Brands & Relationships
In order to complement its retail operations, in recent years the Group has acquired a number of internationally recognised sports and leisure brands, including Antigua, Carlton, Donnay, Dunlop, Kangol, Karrimor, LA Gear, Lillywhites, Lonsdale, No Fear, Slazenger and Voodoo Dolls. In respect of the Antigua and No Fear brands, the Group’s interests are held through a 65% stake in Antigua Enterprises Inc. and a 50% stake in No Fear International Limited, respectively. In respect of the Karrimor and Lonsdale brands, the Group’s interest is held through a stake in Lonsdale Sports Limited. The Group also licenses-in certain brands such as Arena, Diadora and Umbro. Sports Direct has a two-pronged strategy for exploiting its brand portfolio, which consists of distributing products under the Group Brands and Licensed-In Brands through its wholesale operations, and licensing the Group Brands to third parties across a wide range of product categories and territories.
Wholesale operations
In addition to supplying its own stores, Sports Direct distributes products under the Group Brands through wholesale channels both in the UK and, for most Group Brands, overseas. The Group has several large-scale customers, including Asda, Matalan and Tesco in the UK and Walmart, Big 5 and Sports Authority in the US. For the 53 weeks to 30 April 2006, the Group’s wholesale activities generated £166.0 million of revenue. The wholesale operations allow the Group to distribute its core products, such as Dunlop tennis rackets and Slazenger tennis balls, to a wider consumer base than customers who visit the Group’s retail stores. This, in turn, increases the recognition and value of the Group Brands providing a stronger base from which to license them into new product areas and territories. As well as Group Brands, Sports Direct also uses its wholesale distribution channels to distribute certain Licensed-In Brands such as Arena, Diadora and Umbro.
Licensing operations
Since Sports Direct took the decision to both acquire and license-out Group Brands, the Group has entered into more than 160 licensing agreements, under which Group Brand products are manufactured and distributed by third parties. As at 31 December 2006, these agreements provided for an aggregate guaranteed minimum income of approximately £115.0 million over the next ten years. In order to maximise revenue through its licensing operations, the Group considers the range of product categories to which the Group Brands can be applied, while at all times maintaining quality control, brand image, heritage and value. Licences are generally given on the basis of geographic limitations and specific product categories. The Group Brand licences currently extend to over 100 countries.
Typically, licensees are contractually obliged to pay Sports Direct, on an annual basis, the higher of a guaranteed minimum payment and a royalty calculated by reference to the level of sales achieved. The licences typically provide that the guaranteed minimum annual payment increases by reference to the historic sales of a particular licensee. For the 53 weeks to 27 April 2008, the Group received royalty income of £21.1 million from licensees of the Group Brands.
Sports Direct seeks to maintain a co-ordinated global identity for each of the Group Brands. To do this, the Group is closely involved in the development process for each of its licensed products and monitors its licensees’ selection of manufacturers to ensure that they are consistent with Sports Direct’s brand strategy in terms of product quality and presentation. Sports Direct also seeks to co-ordinate brand marketing on a global level, and licensees are typically obliged to pay a minimum percentage of net sales of a licensed product into a central marketing budget, which is then used by the Group to promote the relevant brand in a consistent manner. Where necessary, licensees are required to extend to new territories, sell complimentary products of other licensees and are obliged to supply Sports Direct. Licensees are often obliged to spend a minimum percentage of net sales of a licensed product on their own marketing of the relevant brand in the licensee’s territory. All independent marketing conducted by the licensees must be approved by the Group’s brand marketing team so as to ensure compliance and consistency with the Group’s global brand strategies.
Sports Direct performs due diligence on all potential, new and existing licensees, many of whom have expertise in specific product categories and geographic regions. This typically includes modelling their projected sales together with both credit and financial analyses of the licensee. The majority of Group Brand licences have a term of ten years, with renewals generally granted by Sports Direct only where the licensee has consistently achieved contractual sales targets and followed the strategic direction of the global brand image.
