Manchester United Just Got the Best News... That It's Rival Just Got Rich

That's right.

Over the weekend, bitter rival of Manchester United MANU, Chelsea Football Club, just announced a massive new merchandising deal which could mean a significant boost to revenue for the Manchester club as it looks to renegotiate its own contract.

Contract Negotiation

Manchester United is currently nearing the end of its 13 year contract with Nike NKE and Nike's exclusive period to renegotiate a new deal expires July 31. Therefore, Nike will be pressed for time to sign a new deal that could mean a huge, lucrative boost for Man United.

Chelsea just closed a new deal with Adidas worth $46.2 million per year over 10-years, the second-highest of any European soccer club following the Spanish giants Real Madrid C.F. However, due to the fact that United has averaged higher shirt sales than Chelsea over the past five years, as sportingintelligence.com reported, then United could be set to secure a new deal that would see revenue from kit sales nearly double.

Breaking Down the Numbers

Manchester United's current deal is a 13-year contract worth $35.9 million per year for a total value of $466.62 million before any revenue from profit sharing. Over the past five years, shirt sales averaged 1.4 million, tied for the most of any team with Madrid, meaning that the annual contract value per shirt sold was $25.64 over the period.

Chelsea's new deal just raised the stakes though. The club sold an average 910 thousand kits over the past five years, meaning the new deal applies a value of $50.77 per shirt sold per year to the new contract. This puts them only behind the two big Milan-based clubs, A.C. Milan, owned by former Italian Prime Minister Silvio Berlusconi, and Inter Milan on this metric.

Applying Chelsea's shirt premium to United and working backwards, a new shirt deal would nearly double in annual revenue from the current $35.9 million to a whopping $71.08 million per year. This would by far trump any team's outstanding deal on an annual basis and not only boost revenue for shareholders, but bolster the club's war chest to continue to be competitive on the field.

Deutsche Bank Nailed It

Back in early May, the analyst team at Deutsche Bank estimated that a new shirt deal could bring $69.3 million per year to the club, off of the above estimate by a mere $1.78 million. Using the comparable premium metric, they estimated that the annual revenue per shirt sold would be $49.50, only slightly below the Chelsea deal at $50.77 per shirt.

And this estimate ignores any premium that United could get over Chelsea, which could make the deal even more lucrative. "We expect the MANU deal to be greater than those of other Premier League teams due to its superior global presence and brand and for perspective," wrote DB. "Note that MANU's shirt deal with GM of $559m/7years is roughly 72% greater than Arsenal's recent shirt deal with Emirates ($232m/5 years per the press). Our £45m/year deal forecast for MANU would represent a 77% increase vs. the existing, comparable portion of the Nike deal."

Forget the Estimates

Manchester United is expected to bring in $558.1 million in revenue for the fiscal year 2013 ended June 2013, according to the consensus estimate compiled by Bloomberg. The current deal is thus a mere 6.43 percent of expected revenue but the new Chelsea-comparable deal of $71.08 million per year would boost merchandising revenue to a massive 11.61 percent of revenue.

A new kit deal would blow the current estimates out of the water and would bolster the company's financial position. A key risk for United is its high level of debt that was incurred on the company's balance sheet during the takeover by its current majority owners in 2005. However, the recent IPO helped to fund a reduction in debt followed by the recent refinancing announcement that helped to lower annual interest payments and save the club vital cash.

"It is also worth noting that a new kit supplier deal will be more transformative for MANU than simply an increase in sponsorship revenue," continued DB. "Over the past 11 years, Nike held the rights for MANU's retail, e-Commerce and merchandising globally, and has arguably done an unimpressive job. We expect MANU to break out these rights as part of a new kit supplier arrangement, which we believe will not only help catalyze global product sales as regional partners address what we view as underserved demand, but also enhance MANU revenue as the company will move to revenue-share agreements with partners (whereas the existing Nike deal is a profit share)."

Shares of Manchester United traded lower Monday by 1.26 percent to $15.68 per share, below the Deutsche Bank price target of $21.00. They have a buy rating on the stock.