Sevco’s Sport Direct Deal Is Hailed As A Miracle. But The Devil, As Ever, Is In The Details.

So Sevco today announced, to rapturous acclaim from their fans, that the Sports Direct deal has been terminated and that a new one is in place which gets the club more money. So the guns have come off the table, everyone is patting each other on the bank, King is the big hero and everything looks rosy in the garden at Ibrox.

But as with all of these things, the Devil is most definitely in the details, and we only have King’s word for it what those details are.

Commercial sensitivity isn’t a big thing with this guy, and so we can assume that the particulars of the deal are right on the nose.

I say that because if he lied you can bet that SD would call this exactly that.

The legal cases which the two parties had launched at each other appear to be off the table; they were a version of Assured Destruction for King, so it does seem like he’s got a sweet arrangement here. But look closely. There are oddities.

First, who really believes Ashley has simply walked away from this?

Who believes that he made it easy or that this deal is as neat and tidy as the spin from Ibrox would have you believe?

It’s a one year deal, which the statement from Sevco says they hope they can make long term, but there is “no fixed term” outlined.

Let’s assume it’s a one year rolling deal … what does it actually mean?

Well let’s not overlook the first, obvious, point; Sevco is locked into an arrangement with Sports Direct whether it likes it or not, because they have no merchandising arm to speak of. They depend on the reach SD has, to get anything at all done. Whereas Celtic has built its own merchandising network, Sevco never had one. What existed before, at Rangers, was washed away in the administration and liquidation of the club.

SD has them by the short and curly hairs over that one … which makes their decision to walk away from the old deal all the more strange. Is Ashley known for his altruism? Or is there more going on here than meets the eye?

Puma have been oddly silent, haven’t they? Their contract with Sevco has a single year left to run; that could be important to this, and it’s why this is only a one year deal at the moment. Puma are interesting. Theirs is an important feature of this situation.

People always assume that merchandising is a massive earner for clubs. It is, but not in the way that a lot of people think it is. There is a giant misconception – and there always has been – about just how much money a retailer like Sports Direct gets from shirt sales.

Remember when Sevco said they were angry with the SD deal because they were only getting around 7p for every £1 that was spent on one of their shirts?

That was always a ridiculous claim, because, in fact, that’s not an unusual figure.

In fact, it’s the industry standard.

It’s the kit manufacturer who takes the lion’s share of the profits from any shirt sale … between 85-90% of all the money that’s made from them.

Sevco are delighted by today’s news, and they should be … but actually they aren’t in line for some huge windfall here, as they appear to expect.

I’ve written about this several times, and I never cease to be amazed by how little understanding there is about the merchandising business and what it’s worth. Sevco fans have always laboured under the nonsense – promoted by King – that there is some huge untapped reservoir of money in this area, which Ashley was locking up. It’s patently not true.

The example to look at is that of Manchester United.

Manchester United sell their shirts at £75 each. No Scottish club could get away with that, but we’ll use it as example for the moment. If Manchester United sold 500,000 shirts at that cost, their take, after the manufacturers took an 85% cut, would be £5,600,000.

Imagine Sevco sold the same number of shirts, at the same price.

Now, under this “new” deal Sports Direct gets to factor in all the costs. They are the merchandising arm. They incur those costs as a matter of course. Sevco’s official announcement makes it plain that they’ll get “the vast majority” of the net profit which come through their official megastore and their official club website and half of what they sell in Sports Direct stores … call it 75% of the take in their own outlets, and say they will sell half those shirts through them … ludicrous, but let’s assume it.

Before costs, their take from their own store and website would be £1,750,000. Their take from the Sports Direct stores would be £1,300,000 from there.

Minus costs. Which Ashley and his people will be responsible for, and will get to set in their final tally of what that they pay. Minus tax. Let’s call it £2,500,000 in total, from shirt sales. If they sell 500,000. At £75 each. From the SPL.

Nice money. More than they get right now … if they get it, which I’m sure I don’t have to tell you is unlikely at best.

Even if they did, I cannot repeat this enough, it is not game-changing money.

With the way their costs are spiralling it might pay the bills for a whole month.

Sevco fans are happy about this; understandably so.

They’ve been fed a constant diet of “Mike Ashley is this” and “Mike Ashley is that” for the last two years. That deal was never as grotesque as they were told, and its terms never as severe as they were led to believe. The impact of this on their overall finances will be minimal.

But hey, they can buy shirts again.

And there is the appearance of a semi-professional operation over there. Let’s see how long it all holds together.

The fundamentals have not changed.

As Phil is fond of saying – and I await his take on this with some interest – they are a loss making company without a credit line from a bank. And they remain that, regardless of the air of jubilation around Ibrox today.