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Sun 17 Jul 2011 01:12 PM

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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?

Football’s balancing act
Manchester Citys Argentinian footballer Carlos Tevez (C) celebrates with the FA Cup after his team beat Stoke 1-0 during the FA Cup final football match between Manchester City and Stoke City at Wembley Stadium in London, on May 14, 2011. (AFP/Getty Images)

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.

“I think it is just sour grapes for anyone to look into it in more detail or to start saying it is corrupt. It is a lot of big clubs that are scared of the finances and the fact that there is a new record that has been broken,” says Mark Lynch, chairman of the Dubai branch of the Manchester City Supporter’s Club.

“I thought it was inevitable it was going to happen. Obviously as soon as Manchester City Council gave them permission to have the stadium to use for naming rights that meant there was only going to be one company and I am glad it’s Etihad as it keeps the relationship with Abu Dhabi and the existing shirt sponsor, which is good,” he adds.

With rivals Manchester United rumoured to be planning an even bigger deal, McKnight says it was inevitable such deals were going to happen as the football business model was never going to organically adhere to UEFA strike rules to breakeven.

“It is a shock in terms of the biggest deal in football, but it is not a shock that it has happened. If you look at the business model in terms of football clubs, and you look at their losses, their organic revenue streams, in terms of ticketing and merchandise, retail, conference and hospitality, were simply never going to be able to grow to the extent to cover the losses.

“Manchester United have match day turnover of about a £100m, while Manchester City’s is on about £35m. Even if Manchester United were to stagnate, it is going to take Manchester City a decade to catch up with United and depended on City’s continued success. So it is nearly impossible for Manchester City to compete with Manchester United on those kind of revenues.

“So where are they going to get the revenue to continue to spend at the current rate they are so they don’t fall foul of UEFA financial fair play laws? They are going to need big sponsorship deals and try new organic revenue streams,” he points out.

Manchester City’s main sponsorship deals amount to around £32.4m ($51.4m) and read like a who’s who of Abu Dhabi businesses, with names such as telecoms giant Etisalat, Aabar Investments, the Abu Dhabi Tourism Authority and, of course, Etihad.

While the benefit to Etihad and the tourism board is obvious, some have scoffed at what the benefit is to companies such as Etisalat and Aabar sponsoring a club on the other side of the world?

“They will argue they are not sponsoring Manchester City to promote any of their services to anybody in Britain, they are doing it to promote themselves to people in the UAE who are watching on television,” says McKnight.

“Standard Chartered Bank, the sponsors of Liverpool were very vocal about this and stated they were sponsoring Liverpool because Liverpool are absolutely massive in Southeast Asia, which, for the next ten years is they core market.”

With Abu Dhabi companies having big interests in expanding into overseas markets and Manchester City raising its profile with its recent winning of the FA Cup, the sense behind the deal seems a lot more logical.

For example, when Dubai hotelier Jumeirah Group signed on to sponsor little-known Irish golfer Rory McIlroy, many surely scoffed at the logic, but he went on to win the US Open tournament recently and the company’s logo was then splashed all over US TV at a time when it was looking to crack the American market.

“It’s a once-in-a-lifetime opportunity for two iconic brands that share the same vision to promote far-reaching global awareness and business growth,” says Hogan.

Let’s just hope UEFA doesn’t ruin the fun. “UEFA has made a rod for itself as the laws are quite rigid and now it is going to have to deal with their consequences. A lot of these cases will end up in the court. Can you imagine if UEFA said to Manchester City you can’t play in the Champions League?” McKnight wonders.

Key elements of the deal

The ground-breaking sponsorship deal between Etihad Airways and Manchester City Football Club (MCFC), estimated to be worth around £400m ($634m), includes the following components:

Etihad Stadium and Campus

The City of Manchester Stadium will be renamed the Etihad Stadium effective immediately, forming the centrepiece of a newly-named Etihad Campus, which encompasses a large part of the site in East Manchester. Up to two million visitors are expected to visit the stadium each year.

