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May 11, 2016
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Adidas cuts short Chelsea football deal, raises profit forecast

By
Reuters
Published
May 11, 2016

Adidas AG is ending its shirt sponsorship deal with English football side Chelsea six years early as part of a shift in its marketing strategy away from clubs, prompting the German sportswear firm to raise its full-year profit forecast.


Chelsea FC


Adidas is fighting to defend its leading position in football, particularly in its European home territory, 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 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.

Adidas has also taken over from its U.S. rival at Italian champions Juventus while extending its contract with top German team Bayern Munich.

However, Adidas said the Chelsea move was in line with a shift in strategy announced last year to partner with fewer teams.

It wants to cut the portion of its marketing budget for sports deals to below 45 percent 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 from Chelsea in 2017 that will lift its net income in the second quarter by a sum in the mid-double-digit million euros. It did not say how much the compensation payment would be.

RESULTS FORECAST

Adidas said the group's net income from continuing operations is now forecast to increase by around 25 percent in 2016, to around 900 million euros ($1 billion), more than the 15-18 percent rise previously targeted.

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

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


 

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