Cover Story|~|Emirates-Stadium-2.jpg|~||~|Few, if any, of the guests at London’s exclusive Landmark Hotel are likely to have recognised either of the two men dining in the corner of the Winter Garden restaurant made famous by chef Gary Klaner. But Keith Edelman, managing director of Arsenal football club, and Mike Simon, vice president of communications at Emirates Airline, preferred it that way.
In early August, the two veterans of huge sponsorship deals were putting the finishing touches to an extraordinary deal that is set to change the face of sports marketing for years to come. Amid pressure from banks, the London stock exchange and their own boardrooms, neither man could afford news of their discreet meeting to leak out. By the time one of Klaner’s exotic desserts had been served, the deal had been virtually sealed. Emirates Airline had secured unprecedented branding and marketing on a global scale for US$180 million, and Premiership champions Arsenal had been saved from a financial crisis.
“They [Arsenal] needed money for the stadium, and they also needed to show the bank that they had money coming in,” says Simon.
As a result, Roman Abramovich, the Russian oil billionaire owner of Arsenal’s arch rival Chelsea, had seen his club’s negotiations with Emirates over a sponsorship deal go up in smoke.
The sensational chain of events started six months ago with Emirates turning down an offer to extend its current shirt sponsorship deal with Chelsea. The Stamford Bridge club, bought by Abramovich for US$233 million in July 2003, has worn the “Fly Emirates” name on its shirts for the past four seasons as part of an US$11 million-a-year contract. However, Chelsea, with its newfound wealth and higher profile demanded what the Dubai-based airline felt was an inflated fee to continue its association with the Fulham Road club.
Chelsea, having effectively priced Emirates out of any type of contract renewal, went in search of a more consumer-orientated sponsor while Emirates entered into discussions about what has since become the biggest sponsorship deal in British football history with reigning Premier League champions, Arsenal.
“We asked Chelsea what they wanted for us to renew the contract, and they came up with figures that we didn’t feel were competitive compared with the deal we could get at Arsenal,” says Simon. “After we heard the Chelsea figures, we then concentrated on the Arsenal deal,” he adds.
The result, announced at a press conference in London last month, is a US$180 million deal that combines the naming rights for Arsenal’s new US$643 million, 60,000-seat capacity stadium for 15 years and eight years of shirt sponsorship starting from the 2006-07 season. It is a deal that both companies are very pleased with, especially Emirates, which came up with the innovative tie-in concept.
“We at Arsenal decided to explore the possibilities about a year ago, and we approached Emirates with a suggestion, says Arsenal’s Edelman. “We were just looking for a naming rights deal for the stadium but it was Emirates that wanted to tie the two deals together,” he adds.
Given that Arsenal is a publicly listed company, four months of ultra-secretive negotiations had to take place behind closed doors due to potential stock market sensitivities that could affect the Highbury club. “You have to understand that Arsenal is a company on the stock exchange, so you can’t tell other people what you’re doing because of the rules and regulations,” explains Simon. “We couldn’t just tell Chelsea ‘sorry, we’re going to Arsenal now’ but what we could say is ‘we will not be taking up your offer’, which is of course what we did.” Arsenal, as a business, was clearly eager to get the wheels of the deal in motion but was also cautious to keep a low profile. “We both agreed that it would be much better to conduct negotiations out of the public gaze so we both just kept very quiet and got on with the negotiations,” explains Edelman.
Gruelling talks took place at Emirates headquarters in Dubai while the fine print and other details were thrashed out at London’s glitzy Landmark Hotel. “They were very tough negotiations, some of the toughest I’ve been involved in, and I’ve been in this business for over 30 years now,” says Simon.
Privacy remained a watchword throughout discussions with only a handful of high-powered executives from both organisations in on the multi-million-pound deal. The men in the know for Arsenal were Edelman and the club’s commercial director, Adrian Ford, while Simon, Stuart Priestly, media relations manager, and Maurice Flanagan, vice chairman and group president, were Emirates’ key representatives. “It was one of those things that we knew was clearly confidential, and therefore even people in fairly senior positions at Emirates were not told about the deal because of the stock exchange situation,” says Simon.
Arsenal decided in principle to accept Emirates’ offer in August while most of the club’s board members were sunning themselves in various exotic locations around the globe. “I was on holiday in Portugal at the time, and I phoned everyone at Arsenal up in different parts of the world and told them we were going for it with Emirates,” explains Edelman.
As a result, the deal that shook the football world was announced on 5 October at a press conference at Highbury, Arsenal’s current home.
Under the terms of the deal, Arsenal has agreed to call its new stadium at Ashburton Grove — due to open in August 2006 —the Emirates Stadium in exchange for a windfall of around US$11 million a year from the Dubai-based company. This means the airline will pay US$180 million over 15 years to have its logo emblazoned all over the Emirates Stadium, and it will also appear on Arsenal’s shirts for eight years, once the north London club’s existing deal with mobile service provider o2 runs out at the end of the 2005-06 season. Emirates will also get a range of other benefits from the deal, including pitch-side advertising, among other rights.
