Football’s balancing act

Etihad Airways’ $634m sponsorship deal with Abu Dhabi-owned Manchester City has caused no end of headaches for UEFA. Will it be passed or is a court battle looming?

Earlier this month, Dubai’s Al Ahli Football Club signed a lucrative shirt deal with US manufacturer Nike. The ink was barely dry on the contract when neighbour Abu Dhabi blew the celebrations out of the water with the announcement it had struck one of the biggest sponsorship deals in football history.

For an undisclosed sum, rumoured to be around £400m ($634m), state-owned Etihad Airways struck a ten-year deal to extend its sponsorship agreement with English FA Cup champions Manchester City, a club owned by Abu Dhabi’s Sheikh Mansour Bin Zayed Al Nahyan.

Etihad was already the club’s shirt sponsor, but the new deal will see the partnership extended to include naming rights to the club’s stadium, which will immediately be renamed the Etihad Stadium. The deal is seen as a boost to the club’s bottom line, which has announced losses of $342m over the last two years.

With estimates showing Sheikh Mansour’s investment in the Manchester club is set to easily top the $1bn mark, the deal is likely to create complications for the Union of European Football Associations (UEFA). European football’s governing body recently set up new Financial Fair Play rules in a bid to ensure clubs balance their books and mandates that teams may not lose more than $64m over the three years to 2014-2015. By 2018, all teams are also expected to breakeven or they will be ejected from European competition.

“This is the first real attempt by any club in Europe to push the new Financial Fair Play laws and let’s see how UEFA reacts as that is a monster of a deal,” says Ryan McKnight, editor of FC Business, the trade magazine for the UK football industry.

While Manchester City chief executive Garry Cook insists the club has a “very open dialogue” with UEFA and consulted with them before the signing of the deal, a spokesperson from the association confirmed it was looking into the deal: “We are aware of the situation and our experts will make assessments of fair value of any sponsorship deals using benchmarks.”

With Etihad owned by the Abu Dhabi government and the club owned by the half brother of the Ruler of Abu Dhabi, reports in the UK accused Etihad of paying well over the market value for the deal, something which the UEFA Financial Fair Play Panel, which is chaired by former Belgian prime minister Jean-Luc Dehaene, will have to contend with.

“The ruling states that, in terms of naming rights and sponsorship, it has to be for a third party company. It is a little blurry whether that is the case and that will be interesting for UEFA,” adds McKnight.

The last big sponsorship deal in English football was Dubai’s Emirates Airline’s £100m ($158m) fifteen-year deal with Arsenal for naming rights to the club’s stadium and to have its logo on the team’s shirts.

The majority of this deal was for the shirt signing and worked out at around £5.5m ($8.7m) per season.

While Emirates has admitted it struck a great deal with its fifteen-year contract, this record has already been broken, with Aston Villa securing an £8m ($12.7m) per year deal and Liverpool breaking the £20m ($31.7m) per season ceiling.

“If you base it on the Arsenal model, all of a sudden we have gone from £100m to £400m and it’s not as if the world economy is booming,” says McKnight. “In most industries you have a slow increase in records, but to jump from what Arsenal had is such an enormous leap up for a club which has only just won their first trophy in 35 years.”

“[But] if Etihad have committed to the amount, how can UEFA say it is over the odds if the market is willing to pay it. Even Etihad will have a ceiling,” he adds.

This was also pointed out by Etihad boss James Hogan, who is aiming to get his own airline to breakeven. “We’re a standalone business, owned by the Emirate. We are responsible for our own commercial activities. So the funding of this deal is by Etihad. It’s a long-term deal, a ten-year deal, the structure is totally different to the types of deals we’ve done in the past,” he says.

With the close link between the club and the sponsor, some European clubs have raised suspicions about the deal; however the club’s grassroots fans have welcomed the deal and have hit back at those who accuse the club of creative accountancy in a bid to circumvent the new UEFA rules.

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Posted by: Steve York

I can understand naming a new stadium but whats the value in names an stadium that already been in existance with a name - cant see many people calling it the Etihad stadium at this stage, more money than sense?

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