How Mike Ashley finally met his match with Adidas

Mike Ashley's Sports Direct and the German supplier Adidas are flexing their muscles in the ultimate contest to decide who holds the power over football kit sales.

Adidas is telling Sports Direct that it cannot sell Chelsea Football Club's new replica kit next year, while the UK's biggest sports retailer has put in an early protest, calling the decision "impossible to understand". To this mix can be added Mr Ashley, who also owns Newcastle United and knows a thing or two about control. He has clashed with Adidas in the past, been at the centre of replica kit disputes and prides his business on its football links.

Investors and customers alike will be interested in Adidas's decision to only sell the kits through Chelsea and Adidas stores, because if successful other companies may follow suit. Sports Direct's chief executive, Dave Forsey, said: "We don't believe with our football heritage that customers would be happy. We are still voicing our concerns to Adidas and Chelsea, telling them they are potentially alienating their supporters."

Adidas is not breaking new ground, with West Bromwich Albion and Sunderland both selling their replica kits only through the club shops. But Chelsea is a different matter; it is one of the biggest clubs in the country and the decision appears to have been made by Adidas, rather than the club.

Adidas said: "This season, we're implementing a new distribution strategy... Sports Direct continues to be an important retailer for Adidas and their customers still have the opportunity to buy a great range of Adidas products in their stores."

Negotiations are ongoing, but Mr Ashley has a colourful history with Adidas, which could go some way to explaining this latest spat.

In 2007, shortly after floating Sports Direct and cashing in £900m, Ashley went on a spending spree, buying a 3 per cent stake in Adidas for around £200m and snapping up Newcastle United. He managed to sell his Adidas shares within eight weeks, but still left some analysts and observers questioning whether a sports retailer should also own a stake in a major supplier.

At the time, Adidas was the Newcastle kit sponsor, but in 2009, after 14 years, it was dropped in favour of Puma. Another rift emerged as Mr Ashley sought to sell the naming rights to Newcastle's St James' Park stadium – much to the fury of the supporters. Adidas was the bookies' favourite to buy the rights but decided to steer clear. After a short stint as the Sports Direct Arena, the current sponsor, Wonga, renamed it St James' Park again, much to Mr Ashley's embarrassment.

Mr Ashley also has history in replica kit disputes – blowing the whistle on price-fixing among suppliers and retailers that led to fines for his rivals totalling £18.6m in 2003.

Sports Direct and JJB Sports later became the subject of another Office of Fair Trading investigation into replica kit price-fixing, but were cleared of any wrongdoing.

Anusha Couttigane, fashion consultant at retail analyst Conlumino, said: "This is a case of pride, especially with Mike Ashley's influence and ownership of Newcastle. But it does start a discussion over where the power lies. We have to remember Sports Direct is very powerful and becoming more so; it could stop stocking Adidas altogether."

Pre-tax profits at Sports Direct hit £143.1m, up 14.3 per cent, in the six months to the end of October, with sales rising 23.5 per cent to £1.35bn. The company is now in the FTSE 100 and is the largest sports retailer by some distance. However, those high numbers failed to impress the City and the shares tanked 13 per cent as expectations were missed.

As the owner of a number of brands, Sports Direct is keen to have complete control over as much of its business as possible. Its portfolio includes Dunlop, Slazenger, Lonsdale and Everlast, which means the margins can be higher and the company can choose its own licensing agreements. But in when it comes to football the power still lies elsewhere, with Nike and Adidas ruling the roost. Sports Direct can shout all it likes, but this may be one battle it cannot win.