Counting The Cost Of Counterfeiting

Back in 2012, it was reported that the major professional sports leagues in the United States lost more than $13 billion in revenue due to sales of counterfeit shirts and merchandise. Some top-end “authentic elite” team shirts which should retail for $250 can be found online selling at discounts up to 80%. These numbers, whilst staggering on their own, are just a drop in the ocean when we consider the total “black” economy, which runs annually into trillions of dollars.

Counterfeiting not only significantly impacts the US sports industry. The biggest, richest and most valuable sporting brands are European football clubs including Real Madrid, Barcelona, Liverpool, Manchester United and Paris Saint Germain. These clubs sell millions of legitimate shirts per annum across the world. Based on statistics for the 2018/19 season, Manchester United topped the league in terms of authentic replica shirt sales with over 3.25m units sold, closely followed by Real Madrid who sold 3.1m. With typical prices between $60 and $75, the sale of official replica shirts is a huge revenue generator for the clubs and the manufacturers.

Obviously these numbers only reflect the official sales. Whilst organisations such as the OAMI try to quantify the problem, it is almost impossible to estimate the true value of counterfeit shirts. The “quality” and thus the price of these items varies wildly as anyone who has been to the night market in the main square in Marrakesh or the backstreets in Bangkok will testify. Here you can buy your favourite team’s shirt in a choice of “manufacturers”, styles and colours.

Football shirts are not luxury items, yet their official price tag puts them in the same bracket as garments sold by companies such as Armani, Gucci and Versace. £60 for what is essentially a t-shirt is simply crazy, irrespective of the new-fangled material used to differentiate the latest version from the almost identical one released the previous year. They are a lifestyle purchase. Whilst a very small numbers of sales will be based on fashion, the vast majority are based on the blind loyalty that football fans have for their team, purchasing the most recent shirt even if they don’t like the design or agree with the sponsor. This loyalty is the major accelerant of the continuing growth in counterfeiting.

In the past few years, manufacturers and clubs alike have come under criticism for the number of new kits they bring out. Whilst nobody is forced to buy the new, upgraded version of the shirt when it is released, that same loyalty has fans queuing up to buy the shirt on the first day of sale. It is the rule rather than the exception that clubs bring out a new football shirt every year. Not only one shirt, but in some instances six different versions if you count the third kit which is won once a season, special “European campaign” and goalkeeper jerseys.

This demand for the real deal has a direct impact on the demand, and thus the supply for counterfeit items. With ever-increasing costs for basics and the economic squeeze caused by the global pandemic, the spare change available for the latest Premier League shirts may not be available, and so potential buyers are forced to look at the black market. Last year the Premier League’s enforcement teams have physically seized more than 111,000 counterfeit items and removed tens of thousands more from online marketplaces, ultimately preventing the sale of almost £4,000,000 worth of counterfeit goods. It isn’t just the UK that is heavily impacted by the trade in counterfeit shirts, as a customs seizure a few years ago proved when football shirts with a value of more than $1 million were found in a container at Savannah Port in Georgia, USA, that had arrived from China. The US Customs and Border Protection force will readily admit they got lucky in finding the counterfeit items and it is likely that hundreds of millions more pass under their noses every year without detection.

The majority of counterfeit football shirts are made in Asia, where the cost of raw materials and worker’s wages are very low. It is fairly obvious that you aren’t buying the real thing at the price they are being sold for in many online and offline stores, although production techniques now mean that fakes come in various grades of quality. At the low end, the wrong material, imprecise colours and spelling mistakes (Liecester City, anyone?) are common, whilst the higher-grade fakes will often have all the bells and whistles of the real thing, including holograms and inside printing. It used to be the case that football shirts were referred to as ‘replicas’, a word that also means ‘copy’, but in intellectual property terms means ‘fake’ or ‘counterfeit’.

Whilst football clubs and other sports organisations need a brand protection strategy, how much of a concern is counterfeit shirts? It’s an interesting debate, and the viewpoint will certainly differ depending on whether you have the emotional engagement of a fan or the commercial view of a sponsor or the club itself. Someone who buys a fake Liverpool shirt for $5 in Thailand may only have $5 available to spend and is thus buying into the “Liverpool brand” even if the item is counterfeit.

Whilst the club and the shirt manufacturer see no revenue from the transaction, there is no real opportunity cost – the purchaser would not buy a $75 shirt because they would never have the disposable income to do so. Yet, their allegiance to the Liverpool brand could be as passionate as someone who owns multiple genuine shirts, attends every game (due to their location) and has a Liverpool tattoo.

The reason why so many clubs now head to exotic places rather than to their local neighbours for pre-season fixtures is to build their brand in new markets and ultimately gain new revenue streams, which of course may inadvertently increase the demand for counterfeit goods!

So whilst it is important for any brand holder in the sports industry to at least understand the extent of counterfeiting on their brand, it is impossible to eradicate, simply because of the nature of the industry. Sport has a global audience and there will always be demand for branded products, meaning that unless the cost of supply falls dramatically, counterfeiting will fill the void.

So what mitigation strategies should sporting organisations, kit manufacturers and governing bodies implement to both identify the level of “genuine” counterfeits (those that clearly deny the brand and IP holders revenue) and take the appropriate action to protect their revenues and reputation? It is key for any organisation to first understand the risk to their intellectual property and then take the most effective action against the most active infringers. The question that many will be asking is how.

The majority of online counterfeits can be found on a small number of marketplace websites. Brand Protection providers such as BrandShelter have the tools that can identify the products being listed for sale, analyse the profiles of the sellers and then flag those sellers that appear to be listing items that appear to be questionable. At this point a strategy needs to be determined for the action that will be taken – that may include making a “test purchase” to determine the legitimacy of the products and even potentially the manufacturing source, issuing takedown notices via the marketplace administrators or even instigating legal proceedings should there be enough evidence in place to secure a conviction.

Unfortunately, the nature of the digital world does mean that most of the biggest infringers operate a complex network of selling profiles – where once one profile is removed, an almost identical appears somewhere else. It may be disheartening to the brand holders to see this, almost as if it is a real life “whack-a-mole” but there is evidence to suggest that a constant, consistent approach to enforcement actions will eventually cause some of the most persistent infringers to stop or at least move their focus onto other brands which don’t have the same focus.

To understand the extent of the problem simply search for a particular club or international kit and preface it with the words “cheap”, “discount” or “sale”. A search for the current Premier League champions, Liverpool, with the word “cheap”, on the major search engines lists major retailers offering the new season shirt for approximately £55. However, one website in particular, which is using Google AdWords to bid on the keywords “cheap Liverpool football shirt” is offering the same shirt for less than 50% of the norm – that should raise alarm bells immediately for the club, the manufacturer and the consumer. The official club shop? 11th in the rankings – that should be a significant worry for the club.

Counterfeiting is a major issue for all organisations as a whole industry has developed to fill the void between the supply of legitimate items and the demand from an ever growing set of sports fans. Despite all of the innovations in manufacturing processes, some fans will continue to choose to buy counterfeit either because of their available funds or because they feel that the fake item does the job for them, either unaware or unconcerned at the impact of buying counterfeits has on the brand holder or the world in general.

*Source:  Allan Brettman, “NFL, Nike fight to keep counterfeit products off the market,” Orgonian, November 16, 2013.

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