Paul Sherratt of Solutions for Sport looks at the impact of a Brexit for the UK Sporting Goods industry.
For the majority of businesses in Britain the possibility that the UK might leave the European Union – Brexit – is a major source of concern.
While no one can know precisely the impact of leaving the EU, what is clear is that it would be likely to have huge repercussions on many aspects of UK life.
On 23rd June the EU referendum will take place and, whilst much of the early debate seems to have centred around core concerns such as immigration and the wider economic ramifications, the the impact on sport and the wider sporting goods industry has been largely neglected in the vast majority of discussions.
So what might a Brexit mean to the sports trade?
The Cost of Sports Equipment
Perhaps the first, and most obvious, place to start is the potential impact on the cost of goods and the way that goods enter our market.
Whilst little has been written on this specific subject Sport and Recreation Alliance’s Chief Executive Emma Boggis has recently commented on the fact that currently the UK imports a lot of sports clothing and equipment from companies based in the European Union;
“We could see some form of tariffs on EU goods exported to the UK and vice versa, which would be expected to make goods including sportswear or sports equipment more costly than they are now.”
With participation levels a constant driving force behind grassroots sport, the worry is that if prices were to rise on sports equipment and clothing, then the ability of sport to get people out on the field might be diminished.
“Grassroots sport could be impacted on by the absence of any formally negotiated free-trade agreements” continues Boggis.
If we set these comments against the current growth in, for example, UK based etailers attacking the European marketplace, a Brexit and the subsequent potential product price rise (compounded by a weaker Sterling versus Euro) is almost certainly likely to challenge the developing business model of many of our eCommerce sports dealers.
At present it is relatively straightforward for these retailers to service the European markets through open trade agreements, however the removal of these (and the time it would take to renegotiate new trade agreements) will undoubtedly cause some issues.
The Global Consel report of 2015, notes that EU membership is estimated to have boosted British goods trade with other member states by 55%, equal to £130bn in 2013 and thus any threat to these trading opportunities should not be underestimated.
Of course, the flip-side of that means the UK would be free to strike its own trade deals elsewhere – but the lack of readily available affordable Sports Equipment retailers in other parts of the world would pose a question mark were the UK to leave the EU.
Away from the sports retail environment one interesting angle, picked up in a recent BBC article, is the potential impact on the sport we watch and the impact that a Brexit could have on British football.
The referendum will take place in the middle of the Euro 2016 football championships. By then England, Wales and Northern Ireland will either be in the last 16, or out of the competition. For a few days European sport and politics will dominate with the question being the same: in or out?
The EU has little direct role over sports policy in member states, though it provides limited funding to UK grassroots sport. But the rules in areas such as free movement and broadcasting mean Brexit would have a big effect on the sport we watch.
The vice-chairman of West Ham United, Karren Brady, warned that, if the UK left and was outside the EU’s free movement arrangement, players from the EU would not be able to sign so easily for UK football clubs. Two-thirds of European football players currently playing in this country would not meet automatic visa criteria once EU rules were swept away – would we lose these players and the kudos and value of Premiership football?
Sports distributors and Country Manager models.
And what about our sports distributors?
The UK sells about 50% of its goods to the EU, while the EU sells about 6% of its goods to the UK.
So the movement of goods into the EU is key to the development of UK brands whilst the UK is less important for brands coming in the other direction.
That being said however many sports brands have established European central hubs to service their European customer base. These central hub operations are efficient at delivering goods across their European distribution network and driving European brand strategy.
Obviously, whilst the UK would still remain a core market within this strategy, a more complicated trade strategy may cause some issues.
The change will not be instantaneous: UK exporters will be charged import duties on the goods they sell into the EU, just as they do to any country that is a member of a trading bloc.
This, in turn, will increase the price of their products in that market. These duties are on top of the local VAT charged between states and impact on the final price charged
So, prices will rise.
Existing EU regulations would make it harder for London to serve European markets, particularly for retail products and in euro trading. Business could move.
Of course all of these issues, and many more that we dont have the space to cover in this article, are entirely dependant on what model we would adopt were we to exit.
The Global Consel Report 2015 considered five models for a new relationship;
The Norwegian model, involving membership of the European Economic Area, would not give the UK the political flexibility required to justify Brexit. By contrast, a much looser model in which the UK trades with the EU on a most-favoured nation basis would give flexibility, but seriously jeopardise trade and investment.
The most likely models are either a Swiss-style series of bilateral accords governing access to specific sectors of the single market or a comprehensive Free Trade Agreement (FTA). Either would require prolonged negotiation followed by compromises and still impose sizeable costs. A lack of clarity over what would replace EU membership is just one reason why the path to Brexit – and beyond – would be long and uncertain, taking ten years or more.
The endpoint for the UK-EU relationship would be subject to a negotiation. Business would face high and increasing levels of uncertainty during this process, impacting on investment decisions and with macroeconomic consequences.
If a Brexit does happen then there is no doubt that our industry, much like any other, would be forced to adapt accordingly however, without the benefit of a crystal ball, the exact nature of those changes remains cloudy.
I, for one, await the vote result with interest.