The Group monitors licensees through frequent communications to discuss strategy and performance. Sports Direct’s licences include a reporting requirement and a right for the Group to audit the financial records of both the licensee and its manufacturers in order to determine whether or not remitted licence income is at the agreed contractual level. To ensure that licence income is correctly calculated, Sports Direct also requires that detailed production data is provided to it directly by both the licensee and its manufacturers.
Group Brands
The principal Group Brands are summarised below:
Antigua
In April 2003, Sports Direct acquired a 65% interest in Antigua Enterprises Inc., a company listed on the Toronto Ventures Exchange and the parent company of The Antigua Group, Inc., the owner of the Antigua trade marks. The Antigua brand is primarily associated with golfing and casual apparel and accessories and is principally targeted at corporate and retail customers in the United States. The brand has also been associated with baseball, basketball and ice hockey licensed merchandise. The Group owns the worldwide rights to the brand. The Group intends to grow the Antigua brand through its sponsorship of high-profile golfing events including the 2007 and 2008 PGA Masters and the 2008 Ryder Cup, and intends to extend the brand into new territories, particularly in Asia.
Carlton
Sports Direct acquired the Carlton brand as part of its acquisition of Dunlop Slazenger Group Holdings Limited in 2004. It is a leading brand in the badminton racket and shuttlecock market and, to a lesser extent, in footwear and sportswear. The brand is targeted at both professional and amateur badminton players, and the Group has raised its profile though sponsorship agreements with leading badminton players, including world champions and Olympic medallists Gail Emms and Nathan Robertson. The Group owns the worldwide rights to the brand. The Directors are hopeful of achieving high growth in the Carlton brand although, as badminton is not a mainstream sport in Europe or the United States, it is unlikely to become one of the Group’s highest revenue-generating brands.
Donnay
Donnay was the first Group Brand acquired by the Group in 1996. The Group owns the worldwide rights to the brand. Donnay is best known for tennis products. With the acquisition of the Dunlop and Slazenger brands, Donnay is likely to be utilised for entry-level tennis apparel and equipment, an area where Donnay has had some success in the past, as well as travel, leisure and fitness (including bags and accessories), golf and footwear.
Dunlop
Sports Direct first acquired a licence to the Dunlop brand in respect of sports and leisure goods in various countries as part of the acquisition of Dunlop Slazenger Group Holdings Limited in 2004. The brand was originally associated with tyre production, having been established in 1888 by John Boyd Dunlop after he invented the modern pneumatic inflatable tyre, and first extended to sporting equipment in 1939. It has since become associated with a wide variety of sporting equipment and apparel. It is a leading brand in the badminton, golf, squash and tennis equipment markets due to its particularly strong heritage in racket sports as illustrated by historic association with players such as John McEnroe and Steffi Graf. In these heritage areas, Dunlop’s key competitors include Prince, Wilson and Head. It is also associated with sporting and casual footwear, such as “Green Flash” shoes. To maintain and develop the current profile of the brand, the Group has entered sponsorship agreements with several high-profile athletes, such as Darren Clarke, Tommy Haas, David Howell and Lee Westwood.
Following the acquisition of Dunlop International Limited in May 2006, the Group now owns the worldwide rights to license the Dunlop brand, save in relation to tyres, and other than in Australia, Fiji, South Korea, Japan, New Zealand, Taiwan and the United States. In the United States, the Dunlop brand is owned and controlled by DNA (Housemarks) Limited, a joint venture vehicle currently owned by the Group and SRI USA, Inc. The Directors regard the United States as a potential source of significant sales, as Dunlop remains an under-developed brand in the US sports retail market.
The Directors aim to increase considerably the income generated from the Dunlop brand over the years to come. The Group’s strategy with the Dunlop brand involves extensions to the existing product range as well as leveraging the brand’s strength in its existing core products, such as tennis balls and rackets, to drive wholesale revenue in Dunlop branded clothing and accessories.
