SEM – Article review
Read the article below and answer the questions. Upload to Turnitin.com.
1. How much per year is the Adidas contract with the NBA?
2. What are the two main reasons that sneakers are so profitable?
3. Why has Adidas’ deal with basketball star Derrick Rose not worked out?
4. What potential change to NBA uniforms could result from the next uniform deal in
2017?
5. Which company has overtaken Adidas as the #2 (behind Nike) sportswear brand
company?
Adidas’ $400m NBA Contract Up for Grabs
Copyright 2015 Virginian-Pilot Companies LLC
The Virginian-Pilot(Norfolk, VA.)
By Drew Harwell | The Washington Post
A huge new battlefield just opened up in the war for America's feet.
German sportswear giant Adidas said last week it won't renew its $400 million deal as official
outfitter of the National Basketball Association when the 11-year contract expires in 2017. That
leaves the mega-sponsorship open to Adidas' two main rivals: athletic titans Nike and Under Armour.
It's the latest chapter in the long-running rivalry between the world's leading sneaker giants, but this
fight isn't over just basketball. The winner will also gain a crucial new foothold in America's hyperprofitable sneaker industry.
In the United States, the world's largest sneaker market, Adidas, Nike and Under Armour footwear
sales climbed in 2013 to a total of more than $25 billion, a 47 percent jump since 2009. And after
another record sales year for sneakers, analysts see no signs that the market is losing energy. As
JPMorgan Chase analysts wrote in a January report, "Not a single top-line lead indicator (points) to a
slowing in the athletic cycle today."
The booming sneaker business has become an excellent way to make a profit. The shoes can be
made relatively cheaply and en masse: Nike, for instance, crafts about 98 percent of its shoes and
clothes overseas. The world's sneaker kings also see little pressure to drop prices to compete with
no-name knockoffs, because their shoes are marketed as the pinnacle of athletic function or fashion.
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When the shoemakers roll out newly stylized shoe designs, as they do increasingly often, they are
quickly (and lucratively) hyped by sneakerheads on blogs and social media. That cycle of vogue
keeps buyers interested: "Constant newness destination shopping," as JPMorgan analysts wrote.
Millennials have become a key driver for this market. Americans aged 18 to 34 spent $21 billion on
footwear last year, a 6 percent increase over the previous year - and three times as much as the
total American footwear sales growth over the same time, data from market researcher NPD Group
show. Even better: Millennials' purchasing of footwear that cost more than $100 also beat the other
categories, jumping 12 percent last year.
"The entire millennial generation grew up wearing nothing but sneakers. Given their druthers, they'd
probably only want to wear sneakers today," said Matt Powell, a sports industry analyst with the
NPD Group. "Conspicuous consumption really comes into play here. There's this prestige factor. If I
can buy a pair of LeBrons, it means I've got $175 - and you don't."
Sneakers are such an attractive market that risk-averse investors have turned to brick-and-mortar
retailers for another way in. Foot Locker, the $8 billion sneaker chain that Sterne Agee analyst Sam
Poser said "has the ability to curate the best of all athletic brands," has watched its stock climb 9
percent this year to all-time highs.
Why is basketball so important? Licensing deals with big sports empires like the NBA give
shoemakers a boosted profile, more space on retail shelves, and the chance to get their logos in
magazines and on "SportsCenter." And, perhaps thanks to years of Jordan ads, basketball has
become irrevocably linked to what shoe the star is wearing when he makes his jump shot. In short:
Fans want what players wear.
At least, that's what Adidas was looking for when it pledged nearly half a billion dollars in 2006 for
the NBA sponsorship. But the company's deal came with one huge flaw: The shoemaker could put
its three-stripe logo only on players' warmup gear, not the uniforms themselves.
The NBA's new commissioner, Adam Silver, has proven far more open to corporate dealmaking,
leaving analysts to believe any new agreement would likely demand the official sponsor get the
option to stick their logo onto players' jerseys. The next deal, some expect, could also bring about
one long-debated change: Corporate ads on jerseys, in the style of NASCAR or European soccer, a
moneymaking option that Silver has repeatedly called inevitable.
