There are a lot of discussions online about why Mike Ashley still owns us. Some of the opinions expressed are based on little bits of information released into the public domain over the years, but some themes have been repeated so often that they are almost taken for granted as inarguably true. One of the main problems with this is that they then inform some of the tactics people feel are viable routes to changing the sell/hold calculation MA makes. In my opinion, one of those ‘inarguably true’ views that suffers the most from careful thought and analysis is the idea that NUFC is some sort of platform to advertise SD globally and that this coverage is vital to MA. A recent online discussion led me to ask whether we can actually quantify how much the ubiquitous advertising in SJP is really worth to Mike Ashley/Sports Direct?


NUFC made £26.7m in commercial income in 2018. We can see similar numbers from some comparable clubs – Everton’s 2018 revenue from ‘sponsorship, advertising and merchandising’ was £20.7m. West Ham’s ‘commercial activities’ (not including retail and merchandising) for the same year totalled £24.1m. I’m therefore going to argue that clubs similar in size to ours (debatable I know) are bringing in around £1m per game (comprising 19 home EPL and some assorted cup games) in commercial revenues. Obviously a percentage of that is non advertising (e.g. corporate events), or central (EPL) advertisers, and a large portion is the shirt sponsorship deals. Newspaper reports (less reliable than accounts) suggest both Everton and WHU earn around £10m per season for their shirt sponsors (our deal was reportedly lower).  We can therefore make a reasonable estimate that (in stadium) advertising for a club of our size is probably worth around £10m per season in revenue.


MA is paying NUFC £2m this year for his portion of that advertising, which obviously looks like a great deal in the context of the above numbers (£2m vs £10m – although he also doesn’t take up every bit of commercial advertising space, especially on the digital signage). Given the numbers, it is probably safe to say there are other commercial sponsors using NUFC other than SD, but he is still almost certainly still paying less than market value.


How much is ~£10m in advertising worth to SD though? Even more crucially for fans of the boycott, how much value is NUFC specific (i.e. can only be derived from SD’s unique relationship with NUFC)? This is much more difficult to quantify, but worth trying as it goes to the heart of whether affecting that value is a viable tactic to achieve the strategic goal. Lets first look at SD’s UK Sports Retail results (which represent 59.2% of total Group revenue). In the year to April 2019, the total cost of sales was £1,267.4m, but total operating costs were £646.6m, of which £249.3m were not related to premises or wages. That last figure clearly aggregates a significant number of costs, not least distribution, but also contains the (UK Sports Retail and global online) marketing budget. Previous result documents state that advertising spend on his own brands was greater than £10m, but there is no accurate way to pull apart that £249.3m figure and identify the marketing component. The best we can estimate using those figures is that it is likely to be above £20m but possibly not over £100m (worldwide).


If there is no useful direct data, then we have to use other methods. Similar to the WHU/Everton comparison, we could look at some other retailer information and try to make an educated estimate. The most useful comparative I could find (in terms of officially stated marketing information) is Next PLC, which is slightly bigger than SD by revenue, but might be roughly comparable in terms of UK retail marketing. Next’s digital, direct mail, print and TV advertising for the year to Jan 2019 was reported at £39m (or less than 1% of revenues). More usefully, Next uses a measure called Internal Rate of Return (IRR) to calculate the increase in sales (from returning + new lifetime customer value) attributable to a specific marketing campaign, and often sees IRR numbers in excess of 75%. They give the example of a £200,000 campaign which lead to an increase in sales of £335,000 at 80% IRR (note this is not simply £200k x 180%, and possibly overstates the direct impact as some of these new customers might have been acquired anyway without that specific campaign). If we were to apply this crudely to the £10m in-stadium advertising spend, this means that the total uplift in sales to SD might be around £16.75m (representing 0.6% of total SD revenues).


