Economic Theory explained by Football – Part 5 – The fake deal in football shirts


In 2012, the major professional sports leagues in the United States lost over $13 Billion in revenue due to sales of counterfeit shirts and merchandise including a whopping $3 Billion alone from the 32 teams in the National Football League (NFL).  Some top end “authentic elite” team shirts which should retail for $250 could be found online with an 80% discount*.   These numbers, whilst staggering on their own, are just a drop in the ocean when we look at the total “black” economy which runs annually into trillions of dollars.

8835116252_85b97df617_kIn Europe, football means something very different to the American version.  Whilst the biggest NFL sides can expect to sell tens of thousands of shirts (neither official shirt supplier Nike or the NFL will actually reveal unit sales), the unit sales for the best selling “franchise”, 2014 Super Bowl champions Seattle Seahawks pales into insignificance to current European Champions League winners Real Madrid who sell over 1.4 million shirt sales per annum, the vast majority now bearing the names of twin superstars Ronaldo and our very own Gareth Bale.  Hot on their heels is Manchester United and Barcelona, each selling over a million shirts per annum. The top ten football clubs sell over 7.5 million shirts per annum across the globe, significantly more than the top ten clubs of any other sport.

Obviously these numbers only reflect the official sales.  Browsing the new adidas store at Bluewater last week I picked up a Real Madrid shirt, complete with an official Champions League badge on the sleeve. The prices tag? £60. Last month Nike and the Football Association found themselves being the talk of the town for the wrong reasons with questions even being raised in the Houses of Parliament over the price of the New England shirt, with those “authentic elite” versions again costing upwards of £90.

Football shirts are not luxury items, yet their official price tag puts them in the same category as similar types of items sold by the likes of Armani, Gucci and Versace.  £60 for what essentially is a t-shirt is simply crazy, irrespective of the new-fangled material used to differentiate the latest version from the almost identical one released the previous year.  They are a lifestyle purchase. Whilst a very small numbers of sales will be based on fashion sense, the vast majority are based on the blind loyalty that football fans have for their team.

In the last few years manufacturers and clubs alike have come under criticism for the number of new kits they bring out.  Whilst nobody is forced to buy the new, upgraded version of the shirt when it is released, that same blind loyalty has has queuing up to buy the shirt on the first day of sale.

It is the rule rather than the exception that clubs bring out a new football shirt every year.  Not just one shirt, but in some instances six different versions if you count the special “European campaign” and goal keeper ones. Chelsea, for instance, have released fourteen different kits, excluding their goalkeepers one, in just five seasons.

With the retail cost increasing every year it is no wonder that the market for counterfeit goods is swelling every year. Just last month a huge haul of fake football shirts was discovered on its way into the United States. More than $1 million worth of Chelsea, Barcelona and other major European football teams shirts were found in a container at Savannah Port in Georgia that had arrived from China.  The US Customs and Border Protection force will readily admit they got lucky in finding the counterfeit items in Georgia – hundreds of millions more pass under their noses every year without detection.

The majority of counterfeit football shirts are made in Asia where raw materials and workers wages are very low.  Over the course of the last few years I’ve been to the Grand Bazaar in Istanbul, the Night Market in Marrakech, the Ladies Market in Hong Kong and even the Sunday Boot Fairs of Sidcup.  Vast ranges of every major football shirt can be bought for just a few pounds.  The quality of the counterfeits varies per seller, with some offering “special edition” shirts.  When I was in. Morocco two years ago, one stall was selling Manchester United, 2012 Premier League Champions shirts, made specifically for the Reds title success.  The problem? Rivals Manchester City won the title with virtually the last kick of the season.

It is fairly obvious that you aren’t buying the real thing at the price they are being sold for, although production techniques now mean that fakes come in a variety of grades of quality.  At the low end the wrong material and non-exact match colours will be used and often there will be spelling mistakes (Liecester City anyone?) whilst the higher grade ones will often have all the bells and whistles of the real thing including holograms and inside printing.

But there is another side to counterfeit football shirts that you may not have considered and that is the conundrum of brand awareness.

Consider this situation.  Every counterfeit shirt carries the branding of not only the football club, but also their main commercial partner(s).  The whole reason why major brands invest millions into putting their logo on the front of a football shirt is to increase their brand awareness both in existing and new markets.  The hundreds of millions invested by Emirates into their sponsorship of Arsenal, Olympiakos, Paris Saint-Germain, Hamburger SV, AC Milan and now the European Champions, Real Madrid means they have huge global exposure from the sales of official shirts.  But their logo also appears on counterfeit items as well, increasing their global reach albeit through illegitimate channels.

Consumers simply associate Emirates with these shirts, irrespective of the legitimacy of the shirt.  Whilst the airline may be deeply unhappy that their logo is being used on counterfeit items, they are essentially increasing their return on investment through free advertising. I have no doubt that the sales of fake shirts are taken into commercial consideration when they are negotiating their deals, but it is a by-product that they inadvertently benefit from.

And what of the clubs themselves? Football is now a global game.  The elite clubs no longer consider the summer break as a chance to rest and relax.  They now travel far afield to play exhibition games in front of sell-out crowds in new markets.  The forthcoming Guinness International Champions Cup in the USA is an example of this where some of the world’s biggest clubs including three of Emirates sponsored teams, Olympiakos, AC Milan and Real Madrid will play a series of games around the USA to boost interest in the game.  Last year Chelsea travelled to Singapore and Malaysia, whilst Manchester United played in Hong Kong as part of their strategy of increasing their global fanbase.

