LFC Choose Nike After New Balance Dispute Resolved
How Drake, Serena and Lebron Helped LFC Win its Dispute with New Balance
By Daniel Geey and Alex Harvey
It was announced in October thatLiverpool (LFC) and its principal kit sponsor New Balance (NB) were in disputeover the renewal rights of their kit deal. NB had negotiated a matching right. This couldbe activated in circumstances where LFC rejected NB’s initial offer, and NBcould then ‘match’ a competitor offer when the club went out to market (as wasallowed under the agreement) to source alternative suppliers. LFC went out tomarket, found Nike’s offer an attractive one and then were required to provideit to NB to match its terms. Although NB provided confirmation to the club thatthey could match Nike’s offer, LFC was sceptical it could deliver on its promiseto match the Nike proposition.
The question for the Court todecide was whether NB had matched Nike’s offer. The judgment and reasoning ofthe Court shone an interesting light on the LFC NB relationship, NB’s plan tomatch the Nike offer and its wider commercial significance to LFC in the kitsponsorship market.
Details of the Nike Offer: Nike's offer was to pay LFC£30m per season plus 20% of net sales of all licensed products bar footwear(which would be 5% of net sales). All licenced products included shirts,training merchandise and wider lifestyle products. In addition, Nike would:
“market LFC, in a manner that isconsistent with Nike's other top tier UK football clubs eg Tottenham, Chelsea”
“produce Licensed Products underat least 2 global Nike-controlled brands (eg Nike and Converse)”
“produce Licensed Products incollaboration with third party brand(s), including in association with a majorUS sports team located in a major US market;”
“market LFC and/or LicensedProducts through marketing initiatives featuring not less than three (3)non-football global superstar athletes and influencers of the calibre of LebronJames, Serena Williams, Drake, etc”
“sell Licensed Product …in notless than 6000 stores worldwide, 500 of which shall be NIKE owned or controlledwith the potential for sale of Licensed Product in as many as 13000 storesworldwide, and (ii) within not less than 51 countries online through Nike.com. “
The Nike Deal Was Already Signed: LFC actually signed a legally binding contract with Nike on 11July 2019. The agreement was caveated (subjected to a condition precedent),acknowledging that NB had the "opportunityto review and match all the material, measurable and matchable terms"of the contract and that the contract would "automatically terminate"if Nike received notification of "a Valid Match".
The case before the Court concerned whether a valid match, as defined in the NB contract, had occurred. If the Court had decided in NB’s favour, the Nike deal would have terminated. The question (which is somewhat academic now) is whether the Court, if NB had been successful, would have required LFC to enter into the new matched agreement with NB or if the relationship had irrevocably broken down whether damages would have been an adequate remedy for NB. NB would have likely argued for specific performance of the matching rights provision so that their relationship would have continued.
The Crux of the Case: NB and LFC based their argumentsaround two material points:
LFC said that NB’s offer tomatch Nike's distribution term wasnot made in good faith. NB accepted that it had a duty to make its offer ingood faith but said that it had done so.
LFC said that NB had not matchedthe marketing term. NB said that itdid not have to because the marketing term was not a "material, measurable and matchable".
Distribution Arguments: NB’s doors[1]proposal encompassed a 105% increase in distribution from 3063 to 6300 doors.LFC’s view throughout was this was not a realistic proposition. LFC took the Courtthrough five examples including instances where they considered NB had acted inbad faith by inflating numbers in markets including China, Japan and Brazil.However, the Court found that NB had not acted in bad faith in providing theforecasted amounts. They may have been “bold” and “aggressive” estimates butthe Court nonetheless found no evidence of recklessness on the part of NB.
Marketing Arguments: Ultimately, it was Lebron,Serena and Drake that swung it for Nike. When matching the Nike offer, cruciallyNB failed to give specific named examples like Nike had done by referencing LebronJames, Serena Williams and Drake. The court explained of Nike’s offer that:
“That purpose must have been to indicate that Nike's obligationwas to use those athletes or influencers who were not only global superstarsbut were of the calibre of the mentioned global superstars. For that reason NewBalance's offer was less favourable to Liverpool FC”.
It was argued by NB that thenamed influencers’ value could not be adequately measured, was too vague and assuch the clause only required NB to match the Nike material, measurable and matchableterms. Presumably, NB believed in their matchingoffer that as long as they promised in general terms the calibre of stars thatNike had offered, that would have been sufficient. The Court disagreed. It reasoned that although such valuationsmay be undertaken in a number of ways, it was possible to measure aninfluencer’s contributions and as such the omission of named individuals fromNB’s matching offer meant that Nike's offer had not been matched.
In the days following thedecision, there was plenty of debate about whether anyone could match Nike’sstable of sports and entertainment superstars and if not whether this puts theUS sports giant at a significant competitive ‘matching rights’ advantage. Somemay point to Adidas deals with Beyonce and Pharrell while Puma have Rhianna andJay-Z. Such stellar entertainment industry lynchpins would almost certain be ofsimilar calibre of those put forward by Nike.
The Future LFC/Nike £65m+ Annual Partnership: The figures presented in Court by NB estimated that 2.9m LFC shirtunits would be sold in 19/20 season. This was a 59% increase on sales fromprevious year. Those figures for Nike’s 20/21 season and beyond could likelynet LFC north of £65m+. With the above team and influencer collaborations andspecific performance related bonuses (EPL and UCL championship winning seasons)that figure could be further enhanced. It’s difficult to compare headline revenue figures of other elite clubssigned to Nike, Adidas and Puma to assess where LFC are likely to stand from arevenue generation perspective but what is certain is that LFC will join theelite group of clubs (Real, Barca, Manchester United, PSG and Manchester City)earning significant sums from their kit deal.
Nike will be sponsoring LFC for the first time in LFC’s history. From the judgment, we know that LFC will be heavily marketed by Nike in a similar fashion to other Nike sponsored teams Tottenham and Chelsea, across Nike and (likely) Converse brands, through collaborations with a major US sports team (presumably an NBA or NFL team), alongside major global sports and entertainment influencers like Lebron, Serena and Drake with huge physical and online retail reach. LFC’s CEO Peter Moore has described the club as having a “local heart with a global pulse”. The Nike deal looks likely to unlock more international opportunities to maximise the club’s global footprint.
[1] It was explained in the judgment that “Doors" is the term used to describe the number of retail stores in which sportswear is sold.