Sports Direct, JD, Hummel contracts all in flux
At the High Court in London yesterday, Mr Justice Phillips was told by both counsels that Newco Rangers had accepted claims by Sports Direct that they were entitled to match and retain any retail contract offered by a competitive organisation.
A clause to this effect was inserted in the agreement signed a year ago, which also saw Newco pay Sports Direct £3m to terminate their existing agreement this summer, while buying Newco shares owned by Mike Ashley at a premium price of 27p per share.
Apart from ordering Newco to pay Sports Direct costs, the judge declined to act, telling both parties to get on with it. Although Newco have conceded their earlier position was wrong, much work has still to be done to effect the terms of the contract and put any new deal in place.
The mechanisms to bring about a new deal between Newco and Sports Direct are difficult. The deal Newco apparently made with JD Sports to pick up retail operations from now is clearly in jeopardy, which could cause additional problems for the Ibrox club.
Justice Phillips told Sports Direct counsel, “You are going to get your new contract with Rangers (sic.),” but this is far from certain.
Newco will have to look at whatever contract they have signed with JD Sports, a contract they will have to terminate before they can even open discussions with Mike Ashley’s representatives. A sticking point in this respect is likely to be non-disclosure terms. JD cannot allow their direct competitor sight of their offer.
It would be more appealing to pay Ashley off, again, and do business with JD Sports, than offer JD Sports compensation for terminating a contract they will expect to earn millions from. The latter option would necessarily reveal JD’s offer structure, terms and contract nuances to their principle competitor. A clear violation.
Ashley knows this. He is likely to hold out for the disclosure the contract requires. It will be an added bonus to an already sweet deal.
The first call will be to JD Sports, who will be asked if they will tear up a contract worth millions, and agree that their commercial offer details can be shared with Sports Direct. JD are a FTSE 250 company in their own right, and a subsidiary of Pentland Group, which also owns Speedo, Mitre, Red or Dead and Kickers. I cannot even imagine who would have the authority to tear up such a deal without appropriate compensation. But, there again, I cannot imagine the compensation figure Ashley would demand to tear up his contract.
Then there is the Hummel contract to consider. Kit sponsorship deals depend on kit being sold. Financial returns are performance dependent. This is another can of worms. The first summer of this deal will be over with the Danish manufacturer significantly down on projections.
The short history of Newco has seen a litany of horrendous commercial decisions but none more onerous than the deal signed with Sports Direct last year, or this year’s cataclysmic oversight not to honour that deal.
They bought 9% of their own shareholding for an inflated price of 27p, paid £3m in cash to curtail the existing agreement, will now have to make good to either JD or Sports Direct, and pay £500k legal costs.
The problem, as you and I know, is not Mike Ashley. The world knows what kind of character Ashley is, there can be no surprises on that front when it comes to this. The problem is Newco is a shambles of an operation. Vain-glorious statements are the only environment they compete in, and in that competition, they are the real world champions!
Why the ‘Rangers’-sympathetic journalists have not chased him out of town is inexplicable. He is doing damage in plain sight but being allowed a free ride. We will miss him when he goes.