Chelsea pay Umbro £25m to break kit contract

Chelsea Football Club has terminated its kit sponsorship deal with Umbro, the sportswear manufacturer, paying a near £25m to break its contract five years early.

Chelsea Football Club has terminated its kit sponsorship deal with Umbro, the sportswear manufacturer, paying a near £25m to break its contract five years early.

Chelsea's ambition to rival the likes of Manchester United and Real Madrid as a world-renowned football brand has led it to look for a sportswear group with greater international clout. Peter Kenyon, the chief executive of Chelsea, who formerly held the equivalent position at Manchester United, said: "We believe this decision will help us achieve our strategic long-term goals in the future."

Shares in Umbro dropped 10 per cent in early trading on the news amid fears the company, which floated last year, would see a significant fall in sales of replica Chelsea kits. The company has warned the contract loss will hit profits by between £1m and £2m for the year to December 2005. Its shares ended down 4 per cent at 105p.

Geoff Haslehurst, the chief financial officer at Umbro, said the Chelsea contract was not lucrative, even though it sold £8.2m worth of Chelsea goods last year. "We had to pay a fixed annual fee to Chelsea and then royalty payments based on sales. These deals are more about brand promotion than raking in lots of money. What we would have achieved from the Chelsea deal in terms of profitability would probably have been much lower than what we have got in compensation, so we believe it is a good deal," Mr Haslehurst said.

It is widely expected that either Nike or adidas will be Umbro's replacement. Nike signed a record-breaking £300m license agreement with Manchester United in 2000, under which it took on all of the club's merchandising division. Sources in the advertising industry believe that Mr Kenyon may be looking to sign a similar deal at Chelsea.

Steve Martin, the managing director of M&C Saatchi's Sponsorship division, said the sportswear sponsorship market is concentrating into the hands of a few who are prepared to pay large sumsto win replica kit sales around the world. He said: "There are really only a handful of football teams that have global reach that the kit companies want to be associated with. More and more money is consolidating around the top teams, which are becoming more and more successful, and teams can charge up to £10m a year for a kit sponsor. Umbro is perhaps not a global enough partner for Chelsea, which is aspiring to be one of the top clubs, and doesn't have the same reach as Nike or adidas."

Jim O'Toole, at WPP's Premiere sponsorship arm, said football clubs were not looking just for a kit deal, but also at the international distribution capabilities of their sponsor.

Umbro will provide Chelsea's kit until June 2006 and will benefit from being associated with the club during its centenary season, 2005 to 2006.