COVID-19 Impact on the Apparel Sponsorship Market
by Will Candy
Sportcal analyst Will Candy details why Nike and adidas will hold their sponsorship budgets despite COVID-19's impact on sales, alongside other pressing matters in the apparel sponsorship market.
5th May 2020, 16:51

This article is a sample from the report 'COVID-19 - Impact on the Apparel Sector' which is available to all subscribers. 

Executive Summary

      1. COVID-19 just a short-term shock to Nike and adidas as sponsorship budgets will be held

  • Nike and adidas are the two of most significant spenders on sports sponsorship. Sports properties will therefore be nervous as to the effect of COVID-19 on both brands commitment to the marketing tool.
  • Despite the negating effect COVID-19 is having on sales for 2020, sponsorship budgets will likely be held. This is at least in the opinion of Carl Davies, who was appointed  Managing Director at Perry Ellis International, the American apparel and fashion brand in January this year after serving as Managing Director at Mitre, the sportswear brand for ten-years.
  • Carl Davies told Sportcal: “Both Nike & Adidas are very clear on their short-term & medium-term strategy, COVID-19 is a short shock for them but one they see as coming out stronger from within 12 months.” 

      2.  COVID-19 to alter outlook of the kit supply market

  • COVID-19 will see an acceleration in the trend of more pay-for performance deals, which was marked by Nikes agreement with Liverpool.
  • Up to this point, demand to supply kit for clubs has enabled clubs to ask for more cash up front & bigger royalty cheques. After COVID-19 this will no longer be the case.
  • As brands reel from the economic effect of the pandemic, they will be forced to dictate the deal model to something more profitable for them. This will include a move away from big-up front cheques to more pay for performance contracts. 

      3. Fashion brands to re-evaluate sports sponsorship investment

  • For fashion brands, the mass appeal of sports, celebrity status of athletes and sports association with health and wellness provides new and effective marketing platforms to reach not only their target markets, but new audiences previously not exposed to them.
  • Despite this, sponsorships in sports will still on the most part be viewed as a luxury by themselves and investment will be re-evaluated.
  • Analysis by Sportcal of 2,394 active sponsorship deals by apparel brands in December 2019 returned 364 (15.2%) deals from brands in the fashion sector. These agreements returned an annual value of just under $250,000 million.

Decline in shirt sales would see Liverpool take greater financial hit than rivals

When soccer giants Liverpool chose Nike to take over as its kit supplier from New Balance from the end of the 2019-20 Premier League season, the club ultimately felt the brands marketing nous and wider distribution network would generate the level of sales that makes the deal more profitable for them if targets are hit. This is because despite offering a lower up-front fee than New Balance offered Liverpool in its bid for a renewal, reportedly £30 million, Nike offered 20% commission on sales.  Typically, kit suppliers will offer 7.5% on each £1 ($1.30) of sales. As illustrated by the graph above, once gross kit sales hit a certain level (approximately £210 million), this model of kit sponsorship will become more profitable for the club.

 Source: Keiran Maguire

As a result of COVID-19, kit sales will become impacted as consumers willingness and ability to pay for expensive football shirts and other team apparel is expected decrease in the ensuing tough economic climate. Decreases in income could also lead to a further explosion in the counterfeit market as fans are happy to sacrifice quality to pay a lower price. Moreover, the uncertainty over the end of the current premier-league season and start-date of the new 2020-21 season will likely reduce the time Nike will have to market and sell apparel in the first season of its contract and perhaps even reduce the excitement around the new kit launch, especially if the team is unable to play or is playing behind closed doors. Because of the model of the deal, i.e. low base fee, higher royalties, Liverpool will lose more as a result of declining kit sales than rival clubs who are tied into more traditional long-term contracts. As demonstrated by the graph above, a fall in expected gross kit sales from £230 million to £190 million would see Liverpool lose £8 million. On a more typical deal model, i.e. the one offered by New Balance, Liverpool would lose £3 million; £5 million pounds less. 

COVID-19 likely to further the attractiveness of esports to apparel brands

2019 cemented a late trend in apparel sponsorship; esports deals. Esports sponsorships, like to other non-endemic brands, have become an intriguing, and attractive proposition due to the potential to reach a millennial demographic, a market which is traditionally difficult to reach through other sports, or indeed any other traditional marketing medium. As the chart demonstrates, deals struck by apparel brands in esports recorded by Sportcal more than tripled in 2019 to 37 deals.

 

Source: Sportcal

Nike has been the most significant mover in the market. The sportswear giant tapped into the lucrative market of League of Legends in China through signing a four-year deal in February last year, worth a reported $7.48 million annually. The agreement sees Nike supply kit for all 16 teams in the LOL Pro League , supplying them with trainers, casual clothing and professional jerseys. This deal is estimated to be the largest deal signed by an apparel brand in esports today. Nikes investment in the space continued into 2020, announcing  a further three sponsorship agreements with esports properties in January. This includes a deal with T1 Entertainment and Sports, a major Korean esports venture. As T1’s exclusive apparel partner, Nike designs kits for all teams under the T1 stable. In addition, Nike will provide training facilities at T1’s headquarters in Seoul, which is set to open later this year.

Rival adidas is also active in the space. Sportcal recorded six agreements between the brand and esports properties in 2019. This included a multi-year extension to a long-term kit supply agreement with Team Vitality, one of Europe’s top esports organisations. The agreement has been in place since 2017. 2019 also saw adidas announce a partnership with gaming superstar, Ninja, whose real name is Richard Tyler Blevins. Ninja is the most recognizable professional gamer in the world, with tens of millions of followers on social media and gaming platforms. Adidas has yet to announce any new esports agreement in 2020, however.

Apparel brands Champion, Fanatics Authentic, Kappa, and Puma are all also present in the space. 2019 saw Champion announce a multi-year deal to provide NBA 2K League’s 21 teams with game uniforms as well as warmup, travel and practice apparel. Fanatic signed a “multi-year” deal to sell merchandise on behalf of the Overwatch League, the franchise-based eSports competition backed by publisher Blizzard Entertainment. Kappa has already announced two new announcements with esports organisations in 2020. This includes a naming rights partnership with the Chinese League of Legends team Royal Never Gives Up. The team is now known as "Kappa.RNG Dota 2". Puma is currently relying on a signature supplier agreement with esports organisation Cloud9.

The apparent intrigue of esports to apparel brands is likely to be furthered by the COVID-19 crisis. As sports comes to a halt, greater focus has been placed on the space. Short-term, sport simulation games , e.g. Fifa and Formula 1, NBA2K, in particular have been able to build their presence among sports fans who ordinarily would be consuming the mainstream sport content. Meanwhile an increase in home gaming will serve to benefit the long-term popularity of more core esports such as League of Legends and Dota 2. Viewership figures for competitions in core esports have also experienced an increase during the pandemic.  For any apparel brands tentative about entering the space, or expanding their presence further, esports reaction to the COVID-19 crisis may have eased any pre-existing fears.