The announcement that Newcastle United has signed Wonga, a so-called ‘pay-day loans’
company as its new shirt sponsor appears to be another own goal for the UK football club.
This is not the first time that the club has got itself into controversy regarding sponsorship.
In 2011, the club announced a naming rights deal for its historic St James’ Park stadium from
owner, Mike Ashley’s company Sports Direct. The name change was supposedly to highlight
the commercial potential of naming rights to future sponsors.
The response from the fans was almost universally negative in that the stadium to them was
sacred and to rub salt into the wound, the name change didn’t even bring in any extra revenue.
The big problem with the Wonga deal is that pay day loan companies have a lot of negative
connotations. Quite simply they lend money, often to people in desperate circumstances, and
charge very high interest rates (over 4,000% per annum). Given that Newcastle is in area
where the use of such loans is the highest in the UK, local politicians and fans have been
outraged by the move and this has brought negative publicity on the club.
A public relations sweetener on this deal is (as we predicted in November 2011), that the new
shirt sponsorship deal will include naming rights and Wonga has opted to have St James’ Park
reinstated as the official name. The club and sponsors have further embellished the
announcement by stating that a significant portion of the money will go towards positive
investment - the inference being that it won’t simply be paid out in wages to multi-millionaire players.
Derek Llambias, managing director of Newcastle United, said: “Throughout our discussions
Wonga’s desire to help us invest in our young playing talent, the local community and new fan
initiatives really impressed us and stood them apart from other candidates.”
It might be a clever piece of spin – and let’s face – sponsors and rights holders regularly make
such statements, but we all know that generally, if a sponsor pays a club cash, it effectively goes into an
overall pot to meet costs.
If Wonga had paid well over the odds with a proviso that part of the cash would be earmarked
to set up new community and youth team projects, the statement might ring true. However,
analysis of the deal suggests otherwise.
Media sources state the deal is worth £8 million per year. If, as is claimed, the deal includes
naming rights, then it would be fair to say that the breakdown should be in the region of £4.5
million for the shirt rights and £3.5 million for the naming rights. The question is – what should
these rights, for a club of Newcastle United’s stature, be worth?
A quick comparison of similar sized clubs suggests a great deal more. Aston Villa is probably
the best measure. It has a similar stature in terms of size of stadium, national and
international profile and potential. The club, which has a lower average gate than Newcastle,
(35,000 as opposed to Newcastle’s 50,000) and finished lower in the Premiership (16th
compared to Newcastle’s 5th place in 2011/12) has a two-year shirt only deal, signed in 2011, worth £8m per year.
Given that since the Aston Villa deal was signed, there has also be a very marked rise in
primary shirt deal values, with top Premiership clubs now commanding between £18m and
£50m per year, it seems that Newcastle United have failed to achieve market value which
would be expected to be around £9 million for the shirt deal alone and possibly another £4m
for the naming rights. To present this as a great commercial deal for the club, therefore, is stretching credulity.
Going forward, the problem for the club is that its commercial department now appears to
court controversy with ill-advised deals which will make future approaches to commercial
partners even more difficult. Added to this is the fact football clubs should be working with
sponsors to create communication programmes to fans, and to young fans in particular. Just
as it has become unacceptable to target alcohol-related sponsorship programmes to children,
it is very difficult to see how the club will be able to work with Wonga to communicate to its
fanbase without an immediate backlash.
Comment 2011: A tale of two cities
Sponsorship rights report: European Premier League Soccer
Comment: Man Utd / Chevrolet - why so big?