Written by Bhavik Modi
Nike is one of the most popular, successful and unique sports brands worldwide, grossing a whopping $30.6 billion in revenue last year. Nike’s footwear sector is a market leader as it holds around 31% of global share, which accounts for 60% of its total profits.
To put this volume into perspective, Adidas is second in the footwear sector with a 16% global market share, and in 2014, Nike grossed twice as much revenue from the footwear sector with $16.2 billion and Adidas with $8.1 billion. Sources believe that both their revenues increased in 2015 as well.
The question that arises is, how is Nike so successful with footwear? Competitors, such as Adidas and now Under Armour, are always looking for ways to capture market share.
One of the major factors that separate Nike from other sports brands are their endorsements. Nike spends large sums of money to attract successful and iconic athletes to make them the face of their brand. Names such as: Cristiano Ronaldo, Kobe Bryant, Maria Sharapova, Roger Federer, Derek Jeter, Tiger Woods and Rory Mcllroy are all part of the Nike family.
Although these athletes are the face of the brand in their respective sports, basketball seems to be one of Nike’s major targets. Not only does Nike earn significant amounts of profit from basketball but the company also controls around 90% of the basketball shoe market.
How is their success unparalleled? For starters, the company has signed three major NBA superstars, which won them the largest endorsement deals to date. Of the $30.6 billion Nike grossed in revenue last year, just a bit over 10% of revenue comes from these three iconic superstars: Michael Jordan, Kevin Durant and LeBron James.
Michael Jordan, one of the best basketball players of all time, has his own brand under Nike, called Air Jordan. Before he was drafted in 1984, Nike signed him to a five-year $2.5 million contract. This contract was seen as a major risk for Nike, as they were taking a huge risk on an unproven marketing commodity.
The reason why this deal was so symbolic is that prior to 1984, all NBA sneakers were white, but the Air Jordan I’s were red, white and black. Jordan incurred a $5,000 fine each time he wore the colorful sneakers, but Jordan had nothing to worry about because it was paid for by Nike.
The “Air Jordan” logo started to gain a lot of popularity – soon, everyone wanted to be “like Mike.” Each year, a new Air Jordan sneaker is released, and to this day the shoe continues to dominate sales and account for $2.5 billion of revenue for Nike.
Unsurprisingly, Michael Jordan has also reaped considerable benefits from this deal. In 2014, according to Dime Magazine, “Michael Jordan made more money selling sneakers ($100 million), than he did during his 15-season career ($94 million). These earnings made Jordan the highest-paid retired athlete in the world.” According to Forbes, Michael Jordan is worth $1 billion, and, undoubtedly, much of that money comes from Nike’s sponsorship and sneaker deal.
Despite Nike’s success with Jordan, the company was at risk of losing basketball player Kevin Durant to Under Armour in 2014, until Nike offered Durant a 10 year, $285 million contract, the biggest endorsement deal in sports history since Michael Jordan.
Just over a year later, Nike once again outdid itself. The company signed LeBron James to a lifetime deal, making this deal the biggest single endorsement deal in sports history to date. It is also extremely interesting to note that in Nike’s 44-year company history, this is their first lifetime client.
For Nike, the relationship looks fruitful: in 2015, the LeBron sneakers brought in around $345 million revenue. When compared to Air Jordan’s, revenue from the LeBron sneakers seems small, but this number is projected to increase in the following years.
For LeBron this means over $500 million over the next decade and a half. With these numbers, LeBron James may join Michael Jordan in the “Three Commas Club,” referring to individuals worth at least $1 billion.
Nike is clearly the market leader in sporting goods, but competitors such as Adidas and now Under Armour are not far behind in endorsement deals. In fact, rising basketball star, Stephen Curry, turned down a $2.5 million deal with Nike in favor of an endorsement from Under Armour. His sneakers, “Curry One”, are now one of the most popular and best-selling sneakers on the Under Armour website.
Under Armour certainly seems to be ready to play ball with Nike, but for Nike, how much will this lost opportunity cost?