The Group is also looking to increase its worldwide licensing income from the Dunlop brand by consolidating its existing licensees in Europe and expanding its licensing operations in the United States and Asia. The Directors also believe that there is scope to license the Dunlop brand into new product categories such as automotive products and accessories, bicycles, travel and leisure and fitness.
Kangol
The Group acquired the rights to the Kangol brand in October 2006 as a result of its acquisition of Kangol Holdings Limited. The brand was founded in 1938 and was originally associated with hats produced for the military. Kangol gained wider recognition as a result of being worn by popular musicians in the 1980s.
The Group owns the worldwide rights to the Kangol brand, (except in Japan, where it only owns the rights in relation to headwear), and has a number of licences-out already in place, including a worldwide exclusive licence for headwear. Based on the Group’s ability to reinvigorate brands with strong heritage such as Dunlop, the Directors believe that the Kangol brand has the potential to generate significant licensing income for the Group including in new product categories, such as footwear, health and beauty and bags. Sports Direct is also investigating the possibility of licensing stand-alone Kangol concept stores in China and other parts of Asia, that will sell Kangol hats and other Kangol-branded merchandise.
Karrimor
Sports Direct acquired the Karrimor brand in 2004 after its previous owner had gone into receivership following a period of decline in the 1990s. Karrimor was founded in 1946 as a producer of high-quality outdoor sports equipment. The Group owns the worldwide rights to the brand. The brand continues to be applied to outdoor leisure equipment, as well as bicycles and police and military clothing, and has a strong following among outdoor enthusiasts and mountaineers. A significant proportion of the licensing income that the Group derives from the Karrimor brand comes from a licence with Blacks Leisure Group plc in the UK. However, the Group also supplies Karrimor products through its wholesale distribution network. The Group’s strategy for the Karrimor brand involves extending the brand into new product categories including a variety of outdoor products and accessories as well as increased licensing activity, particularly in Asia.
Lillywhites
The Group acquired the Lillywhites brand at the same time that it bought the Lillywhites stores in the UK in 2002. Lillywhites is known principally as a high-end sports retailer, offering specialist sports products. The Group owns the worldwide rights to the brand. The Group owns the main Lillywhites store in Piccadilly, London, and intends to develop stores under the Lillywhites fascia in the Middle East, predominantly through licensing arrangements. These stores would focus on the Lillywhites heritage of offering an extensive range of sports clothing and equipment.
Historically, there have also been some sports and leisure products sold under the Lillywhites brand and the Group intends to explore reviving this use of the brand.
Lonsdale
The Group acquired the Lonsdale group of brands in June 2002. The brand was founded in 1960, having taken its name from Hugh Cecil Lowther, fifth Earl of Lonsdale, an avid sportsman and president of the National Sporting Club of Britain. The brand was originally associated with boxing equipment, but has also become associated with other sports (such as football) and casual clothing. Lonsdale articles have been worn by several famous boxers, such as Muhammad Ali, Henry Cooper, Lennox Lewis and Mike Tyson. The Group owns the worldwide rights to the brand. To raise the profile of the Lonsdale brand within the British boxing community, the Group has entered into sponsorship agreements with several high-profile British boxers, including Ricky Hatton and Matt Skelton. In its heritage product areas, Lonsdale’s key competitors include BBE and Everlast.
The Lonsdale brand generated royalty income of £2.8 million for the Group for the 53 weeks to 30 April 2006 (accounting for approximately 19.6% of the Group’s licensing revenue for the period).
The Group’s strategy for the Lonsdale brand is to increase the distribution of Lonsdale products by appointing new licensees both in new territories and in new product categories, including health and beauty, “back-to-school” products and footwear. Although recognised as a successful brand within the UK, the Directors believe that there is significant scope for growth overseas, particularly in Asia and the United States. The Group has an existing licensee in Australia who has developed a stand-alone Lonsdale concept store. In addition, the Group expects to license between 60 and 80 Lonsdale stores in Asia in the medium term. The Directors have also secured contractual commitments to establish similarly licensed Lonsdale stores in Australia.
