign a 15 year £900 million deal with Nike.
Now we’re not in that league, but the paltry deal we have with Umbro is thought to be worth a maximum of £6 million a year, and with only two years to run must be ripe for review at least at the end of next season? (Tottenham receive £10m a year from Under Armour, Liverpool £24m from New Balance, Arsenal £34m from Puma, Manchester United £75m from Adidas)
Let’s assume we break the Fanatic and Umbro deal a year early, yes there’s a one-off cost which is treated as an exceptional item, but relative to the benefits it must be considered surely?
The benefits would be ability to control own sales, run own campaigns and massively increase the distribution base for kit sales at a time when our profile should be rising strongly on the back of European football, continued advances in our league position, and the publicity and excitement surrounding the (by then) impending move to Bramley Moore Dock.
It should mean an end to the farce that was the launch of our 2017 kit and new sponsors.
Realistically the only way to bridge the commercial gap between us and our next commercial rival is to bring retail activities back in house and seek an improved deal with a shirt manufacturer on the back of our much improved and increased profile.
We’ve a year to sort it out given next season’s arrangements are in place, in my opinion it should be a major priority for the club and board.
Categories: Everton finances
Leave a Comment
the esk
Blog at WordPress.com.
Back to top
4737carlin
Player Valuation: £90m
^^^ too long that to read on my phone, does it say who we have signed ?
Hmmm.
The adjustment for broadcast in commercial (if it exists at all) for the last available accounts is 0.4 mil, not 4.5 mil.
No account has been taken of the fixed USM Finch Farm element of the 15 mil.
As an aside, if you are taking Elstone's words as gospel, the shirt deal was meant to be a 300% so the 75 mil should reflect main shirt sponsorship only.
But the biggest problem is that he's talking turnover, not profit.
The adjustment for broadcast in commercial (if it exists at all) for the last available accounts is 0.4 mil, not 4.5 mil.
No account has been taken of the fixed USM Finch Farm element of the 15 mil.
As an aside, if you are taking Elstone's words as gospel, the shirt deal was meant to be a 300% so the 75 mil should reflect main shirt sponsorship only.
But the biggest problem is that he's talking turnover, not profit.
Kitbag is ours.
D
Deleted member 28206
Guest
Moshiri is a clown for not removing the kitbag deal.
We need BK/RE protests.
We need BK/RE protests.
Considered the cost of breaking the contract and infrastructure/management/personnel required?
Worth letting it run down, but would imagine that if Kitbag only has 12 months to run, would be marginal on profit side and negative cashflow.
Personally think it"s something to work on over the next 12 months,, assuming the ground-work hasn't already started.
Fine, then remove the clown who made the deal **cough** ELSTONE.
I actually can't think of one small piece of commercial rationale behind that deal.
If ya know ya history...
Everton used to lose money on merchandising, so the deal was set up to guarantee a profit originally with JJB at 1.6 mil. Double your money deal effectively.
Original deal spadework done by Keith Wyness I think.
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It upsets me that I look around sports shops across the country and I see everyone under the suns kit, except ours.
Got something in my head that says the deal was signed for 10 years (with break clauses) in 2009, so may run to 2019.
ashwuk76
Player Valuation: £30m
You wanna be careful of those voices in your head mate.
Agree, but the whole idea that we can take it all in-house is not realistic- would still have to have distribution deals in the UK and worldwide. Sports Direct anyone?
Good points regarding the Kitbag deal, we were a different club when it was signed, a vastly different club.
Hand to mouth, we NEEDED to know how much we would have every year, we needed guaranteed income to keep the wolves from the door.
8 years later and the game is awash with money, we have a new owner willing to "invest" his own money.
Its too far down the line to "start all over again", let it run its course and then im sure there will be a plan going forward.
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