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Jun 8, 2016

Paul Sherratt on the impact Brexit might have on the country’s sporting goods sector

For the majority of businesses in Britain, the possibility that the UK might leave the European Union 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 June 23 the EU referendum will take place and, while much of the early debate seems to have centred around core concerns such as immigration and the wider economic ramifications, the impact on sport and the 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 they enter our market.

Emma Boggis, chief executive of the Sport and Recreation Alliance, recently commented on the fact that currently the UK imports a lot of sports clothing and equipment from companies based in the European Union.

According to her: “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 grass roots sport, the worry is that if prices were to rise, the ability of sport to get people active might be diminished.

EU ecommerce
If we set these comments against the current growth in, for example, UK-based etailers expanding in the European marketplace, a Brexit and the subsequent potential product price rises - compounded by a weaker sterling versus the euro - is almost certainly likely to challenge the developing business model of many of our ecommerce sports retailers.

At present it’s relatively straightforward for these retailers to service European markets through open trade agreements. However, the removal of these - and the time it would take to renegotiate new ones - will undoubtedly cause some issues.

The Global Counsel report 2015 notes that EU membership is estimated to have boosted British trade with other member states by 55 per cent, equal to £130 billion in 2013. 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.

Sports distributors
What about our sports distributors? The UK sells about 50 per cent of its goods to the EU, while the EU sells about six per cent of its goods to the UK. So the movement of goods into the EU is key to the development of UK brands, while the UK is less important for brands coming in the other direction.

That being said, many sports brands have established central hubs to service their European customer base. These operations are efficient at delivering goods across their European distribution networks and driving brand strategy.

Obviously, while 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’s 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 the final price charged.

Existing EU regulations would make it harder for London to serve European markets, particularly for retail products and in euro trading. Business could move as a result.

All these issues - and many more we don’t have the space to cover in this article - are entirely dependent on what model we would adopt were we to exit.

Models for a new relationship
The Global Counsel 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 provide flexibility, but 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. 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.

The end point for the UK-EU relationship would be subject to 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, there’s no doubt 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.


Elite sport
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 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 influence over sports policy in member states, although it provides limited funding to UK grass roots sport. But the rules in areas such as free movement and broadcasting mean Brexit would have a big effect on the sport we watch.

Karren Brady, CEO of West Ham United, 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 Premier League football as a consequence?

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