Many of these fans, in the Far East especially, have significantly less disposal income than their core fans have in England.  They cannot afford the real-deal, climacool, multi-weave new shirt at £60. But they can afford the counterfeit at £5.

By buying a counterfeit shirt, one that they can afford, they are still buying into the brand, happy to market the club by wearing the badge, albeit one that may not be official. Does this make them less of a fan?  By spending 90% less on a shirt they can then afford to buy a ticket or subscribe to the club’s online streaming content.  What is more important to the club? New fans who will engage with the club on a regular basis or ones who will contribute a small amount of money once a season through an official shirt purchase.

The whole sports apparel and merchandise market is unique.  Someone who buys a counterfeit Gucci shirt or a fake IPhone charger is doing so for very different reasons than someone who buys a fake replica Barcelona shirt.  Whilst football clubs need to have a brand protection strategy in place, are counterfeit shirts the maker concern for global sporting brands? It’s an interesting debate, one that will certainly differ whether you have the emotional engagement as a fan or the commercial view as a sponsor or the club itself.

*Source:  Allan Brettman, “NFL, Nike fight to keep counterfeit products off the market,” Orgonian, November 16, 2013.

 

Economic Theory explained by Football – Part 4 – Value Proposition


In the fourth of articles, I try to explain why Dulwich Hamlet rather than most other teams were the real winners on Non-League Day back in September.

On the 6th September, Non-League Day broke all records, with over 50,000 fans attending games in the top three levels of the grassroots game.  One of the biggest crowds was at Champion Hill, home of Dulwich Hamlet, where 2,856 people saw their Ryman Premier League game.  More people attended the game against Hampton & Richmond Borough than at Football League matches at Accrington Stanley, Dagenham & Redbridge, Exeter City and Morecambe.  Pretty impressive, but why did they get so many people to that game?

dulwich-hamlet-non-league-day-1The answer can be found in a theory first proposed by US Economists Ayelet Gneezy and his brother, Uri.  Their research took them around the US, visiting Theme Parks (that is a real job apparently) and testing people’s propensity to part with cash.  Their concept was to sell photos of visitors on roller coasters under the principal of “Pay What You Want”.  Whilst their results showed that more people bought the pictures than when they were at a fixed price, the average price was so low that they actually made a loss.  BUT when it was announced that the Pay What You Want was coupled with a charitable cause, the price paid on average increased by nearly seven fold.  They summed up this behaviour as individuals feeling bad when they paid less than the perceived value for something if they knew the money was going to good causes.

So what has that got to do with Dulwich Hamlet?  Whilst many clubs announced free or pay what you want for Non-League Day, fans didn’t necessarily see the value in the game they were paying to watch.  Some, for instance had already paid to attend as season ticket holders, others were simply skin-flints.  However, couple it with a charitable element, such as Dulwich Hamlet did and people are willing to pay more for the same event, because if they simply paid what they felt the true value to be, they would inherently feel bad – us humans do have consciences after all.

Our own experiences of Pay What You Want back this theory up.  Back in March 2013, 405 attended our midweek game against Carshalton Athletic.  The first encounter had been abandoned due to floodlight failure, yet the re-arranged game saw a bigger than average midweek attendance.  In fact, the attendance was identical to that a few days later on a Saturday when Kingstonian visited.  The average payment was approximately £2.40 per head, about 60% less than we would normally take on a match day.  Compare that to a Pre-Season game, on a Friday, in peak holiday season in July against a team just promoted from the County League with little or no marketing.  An attendance of 250 for the game against East Grinstead Town was more than we expected, but what was very interesting was that they paid £2.50 on average.  Why? Because all of the takings were for charity.

And that, ladies and gentlemen, is The Theory of Pay What You Want in a nutshell.

Economic Theory explained by Football – Part 2 – Market Uncertainty


In the second of my deep-thinking articles, I try to explain famous Economic theories by using football as the model.  Today, the work of George Akerlof on Market Uncertainty.

The Market for Lemons was a controversial piece of research published by Nobel Prize-winning academic and famous Leyton Orient fan, George Akerlof.  Up until his work was published, most economists believed that markets would allow everyone willing to sell goods at a certain price to make deals with anyone who wanted to buy goods at that price.

IMG_1105Akerlof, frustrated by the fact that the O’s (back then they were just Orient) kept bringing in short-term players who were basically rubbish, explained how uncertainty caused by limited information caused markets to fail.  As a football club who hold a player’s contract have more information about him than a potential buying club, it can often be a bad move to buy the player.  In other words, if you do not do your research on a player, you are liable to buy a lemon.

Whilst Akerlof’s research was based on the second-hand car market in the US, he also kept a close eye on the transfer dealings of third tier English football clubs.  In the same way that sellers of better-than-average cars to sell will withdraw them from the market because it is impossible for them to get a fair price from a buyer who is unable to tell whether that car is a lemon or not, football clubs needed a way to ensure that they weren’t buying an old crock.

He suggested that football clubs could “borrow” a player for a short period of time to see if he is fit, able and not a mass murderer before they made a decision to buy him.  That way, a fair price could be determined between the buying and selling club.  Furthermore, he concluded that if a player is passed from club to club on loan then he is a lemon, just like a used car that has had dozens of owners.

Football clubs that are desperate to sign a player for a particular position, perhaps due to injury, are often held to ransom by selling clubs, knowing that they can try and extract a few more million for a player who is completely over-valued.  Rather than over paying for the player they are forced into the loan market where they may get some short-term gain but ultimately, loan deals are flawed in the same way that second hand cars are.

And that, ladies and gentlemen, is the theory of Market Certainty.