Shirt sponsorship

Etihad Airways has extended its shirt sponsorship deal reflecting an increased media value due to the Club’s improved on-pitch performance in the 2010-11 season, which saw the club qualify for the UEFA Champions League and win the FA Cup for the first time in 35 years.

Media Cooperation

Etihad Airways will expand its MCFC content, match coverage and DVD material on its in-flight entertainment system and website. Both will also collaborate on joint media campaigns in India, China, the US, the UK and the UAE.

Business Cooperation

MCFC and Etihad Airways will draw upon their existing customer databases and loyalty schemes to create new opportunities for targeted marketing initiatives.

Community Cooperation

MCFC will partner with Etihad in joint community initiatives in the East Manchester area and build on the success of the Etihad MCFC Soccer Schools in Abu Dhabi.

MCFC and Etihad will cooperate within their home markets of the UK and the UAE respectively, with the new MCFC-branded Etihad Airways A330-200 plane to be used as a flagship on the Manchester-Abu Dhabi route, which will be increased to twice-daily from August 1. Etihad will open a call centre in Manchester in 2012, employing up to 160 people in 2012.

Top ten football club sponsorship deals

As rivals argue over Manchester City football clubs’ £400m ($634m) sponsorship deal with Etihad Airways — both owned by Abu Dhabi — it has taken the title as football’s biggest sponsorship deal ever and will no doubt leave its Premierships rivals green with jealousy.

Here are ten other equally impressive mega bucks deals by top European football clubs.

Manchester United and Nike — $486m over thirteen years

Signed in 2002, this was the biggest deal at the time before Etihad and Manchester City clinched the top title.

Nike replaced Umbro as the club’s kit provider and the deal included the team’s global licensing and retail operations.

In 2009, the world famous English club also signed a $128m four-year deal with US firm insurance operator Aon Corp, replacing previous sponsor AIG.

Juventus and Tamoil — $265m over ten years

Signed in 2005 between the Italian club and the Libyan oil company, the deal was for five years and renewable for up to ten. However, when scandal struck the Turin-based club and it was relegated, the deal turned sour and the Libyans backed out.

Barcelona and Qatar Foundation — $235m over five years

Signed in December 2010, the Qatar Foundation deal was reported as a record shirt sponsorship deal with Barcelona, which was for around $235m.

The deal with the Qatar Foundation, which promotes education and research in the Middle East, was criticised at the time by former Dutch superstar Johan Cruyff who said it was “sullying the jersey” of a team that had previously refused to put a logo on its shirts.

Barcelona and Nike — $210m over five years

The club had previously refused to allow logos on their jerseys, but a favourable deal from Nike and tougher economic conditions saw them change its mind.

Chelsea and Adidas — $160m over ten years

Chelsea, owned by Russian billionaire Roman Abramovich, renewed its multi-million pound deal with Korean electronics giant Samsung in 2008.

Arsenal and Emirates Airline — $160 over fifteen years

The 2006 deal between Arsenal and Dubai-based airline Emirates Airline was the biggest of its kind before its Abu Dhabi rival went one better. In 2010, Emirates said it is hoping to renew its partnership with Arsenal Football Club when its current deal expires in 2021. Arsenal’s kit manufacturing deal is with Nike.

Liverpool and Standard Chartered — $130m over four years

Signed last year, the £81m matched that won by Manchester United from Aon and saw them end the deal with had with drinks brand Carlsberg since 1992.

Bayern Munich and Deutsche Telekom — $115m over three years

Industry sources say this deal is performance related and the telecoms giant will have to pay the German team even more if its rankings improve, but with it coming runner up in the German league, there is little more the team can other than lift the trophy in 2011. The deal lasts until 2013 so there is still time.

Real Madrid and Bwin — $87m over three years

The Spanish team’s previous 2006 deal with Taiwanese mobile phone giant BenQ went sour when the firm went bust, but in 2007 it signed a deal with Austrian gambling firm bwin. It has also had a deal with Adidas since 1998 and both have helped make the club the richest in football history, with revenue of around $625m.

AC Milan and Emirates Airline — $83m over five years

The club was the airline’s second biggest shirt deal and the 2010 deal saw it replace online betting group bwin.

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Steve York 9 years ago

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?