Is that number accurate? It’s hard to tell, but it does pass a couple of important ‘smell’ tests. If an entity like SD had found a way to turn £10m of in-stadium advertising into £100m in revenues, you can guarantee that other retailers would be fighting for that advertising space to achieve the same returns, and market forces would significantly increase the cost to the advertiser. You would therefore see the likes of Everton and WHU making significantly more – that they are not doing so suggests that the returns are probably in the ballpark of the above. Similarly, if such a return was possible, it would almost certainly still be a viable, although slightly less profitable, strategy in other stadiums at market rates. The fact that you do not see wall to wall SD advertising in other EPL stadiums is probably indicative of the fact that the true return is limited (if it is even accurately quantifiable).


This means, on a purely income value basis, all the SD advertising at SJP is probably worth almost nothing (<1% of total revenue) to SD. Is there some additional value to the SD brand that is not being captured?  In theory, if the IRR approach is accurate it should incorporate the ultimate impact on brand value. This is because one of the things the people shouting about ‘destroying the SD brand’ seem to forget is that a brand is not an outcome in itself, but a driver of sales. If you capture the total sales effect then it includes the brand effect. Destroying a brand (if it were even possible) would mean nothing if it had no impact on current/future sales. If the impact on sales is small, then the value of the impact on brand value must also be so.


So we have some advertising that likely has a (proportionately) tiny monetary return value, in both an actual revenue and brand sense. Is there something specific to the SJP use by SD that cannot be replicated elsewhere? On this, I can only posit the theory that having a large cluster of advertising in a single space makes it more impactful and efficient. There is some evidence for this (Arsenal – Emirates, Man City – Ethiad), but I can’t see an argument for it radically altering the economics of the return (or everyone would do it and clubs would be able to capture some of the extra value). Notably, the Arsenal and Man City examples also incorporate the most valuable bit of advertising space (the shirt), which MA has never consumed (an aspect which also doesn’t fit the idea that he is only using us as a ‘platform’). If you consider that the only value to SD is the discount they are getting (a valid method), then the value to SD might be as little as £8m (0.3% of total revenues, and maybe less if they are not taking up 100% of the advertising space).


In summary, I think the people who believe that SD’s advertising in SJP is a fundamental part of why MA owns us are probably wrong. According to Sir John Hall, that was his original intent (to leverage our, and the EPL brand, in Asia), but he has clearly abandoned that plan (there are only a small number of SD stores in Malaysia and the SD results documents are now Europe focused). MA plastering SD advertising all over SJP is the billionaire equivalent of a builder putting his name on the side of his Transit van – it is almost free, has few downsides and it might generate a few leads but other stuff is vastly more significant to his business. Much more disheartening is the likelihood that we have no real strategic value to MA, and he is trying to keep us as a no financial drain business, quietly ticking over until someone willing to overpay magically appears.


Some will ask, if the advertising is so important, why is MA making keeping it a condition of the sale? Apart from the fact that only a handful know whether that is actually true (and are probably not releasing the details to the public), the answer is that it is entirely consistent with MA consistently driving for every possible little edge in the deal. You don’t become as rich as MA by leaving money on the table – £10m here and there might be nothing in the context of a £350m deal, but if you keep squeezing for £10m of value in a few places, the deal keeps getting better, especially if you aggregate it over a decade. You can spend a lot of time squeezing for value if you have no need to sell and happy to wait for someone to overpay.


To bring it back to the discussion that started my thought process, if the supporter groups are to succeed with their aim to get MA to change his sense of whether it is worthwhile to keep NUFC they need to understand the true nature of how he sees and operates us. Too often I see broad generalisations that don’t stand up to scrutiny or credibly fit the evidence. The result are tactics which cannot achieve their strategic goals, or tactics which are the equivalent of assuming a game of chess can be won in the first move without the opponent making a move of their own. Everyone wants a more ambitious owner, so I hope someone can find tactics that work (and be honest with the fans about the risks and how much pain is likely to be necessary to get to the desired outcome).

Philip Atkinson