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How big sports brands are placing their bets for EURO 2012

By Research Fellow Willem Smit and Professor Arturo Bris - June 2012

When the EURO 2012 football championships kick off on June 8, what are the chances of another "freak year" like 1992?

This was the year when Denmark unexpectedly won the European Championship after replacing the former Yugoslavia at the last minute.

But 1992 was freakish in another way. It was the only one of the last 10 European Championships where the winner did not wear Adidas shirts (the Danish team wore Hummel).

Of the 16 teams in EURO 2012, six will wear Adidas and five will have Nike shirts, while Umbro will have three teams and Puma two (see table 1).


Each shirt supplier wants the picture-perfect moment of their team holding the trophy: great brand exposure that is guaranteed to go viral via social media and be repeated endlessly.

In a footballing sense, the shirt suppliers have built investment portfolios of assets that may or may not yield the desired return.

But what is the probability of another "freak year" like 1992, where a non-Adidas team wins? And how efficiently are the four EURO 2012 suppliers balancing risk and reward in their investment portfolios?  

Building the portfolio

Whereas financial assets have multiple investors, each team at EURO 2012 has a single shirt supplier. And since only one team can win the tournament, suppliers that sign up lots of teams increase their chances of backing the winner.

But this kind of shopping spree is becoming less rewarding as rising competition among leading suppliers drives up the value of shirt contracts. Our research indicates that most recent deals are worth more than €25 million a year (see table 2).

Table 2 

The fiercest contest at present is between Adidas and Nike. The latter has signed up Portugal and the Netherlands, both strong teams, and recently lured France away from Adidas with a contract worth €320 million over 7.5 years.  

Nike also bid to sponsor the German national team—an Adidas partner for more than 50 years—prompting Adidas to renew its agreement for about €300 million over 8 years.  

Given the rising costs of supplying the top teams, Adidas and (to a lesser extent) Nike have added some smaller contenders to their portfolios. The German company took tournament co-host Ukraine away from Lotto and lured Russia from Nike. The US company, meanwhile, took the other co-host Poland away from Puma.

Puma has Italy and the Czech Republic in EURO 2012, while Umbro maintains its traditional strength in northern Europe through deals with England, Ireland and Sweden.

The probability of another "freak year"

We can estimate each shirt supplier's chances of winning EURO 2012 by using the betting odds provided by UK bookmakers for the 16 teams (see the final column of table 2). Spain has the best chance of winning the tournament, with a probability of almost 30%, while Denmark is the real long-shot with a less than 1% chance of being crowned champion.

The odds of each team winning are exclusive and additive. So, looking at the suppliers' current portfolios, Adidas has a 60% chance of winning the European Championship yet again. This leaves a 40% chance of a "freak year" in which a team wearing Nike, Puma or Umbro lifts the cup.

Risk and return: Assessing the suppliers' portfolios

We show the different risk/return profiles of each supplier's EURO 2012 portfolio in table 3. The horizontal axis shows the risk associated with each kit deal and the vertical axis represents the expected return.



The graph shows that Adidas dominates its rivals in terms of risk-reward, which indicates a more efficient portfolio approach to shirt deals. As well as backing likely winners (Spain and Germany), Adidas has diversified more than Nike by adding other teams while maintaining an attractive expected overall return. The Ukraine contract in particular is relatively low-cost and would yield a big return if Ukraine won.

Adidas's diversification strategy was already clear in the qualifying rounds for EURO 2012 during 2010-11, where it supplied 17 of the 55 competing teams (more than 30%). The other brands were more selective: Nike had deals with 11 teams, Puma 9 and Umbro 8.

Umbro and Puma, meanwhile, have riskier portfolios because they are spending heavily to hold on to the few big teams they have (England for Umbro and Italy for Puma). Rising contract values are lowering the expected return, while the chances of these teams winning EURO 2012 have not improved.

As a result, Umbro and Puma risk sliding to the bottom right-hand corner of the graph where investments are relatively high risk and low return (i.e. inefficient). The graph therefore shows how competition among shirt suppliers is leading to portfolio inefficiencies.

The bidding wars won't stop once EURO 2012 is over. Two Adidas contracts (Greece and Denmark), two Nike deals (Croatia and Portugal), and an Umbro contract (Sweden) are all up for renewal this year.

This could be bad news for the smaller suppliers, who risk losing more teams to the big two. But the CFOs of these national football associations will be rubbing their hands.

Willem Smit is a Research Fellow currently stationed in the Asia-Pacific region, location: Singapore. Professor Arturo Bris is professor of finance at IMD. He directs the Advanced Strategic Management program and teaches on the Building on Talent programs. The authors would like to thank Sahimi Bin Ahmed, research assistant at Singapore Management University, for his assistance in the data collection.    

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