Adidas stands to earn compensation estimated at about €50 million after it agreed with Chelsea football club on the early termination of their partnership. It was due to expire at the end of June 2023 but will instead come to an end six years earlier, at the end of June 2017.
The Adidas group said that it would receive a payment in 2017 and that it would already have an impact on the group's profit in the second quarter of 2016. The windfall led the company to adjust its guidance for the full year, as reported above. The impact of the compensation on the group's income should be in the mid-double-digit range in terms of millions of euros.
The early termination comes after the Adidas group sealed a ten-year partnership worth £750 million (€952.6m-$1,077.1m) in July 2014 with Manchester United, which started in the current season. The decision to terminate the Chelsea partnership early fits with the Adidas brand's strategy to focus its investments on a smaller number of greatly marketable teams.
Then again, the early termination could also help Chelsea to increase its sponsorship revenues. Its deal with Adidas was struck in June 2013 at about £300 million (€381.1m-430.8m) over ten years, the Financial Times estimates, which compares poorly with the £750 million obtained by Manchester United the next year and other deals for Real Madrid and Bayern Munich. It appears unlikely that Puma, which already invested in its partnership with Arsenal, will be interested in taking over. The early termination may be more interesting to Nike or even Under Armour.
Adidas has been Chelsea's sponsor since 2006. The partnership has included the club's Uefa Champions League title in 2012 as well as two Premier League titles. However, the club is going through a disappointing season and failed to qualify for the Champions League next year.
Separately, the Adidas group declined to comment on a report in Sport Bild that it stands to seal an agreement with the German football federation (DFB) to prolong their partnership for four years until the end of 2022.
Although the current contract lasts until the end of 2018, the partnership with the DFB has been at the center of intense speculation, because the Mannschaft is one of the most coveted national football teams and competing bids for the DFB are likely to lead to further escalation of the financial stakes in the football business.
The current agreement is relatively cheap, as Adidas is apparently paying about €25 million per year to outfit the current world champions. This compares with an annual price of €42.6 million paid by Nike for the French football team. Nike made it clear that it would gladly pay more for the German team: When the previous contract came up for renewal, Nike reputedly made an offer reaching €500 million for ten years starting in 2011. Adidas argued at the time that it already had an agreement with the DFB to prolong their deal, and after an arbitration procedure it was agreed that Adidas would get its eight-year deal – albeit at improved financial conditions.
Sport Bild suggests that the new four-year deal with Adidas would be a way to keep Nike's interest alive. Another concession, as reported by the German newspaper, is that the new contract would no longer include any “matching offer right” for Adidas. The DFB did not respond to inquiries on the matter by the time of going to press.
