This piece is from Sports Business which we’d strongly recommend for all the boring specky bastards out there interested in this kind of stuff – like us! Click here
The Saudi takeover of Premier League club Newcastle United could be a gamechanger for its kit supplier Castore, but much will depend on whether there is a ‘change of control’ clause in the brand’s sponsorship contract, says Matthew Glendinning.
Amid the furore created by the acquisition of Newcastle United by the Public Investment Fund of Saudi Arabia, the club’s sponsors have been conspicuously quiet.
Ordinarily, an anticipated cash infusion from a new owner would be welcomed by sponsors as a bonus, almost certainly a guarantee of extra awareness and increased on-field success.
The Newcastle takeover is different: the joy of fans desperate for success after 14 years with thrifty owner Mike Ashley is offset by widespread public belief that the Saudi interest is of the sports-washing variety.
Given this tension, sponsors are playing it cool. Kit supplier Castore, in particular, faces a few interesting months moulding its brand to the new reality. My first instinct was to think that Castore, in the first year of a multi-year deal that also involves the takeover of the club’s retail operations, had lucked out.
Norman Riley talks up Graham Potter on our Patreon-exclusive show: Who will be the next NUFC manager?
🗣️🎙️'I would love Graham Potter to get the Newcastle job. Five-year contract.'
— True Faith: Newcastle United Fanzine and Podcast (@tfNUFC) October 14, 2021
My second thought was to wonder how closely the expectation of a Saudi takeover had figured in its plans in the first place. There may have been some advantage to working with Ashley, the owner of the Sports Direct retail operation, but surely a far greater advantage in supplying a club with a transformational new source of income.
The key to the brand’s next move may depend on whether there is a ‘change of owner’ clause in their contract. Such clauses allow the relevant party to annul the contract should the other party change ownership.
For Newcastle, the kit deal is one of its biggest sponsorship agreements. Under the new ownership, with the financial means to upgrade the squad considerably, the deal could soon be worth many millions more than the reported £5m-per-season Castore is currently paying.
It’s unlikely Ashley did not factor this in when signing with Castore, and in doing so, it’s conceivable he could have inserted an appropriate buy-out clause in the event the new owners felt strongly about changing the kit supplier role.
— True Faith: Newcastle United Fanzine and Podcast (@tfNUFC) October 10, 2021
On the other hand, the new owners – having examined each commercial contract as part of their due diligence – could simply have negotiated the club’s value down to account for the ‘sub-optimum’ rights fee when compared to the higher rate the club will surely command when the cash is splashed on new players.
Change of owner clauses also allow brands to step away from an association with a new owner that might not be in their interest. But why would Castore exercise such a right? Castore’s investment in the club’s retail operation shows its intention to stay the course and, in the process, makes the contract even more difficult to unwind if the new owners are minded for them not to stay.
For a young sportswear firm, without the brand equity built up by Adidas or Nike, the value of sponsorship supply contracts equates closely to the actual value of the company. Walking away from the Newcastle deal on ethical reasons may represent too much of an economic opportunity lost. My hunch is Castore will benefit hugely from its existing contract.