Chelsea FC and Nike have agreed the largest kit sponsorship/ supply agreement in the English Premier League worth £900m (£60m per year for 15 years). The announcement comes nearly 6 months after the Chelsea and Adidas kit sponsorship/supply agreement was terminated part way through a 10 year term.
With the value of commercial partnerships in a seemingly perpetual escalation, it comes as no surprise that Chelsea's new agreement with Nike is reportedly worth twice the previous deal with Adidas per year.
According to some sources, Chelsea agreed to pay around £40 million to terminate the Adidas agreement six years early, which serves as a well-timed reminder of the importance of termination clauses in sport sponsorship contracts.
Termination clauses provide flexibility to parties operating in a dynamic and growing market; as shown by how quickly the Chelsea/Adidas agreement fell behind the market value.
A top-tip when drafting termination clauses is to consider whether any termination payment is mutually beneficial or too costly to pursue. Both Chelsea and Adidas put positive spins on the termination pay-off. Chelsea entered into a new, more profitable agreement and Adidas commented that the payment will positively impact the group's net income.
Notice periods are also important. In the context of football supply agreements, where replica kits are designed and agreed well in advance, it is vital that the parties use notice period provisions to create a sufficient buffer ahead of termination.