“We get signage all over the stadium, hospitality boxes linked to the stadium and shirt deals, some seats, tickets and signs all around the perimeter of the pitch,” explains Simon.
Arsenal has also agreed to set up one of its soccer schools in Dubai as part of the deal. No firm details are yet in place but Arsenal is committed “to work with Emirates to make it happen,” according to Edelman. Simon sees the football academy as a great opportunity to “improve the quality of soccer throughout the emirate.”
Furthermore, tentative discussions have taken place about a possible tour of the Gulf by Arsenal, but the club’s tournament commitments and the region’s hot weather may well scupper those plans. “We talked about it [a tour of the Gulf] but we didn’t put it as a concrete part of the deal because there’s only a certain window where Arsenal could make it,” explains Simon. “However, this clashes with the club competing in the Premier League, Champions League and the FA Cup but Arsenal understands that we would like the team to come out here,” he adds.
The deal clearly benefits both parties, with Emirates gaining added exposure in the 169 countries the Premier League is beamed to each week, and Arsenal has secured a consistent revenue flow to cover bank loans to finance the stadium project. Both companies are now eager to make the partnership work.
“It’s not really what’s in the contract but how much you invest in a sponsorship that determines what you get out of it,” says Simon. “Only by making sure that both sides get the most out of it will it be successful,” he continues.
“Success” is a word that has been synonymous with both organisations in recent years. Emirates has grown by over 30% per annum for the past five years in terms of revenue passenger kilometre calculations and has added a string of new destinations to its now bulging portfolio. Arsenal’s on-pitch performances since 2002 have garnered four major domestic trophies and the longest unbeaten run in British football history. Ambition and growth is clearly high on the agenda for both companies.
“We believe that the cultures and philosophies and the way the two organisations do business are highly compatible and that’s very important when you enter into a long-term deal of the nature and size that we have entered into,” explains Edelman. “The fact that we’re both growing and successful organisations is very important and we feel very happy with Emirates as a partner and I think we both feel that we are going to be able to gain a lot of benefits out of the relationship,” he adds.
The duration of the deal is ideal for the Dubai-based carrier, along with the fact that tens of millions of people worldwide will be exposed to the Emirates brand week in, week out. “It means for the first time we have a long-term commitment to international soccer, and we will help Arsenal to become a stronger international name and we will use soccer again to plug the Emirates name,” explains Simon. “We’ve had fairly reasonable success because the major driving force is television coverage and over 40 million people watch the Premiership every week so it’s an enormous audience, which we hope to profit from,” he adds.
The historic deal has been hailed as a “win-win partnership for both Emirates and Arsenal” by Sheikh Ahmed bin Saeed Al-Maktoum, the chairman of Emirates. But is it really such a good deal for both parties?
UK sport sponsorship specialists Sport+Markt AG claims that Arsenal could have brought in US$9 million a year for naming rights and US$11 million a year in shirt sponsorship had the club conducted negotiations separately for the stadium and shirts.
Furthermore, it is widely regarded within the sports sponsorship industry that Emirates has the better end of the bargain. This is because Arsenal, through regular participation in the Champions League, has built up a fan base of over 11 million in the key five EU countries: UK, France, Germany, Italy and Spain. “All these fans will represent a target group for Emirates so to get a deal for both jersey and naming rights at around US$11 million a year represents good business for the airline,” says Andrew Walsh, senior account manager at Sport+Markt.
There is however, a danger that football fans will continue to associate the Emirates brand with Chelsea because companies rarely work with different clubs in the same market. In the past, kit suppliers have changed clubs but not shirt sponsors.
“It’s not a risk as it’s a long-term deal, but for the first couple of years it will be hard for Emirates to be associated with Arsenal because of the Chelsea link,” explains Oliver Butler, UK account manager, Sport+Markt. “These things happen, which is why Emirates is in it for the long haul, and it can achieve recognition in the next five years and after that it has a platform to build on,” he adds.
Manchester United had not changed its sponsor for 16 years but Mike Cordwell, who worked on the Old Trafford-based club’s US$16 million-a-year deal with Vodafone in 1999, which remains the most lucrative shirt sponsorship in the British game, doesn’t feel it will have a negative impact on either party. “There may be some confusion to start with but that will not last for long,” says Cordwell. The man behind Carling’s association with the Premier League agrees. “Emirates was slightly peeved at the noises coming out of Chelsea and has gone to a bigger and better club and it’s a positive move for the company,” says Mike Flynn, chief executive of Fastweb Media. “There’s always a danger that a brand remains associated with its previous partner, but Emirates should be OK as it has effectively upgraded,” he explains.
The events are being closely watched by football clubs around the world, all sensing a gateway to financial security may have been discovered. Compared to Emirates Airline’s US$19 billion order last June to buy 41 new planes from Airbus, the tie up is a drop in the financial ocean. But the sheer glamour of football, and the long-term ramifications for both parties, make it a deal that will be talked about, studied and copied for years to come. ||**||
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