No Fear
In 2005, Sports Direct entered into a joint venture with No Fear Inc. to exploit the No Fear group of trade marks worldwide save for Canada, Mexico and the United States. The brand is primarily associated with clothing and fashion accessories for extreme sports, including motor cross and surfing in which the Directors are positioning it to be a leading brand. The Directors believe that there is significant scope for growing royalty income from the No Fear brand, and that the brand’s core strengths can be extended from its heritage products into new licensed categories including leisure and fashion wear, footwear and bags. Similar to the development of the Lonsdale stand-alone concept stores, management is considering the potential for stand-alone concept stores that combine the No Fear and Voodoo Dolls brands.
Slazenger
Sports Direct acquired the Slazenger brand as part of the acquisition of Dunlop Slazenger Group Holdings Limited in 2004. The Slazenger brand was established in 1881 and was initially used only in association with tennis equipment. In 1902, Slazenger was appointed as the official tennis ball supplier to The All England Tennis Championships, Wimbledon. This arrangement has continued ever since and, recently, has been extended to 2015, making it one of the longest, unbroken sponsorship arrangements in sporting history. The Slazenger brand has grown to become associated with a large range of sports, including cricket and field hockey, and a range of casual and sports apparel and footwear. In its heritage product areas, Slazenger’s key competitors include Kookaburra, Gray-Nicholls, Gunn & Moore and Wilson. The Group owns the worldwide rights to the Slazenger brand other than in Australia and New Zealand.
The Slazenger brand has been marketed through sponsorship agreements with several tennis players (including Tim Henman), cricketers (including Paul Collingwood, Ian Bell and the Pakistan national team) and field hockey players and associations (including the England national team). The Group has recently signed a licence agreement with Dick’s Sporting Goods, one of the largest sports retailers in the United States, and is currently negotiating distribution rights for Slazenger products to grass roots tennis players and into the business-to-business market (which has an estimated size of $4.0 billion per annum).
The Group’s strategy for the Slazenger brand includes granting further licences, particularly in the United States where it intends to leverage the brand’s heritage in tennis balls to drive sales of related products such as rackets and other sports equipment. The Slazenger brand is also being targeted at markets in which Sports Direct does not own the Dunlop brand such as Japan, South Korea and Taiwan. The Directors are also considering the possibility of licensing stand-alone Slazenger concept stores overseas, particularly in the Middle East and Asia and have entered agreements to license up to 50 stand-alone Slazenger stores in China in the medium term.
Voodoo Dolls
The Group acquired the Voodoo Dolls brand in 2005. The brand has an Australian heritage and is applied primarily to surf clothing and equipment targeted at the young female market. The brand’s key competitors include Billabong and Quicksilver. The Group owns the brand for a number of different product categories in Australia, China, New Zealand, Singapore, South Africa and the United States.
The Group intends to increase the licensing income from the Voodoo Dolls brand by using the brand’s heritage in Australia to extend into new territories and product categories such as bags and accessories. The Directors are considering the potential for combined Voodoo Dolls and No Fear stand-alone concept stores, similar to the approach taken with the Lonsdale and Slazenger brands.
Licensed-In Brands
To make the most of the Group’s experience in retailing and exploiting brands, the Group also distributes products under Licensed-In Brands through its wholesale and retail channels for which it pays a royalty to the underlying brand owner. The Licensed-In Brands include Arena, Diadora and Umbro (other than in relation to replica kits and certain other products, which are not manufactured by the Group under licence). In particular, Sports Direct is a major customer of Umbro, from whom the Group buys a significant amount of merchandise, including replica football kits, and with whom the Group has recently entered into a non-exclusive licence as part of the new sourcing and distribution agreement
