The battle to kit out the nation's football fans in replica shirts suffered a serious casualty yesterday when Chelsea, the world's richest club, announced it was paying over £24m to get rid of its British shirt supplier.

Umbro, which makes the England strip and is the country's oldest sports
equipment manufacturer, lost its biggest club contract after Chelsea terminated their deal with the firm five years early.

In an unusual move, the Stamford Bridge club has bought out of its contract,
handing over £24.5m to bring the deal to an end in the summer of 2006.

The club, which leads the Premiership and has seen its profile and
merchandising value soar under the ownership of Roman Abramovich, is in
negotiations with Umbro's rivals Adidas and Nike to replace the British firm.

The loss of the Chelsea contract, worth £8m in sales last year and responsible for 6% of UK sales, is an embarrassment to Umbro, which floated on the London stock market last May and which four months ago announced it had lost a contract with the Scottish champions Celtic to the US firm Nike.

Chelsea are understood to have considerably sweetened their pay-off to avoid legal action by Umbro, whose chief-executive, Peter McGuigan, said he was confident they would have won. "It would have taken three to four years and we would not necessarily have come out with more than what we settled for," he said.

Chelsea's willingness to buy out of the deal emphasises the importance of the replica shirt market to leading clubs. The accountants Deloitte and Touche
estimate that merchandising is worth £100m annually to Premiership clubs, and Chelsea is one of the few with room for growth.

Umbro retains the contract for England's shirts, a relationship that boosted profits by 50% to £10.4m following Euro 2004 last summer when the new away kit became the bestselling replica shirt ever. It also retains the marketing power of England striker Michael Owen on a 15-year deal worth £1.2m a year, whose profile has been boosted by his move to Real Madrid.

Nevertheless yesterday's announcement had an immediate impact as the
company admitted Chelsea's departure would knock up to £2m off profits for the year ending December 31 2005 and shares slumped 4.5p to 105p. It follows criticism of the firm by Oxfam for allegedly using sweatshop labour, and a record £6m fine by the Office of Fair Trading for price fixing during Euro 2000.

With Everton the only Premiership club for whom Umbro still make shirts, the
announcement emphasises the decline of a firm that had crested the wave of the replica shirt boom in the 1990s and was instrumental in shaping the marketing of the Premiership.