Adidas Given The Sack By Chelsea FC

On Thursday afternoon Chelsea Football Club announced that they have agreed a new sponsorship deal with US giants Nike, which is reported to be work £60 million a season over the next 15 years.

From the 2017-2018 season, Nike will be responsible for producing kits for the men’s, women’s and academy teams; most importantly for Chelsea, they will produce replica merchandise for their supporters across the globe. This landmark deal signifies the end of Chelsea’s association with Adidas, a relationship that stems back over ten years to Chelsea’s rise to footballing prominence in 2006.

Chelsea had only recently renewed their sponsorship deal with Adidas in 2013, worth £30 million annually but to enable them to enter into contract with Nike, Chelsea and Adidas terminated their contract (to take effect following the 2016-2017 season). In order to compensate Adidas for this, Chelsea agreed to pay them a sum in the region of £40 million, a fraction of the £60 million a year that they are set to receive from their deal with Nike.

The need for Chelsea to switch kit suppliers highlights the importance of ensuring that your commercial contract is flexible and suits your changing requirements. Equally, from the perspective of Adidas, even though they were looking to reduce their sponsorship outgoings, ensuring that Chelsea were tied in and obliged to pay an element of liquidated  damages (as compensation for early termination) ensured that Chelsea couldn’t just issue notice to terminate and take the next best deal on the table.  It wouldn’t make commercial sense for parties to have no potential way of exciting their contract if financially it no longer benefited them to be a party to it.

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