Adidas curtails Chelsea shirt deal, lifts profit forecast

[BERLIN] Adidas AG is ending its shirt sponsorship deal with English soccer side Chelsea six years early as part of a shift to partner with fewer clubs, prompting the German firm to raise its full-year profit forecast.

Chelsea, which won the Premier League title last season, has had a poor run of form which means it will not compete in European football next season under new boss Antonio Conte.

Adidas has poured cash into soccer deals as it fights to retain its leading position in the sport in the face of increased competition from Nike as well as relative newcomer Under Armour and German rival Puma.

It agreed in 2014 to pay 750 million pounds (S$1.5 billion) to replace Nike as sponsor of Manchester United for a decade, a record kit deal for the sport that Adidas says is paying off despite the club's dip in form since then.

That deal has prompted sports marketing experts to warn of an inflationary spiral as other clubs push for more, with Spain's Real Madrid reported to be seeking to force Adidas to top the Manchester United deal when it comes up for extension.

Adidas has the four most expensive shirt deals, with Germany's Bayern Munich and Real Madrid behind Manchester, and Chelsea in fourth place on an estimated 30 million pounds a year, according to sports blog Total Sportek.

MARKETING SHIFT

Adidas said the Chelsea move was in line with a shift in strategy last year to partner with fewer teams. It has also been moving spending away from sports federations and towards individual stars who can promote the brand on social media.

It says it wants to cut the portion of its marketing budget for sports deals to below 45 per cent in 2020 from about half now as it increases spending on pushing the brand directly on social media, in stores and at grassroots sporting events.

Adidas, which has sponsored Chelsea since 2006, said it had reached a mutual agreement to end the deal on June 30, 2017 year, instead of in 2023 as originally agreed, allowing the club to enter a new agreement with an unnamed competitor.

Last month English Premier League club Southampton announced it was switching from Adidas to Under Armour, while second-placed Tottenham is reportedly in talks with Nike, which also sponsors Manchester City. Puma sponsors third-placed Arsenal.

The shirts of Leicester City, the surprise winner of this season's Premier League championship, are sponsored by the King Power firm belonging to its Thai owner.

In a statement on its website, Chelsea confirmed that it was ending its deal with Adidas, but did not give any more details beyond thanking the German firm for its support in the last decade and listing the competitions it won in that time.

As compensation for early termination of contract, Adidas will receive a payment in 2017 from Chelsea that will lift its net income in the second quarter of 2016 by a sum in the mid-double-digit million euros.

Adidas said the group's net income from continuing operations is now forecast to increase by around 25 per cent in 2016, to around 900 million euros (S$1.37 billion), more than the 15-18 per cent rise previously targeted.

Its operating margin is now projected to increase to a level of around 7 per cent from a previous 6.6-7 per cent.

Adidas had already lifted its forecast last month after it reported a jump in quarterly sales and profits.

REUTERS