Adidas has served as the NBA's official outfitter since 2006, giving it a higher profile on the court. For
Christmas Day games last year, Adidas equipped its NBA endorsers with glow-in-the-dark shoes
from its specialized "Bad Dreams" collection.
But that time also has seen its share of fouls. In 2013, when the league switched to jerseys with
sleeves, many players (and fans) were outraged, with Robin Lopez of the Portland Trail Blazers
calling on Twitter for a "mass burning."
Some of Adidas' biggest gambles also failed to pay off. In 2012, Adidas inked Chicago Bulls all-star
Derrick Rose to what was then the biggest player endorsement contract in sports history: a 13-year
deal worth $185 million and potentially more if Rose's signature shoe took off. But a series of injuries
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left Rose on the bench and crippled his shoe line: Adidas sold $65 million of Rose sneakers in 2012
and 2013, one-fifth what Nike's LeBron James shoes sold in 2013 alone.
Instead of its NBA deal, Adidas said it wants to invest in the other stuff: A bigger roster of star
players, more marketing and product development, and deeper investments in high school and
college teams, like the University of Miami, which this year announced a 12-year contract with
Adidas. The company said it also wants to ink endorsement deals with 500 more pro football and
baseball players.
"We continually review our partner agreements to ensure they are meeting our investment and
delivering on our brand and business needs," Adidas spokesman Paul Jackiewicz said in a
statement. "We are reimagining 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."
Adidas has poured millions into catching up with the Big Swoosh in the United States, but it has also
pushed to expand market share for athletes off the court. At a January media event in New York,
Adidas unveiled "the greatest running shoe ever," its $180 Ultra BOOST, with a smattering of
international track and soccer stars and people walking around shouting, "Join the revolution" into
megaphones.
Nike and Under Armour did not respond to inquiries on whether they'd seek the NBA's outfitting deal.
With help from its star endorsers, Nike and its Jordan brand control a staggering 90 percent of
America's basketball shoe market. And Nike has proven it can dominate a major sporting event's
marketing without even serving as the official sponsor. During the NBA All-Star game at Madison
Square Garden last month, Nike turned an entire New York street corner into a massive shoebox ad
for its flashy sneaker-store app.
But another big league deal could also let Nike strike a crippling blow. In 2012, when Nike took over
the on-field apparel contract with the National Football League from Adidas subsidiary Reebok, it
crippled Reebok's street cred in American sportswear by "making Reebok irrelevant to key
accounts," Citigroup analysts wrote this month. On Monday, Nike quietly extended that deal to outfit
America's most popular sports empire through at least 2019.
Nike and Adidas' turf battles have become increasingly ugly - an ongoing Nike lawsuit accuses three
departing designers of stealing "a treasure trove of Nike product designs, research information and
business plans" - but in basketball, Nike seems to be coming out on top. Revenue from Nike's
basketball merchandise has grown by double digits over the past two years, and Jordan sneakers
alone pulled in more than $2 billion in U.S. sales in 2013.
But Nike's ambitions are increasingly clashing with those of Baltimore-based Under Amour, which
overtook Adidas last year to become the No. 2 sportswear brand in America. Boosted by strong
demand for footwear like the ClutchFit Drive, its $125 basketball shoe, the company saw sales grow
30 percent, to about $900 million, in the final quarter of 2014 over the year before.
The company has also invested heavily into fitness-tracking apps, announcing last month it would
spend more than $500 million to buy Endomondo and MyFitnessPal. An NBA deal, analysts said,
could give the firm another chance to get closer to seizing Nike's throne.
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The three companies, analysts said, appear to have an unshakeable hold on the sneaker game,
though there are smaller outliers.
But the biggest obstacles to their growth could prove to be the same ones dogging all other retailers,
like the strong dollar, which cuts down overseas sales. As Christopher Svezia, an analyst at
Susquehanna International Group, said in a research note last week, Nike's "core (is) playing good
offense, but currencies (are) playing better defense."
March 22, 2015
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