Fanatics Finds A Successful New Relationship With Aston Villa
BY ADAM GROSSMAN
Aston Villa recently announced that it signed “a kit manufacturing deal” with Fanatics. What seems like a standard merchandise / apparel deal on the surface, however, “may be at the forefront of a revolution” in sponsorship and licensing in sports. This is not just because the Fanatics logo will not be on the jersey of the English soccer club team.
To see what this is all about, let’s start with Fanatics’ business model. Unlike many of its competitors, Fanatics is a vertically integrated company that designs, produces, sells, and markets its products. Fanatics’ business model does force the company to incur more of the costs but it also allows the company to keep more of the profits that come from apparel and merchandise deals.
By contrast, Nike and Adidas typically only design and market their soccer kits (uniforms). They rely on outside manufacturers to physically produce the clothes and on retailers such as Dick’s Sporting Goods to sell their products. In a typical deal, a company such as Nike or Adidas will pay the manufacturer to produce the shirt and then sell that shirt to a retailer such as Dick’s who then sells the product to the customer. Because these companies are reliant on their partners to make and sell their products, Nike and Adidas usually need longer times for their products to come to market.
Nike / Adidas then pays a licensing fee to the team or rights holder based on the amount for which it sells the shirt to a retailer. By definition, it has to sell to a retailer at a lower price than the retailer sells to a customer (or else the retailer cannot make any money). Because their profit margins are typically lower on each unit sold, Nike and Adidas are now more focused on finding apparel sponsorships that allow them to sell in higher volumes. That is one reason why these companies have signed bigger deals with a smaller number of teams particularly when it comes to soccer.
Fanatics does not have this “problem.” Fanatics can make a higher profit on each unit and therefore can sell a lower number of items. It also can move quickly because it owns the entire supply and value chain including primarily selling directly to its customers through digital or mobile channels. Therefore, it can much more quickly take advantage of periods when Aston Villa performs well and / or if the team gets promoted back into the Premiere League. By mitigating many of the risks that come with apparel / merchandise deals, Fanatics has found a clever way to enter the British market.
In addition, Fanatics “has paid for exclusive licensing rights for all Aston Villa merchandise for several years. It will then sell on separate rights deals for different bits of that merchandise: kit, baseball caps, homewares, and so on.” This is also different from standard “kit” deals because it is Fanatics (the licensee) rather than Aston Villa (the licensor) that is now in control of apparel and merchandising deals.
This is also another indication that both the seller (Aston Villa) and buyer (Fanatics) have examined how a partnership enables both parties to maximize revenue generation. Aston Villa can see that companies like Nike and Adidas have relatively low demand for an apparel / merchandise partnership. It needed to help create a compelling argument that would attract a partner given the unit economics of kit deals. Partnership with a company like Fanatics and being open to a larger licensing deal now puts Aston Villa in a better position to maximize value from its kits.
Fanatics realized that it had an opportunity to expand the inventory that was available in a deal while realizing that it had better unit economics than companies like Nike or Adidas for these types of deals. Therefore, Fanatics can now experiment with a new approach to kit deals and determine if this is a viable option to pursue with other teams. The ability for both the seller and buyer to benefit in novel and tangible ways should be the goal of these partnerships.