Nike already had its competitors against the ropes thanks to endorsement deals - both past and present - with bona fide superstars. Now, they're positioned to attempt take over 100 percent of the basketball business in the world thanks to a recently struck deal to be the official uniform/apparel provider for the NBA. But is this really a slam dunk?
When it was announced last Wednesday that Nike would be taking over for adidas as the official manufacturer of on-court apparel for the NBA, it registered for many as a tiny blip on the marketplace's radar given the Swoosh's already noted prominence in the league thanks to lucrative shoe deals with the likes of LeBron James, Kevin Durant and more. Estimated to cost Nike a billion USD when the contract kicks in during the 2017-18 season, during that eight-year stretch they have the potential to monopolize the basketball spotlight at a vital period when roundball promises to join soccer/fûtbol as a globally followed game (unlike the NFL which Nike also outfits). It begs the question, "What more can Nike gain by outfitting 30 teams in an American sports league?"
Nike will become the first jersey provider in NBA history to have their logo appear on the league's uniform. While their iconic "Swoosh" is never absent on court thanks to the aforementioned sneaker endorsement deals with superstars and role players alike - and having already controlled more than 90 percent of the U.S. basketball shoe market at retail - the visibility of the branding will be unmistakeable.
When it was announced that adidas would not be returning as the league outfitter, the contract came down to Nike and Under Armour - whose greatest win/gain in the NBA has been the play and subsequent MVP honors for Stephen Curry. With Nike's new deal, Curry will be forced to identify with the Beaverton brand. Perhaps even more importantly, fan perception of Curry will equate his success with Nike's innovation. It's fair to say that for that $1 billion USD price tag, everyone in the NBA will become a Nike billboard whether they like it or not.
The Global Reach of the NBA
Basketball is the number-two sport globally with an estimated 500 million people playing the game. Last year’s NBA Finals between the Miami Heat and the San Antonio Spurs was seen in 215 countries and broadcast in 47 different languages. This season, more countries and territories were represented on the NBA's opening day rosters (37) than on those of any other North American sports league. The reigning champions, the San Antonio Spurs, had a record nine foreign born players on their opening day roster last season.
While the talent pool comes from predominantly European-based countries, the NBA sees India and China as the next big markets when it comes to developing not only players, but rabid fan bases, and growing economies as well. In terms of raw numbers, China, with a population of 1.36 billion, and India, 1.26 billion, make up 36.5 percent of the world's estimated total population of 7.2 billion. In China, the NBA has a combined 70 million followers on Sina Weibo and Tencent’s microblog platforms, compared with fewer than 400,000 followers for the National Football League. China alone has the ability to push any sports popularity to new and fiscally untouchable heights.
"The questions are where it can all lead in 20 years," says Xia Song, an agent, coach and all-around Chinese basketball expert. "Where I think it leads is basketball passing soccer to become the No. 1 sport in the world and to Chinese players being at the front of the wave. We have the potential."
As the league diversifies with more and more foreign-born players, international fans now have rooting interests in cities thousands of miles away. The NBA's growth as a league will only strengthen and expand Nike's business as well. While "ruling the world" sounds like a classic movie antagonist's desire, Nike has the real potential to do just that with basketball's surge in popularity.
The Monopoly on Popularity
With the addition of the NBA to their already existing relationship with the NFL, Nike now has control of the two most popular sports in the United States - with the possibility to take over in the NHL when Reebok's deal expires in 2016. If their merchandising deal with the NFL is any indication, Nike could stand to gain $500 million USD a year from their relationship with the NBA.
adidas's "You Can't Fire Me, I Quit" Attitude
adidas had realistic goals when they took over the NBA contract in 2006. With Nike controlling 90-plus percent, they looked to build upon the 10 percent (five of which was already in their "control) that was up for grabs. “With one company having 96% of basketball, I think you’ve got two choices,” said adidas U.S. president Mark King in a candid interview with Fortune in March at the company’s U.S. headquarters. “You either exit [the sport]—which is not the craziest idea. It’s not. Or you figure, ‘Dammit, there’s got to be at least 5% out there who don’t really want [Nike].' So we think we can grow basketball. We are going to take a shot at basketball in a much more aggressive way.”
Ultimately, adidas didn't get aggressive. They didn't bid on the new contract, and many believe that the dissolution of the relationship with the NBA stemmed from the league's unhappiness with how the league was outfitted.
In a statement to the press from adidas they said, "We are re-imagining and reshaping our business and have evolved our strategy to look at new, cutting-edge ways to drive our brand and support our business over the long term. We will invest more in telling stories that matter to our consumer, building category-disrupting innovative products, reinvigorating youth basketball with our new Next Generation programs and doubling our roster of professional athletes to authenticate our brand on-court."
It's highly-unlikely that adidas didn't feel that working with the NBA wasn't good for the "long term." Rather, they realized that the 10 percent market that they were after was not a reality given Under Armour's plans and Nike's continued dominance.
They Didn't Overpay
adidas’s NBA apparel contract was worth $400 million over 11 years. Nike's deal is worth an additional $600 million USD ($1 billion USD) for a shorter period (8 years). However, that billion dollar price tag is hardly a gamble given their commitment to advertising and marketing. In 2014, the brand spent $3.031 billion dollars on "demand creation" which equates to $100 USD a second.
Nike's involvement in basketball is strengthened by 14 consecutive quarters of double-digit sales growth. LeBron James' shoe sales in 2014 were $340 million USD. If James continues on a similar, Air Jordan-esque trajectory, he alone could foot the bill for the NBA contract and Nike could recoup what they paid in three years or less.
In 2014, Louisville head coach, Rick Pitino, said he believed he was missing out on elite recruits because his university had struck a deal with adidas rather than Nike. "I'm sure the Nike coaches don't feel that way because they're winning the battle," he remarked.
A 2014 investigation by The Courier Journal revealed that 59 percent of Rivals.com's top 10 seniors in the signing classes beginning in 2011, came from Nike clubs, and 69 percent committed to college teams sponsored by that apparel company. Additionally Nike sponsors 45 of the 65 "power five conference" programs compared to adidas's 11, Under Armour's eight and Russell Athletics' one.
With the trend of "brand allegiance" starting for players at a much younger age thanks to high-level AAU/club competitions, Nike has laid out a yellow brick road-style path where elite players are Nike lifers.
What It All Means
Nike already dominated the basketball market; now it literally owns it. If nothing else, they've positioned a roadblock for other brands looking to make realistic gains. In the future all they have to do is keep signing marquee talents who are already in the Nike pipeline, while also watching as the game explodes further in untapped foreign markets. Nike didn't need the NBA business, but they were wise to understand that it is where all eyes will be in the coming years.