News that Adidas has agreed to replace Nike as Manchester United’s next technical partner in a deal worth £75 million p.a. caps a miserable few days for Nike.
It comes less than a week after Nike’s flagship national team Brazil were humiliated in their own backyard by Adidas-wearing Germany, who went on to meet Argentina, also kitted by the German giant, in the final.
Nike clearly felt, as we reported last week, that the fee demanded by Manchester United was too high to represent value for its shareholders. The crushing of Brazil, however, might actually be a bigger blow. This abject performance by Brazil could take years to heal and fans in the South American country, as well as those around the World, who proudly sport the legendary yellow jersey, are unlikely to be flocking to stores for the latest version anytime soon.
In contrast, Adidas now has deals with Germany and Argentina as well as Champions League winners Real Madrid, arguably Europe’s current second best team; Bayern Munich and now the leading global merchandiser Manchester United. Nike still has Spanish giant Barcelona, whose stylish shirts are loved by fans globally as a statement of admiration for football played at its best. Other than that, its leading clubs are Manchester City and Paris St Germain, neither of whom are in the same merchandising league and national team England, which left Brazil in its usual lamentable state.
In the World Cup, Nike’s key stars were Wayne Rooney, Ronaldo (both of whom went home early) and Neymar, who had a good tournament but was injured in the quarter-final. Adidas’ only hiccups came in the form of Luis Suárez’s notorious bite, which didn’t really do that much harm to the brand, and Spain’s early exit. Lionel Messi, wearing an Adidas shirt and also with a personal endorsement with the company, won the ‘Adidas’ Golden Ball as the best player in the tournament. To cap it all, another Adidas player, James Rodríguez, won the Golden Boot for scoring most goals, including the goal of the tournament against Uruguay.
The questions are: how big is this setback for Nike? What will the Man Utd deal do to kit deal values? And what will be the strategies for the leading kit suppliers?
First, Nike had been eating into Adidas’ soccer business for some time. It has been reported that the company’s soccer business was now worth $2.3bn per year (compared with $2bn for Adidas) and the company had more personal endorsements at the World Cup than all other brands combined.
The events of the past week don’t seem to have had much impact on company valuations. Nike’s share price was just short of its five-year high on the eve of the semi-final and has dropped back since from 78.69 to 77.22 – by no means catastrophic and still significantly up on June this year. Adidas, on the other hand, is down over the month despite a rise on 14 July.
Certainly Nike’s use of Ronaldo appears to have paid off. His global recognition is higher than that of any player other than Lionel Messi. In Brazil itself, Neymar was the poster boy for the World Cup and it is arguably fortunate that he missed the semi-final, as he won’t be tainted by the drubbing.
However, personal endorsement deals are complex in the way that they work. A paper published in the latest issue of our International Journal of Sports Marketing & Sponsorship, suggests that in some countries the deals work more for the player’s image than that of the brand.
In terms of future strategies, Nike seems to be veering towards personal endorsement deals and maximising its boot revenue. It still has some of the biggest shirt deals in the game, but it has just lost its biggest club and all of its national teams, with the exception of the USA and Holland (and arguably Australia), under-performed at the World Cup. The USA deal, however, is significant. Although US fans are unlikely to buy shirts in the same numbers as European or Asian fans, the World Cup was a massive hit in the US drawing bigger TV audiences than the NBA or the World Series - 'soccer' is finally taking a grip on the American psyche. The significance is not just the size of the market, but also in the fact that unlike Asia and Africa, for example, counterfeit products are not a major issue. Nike is by far the dominant sports brand in the country and has rights to the key properties.
Despite this, Adidas has almost certainly secured the number one spot for jersey sales over the next two years (the Manchester United deal begins in 2015) but at a potentially very high price. Will Real Madrid and Bayern Munich, for example, sit back and see one of their biggest competitors earn roughly twice the fee that they receive from a shirt deal? How will Chelsea, also an Adidas team, react?
This could result in a quick spiral of kit deal inflation, which would end up costing Adidas more than Nike given its partnerships with the current crop of most successful national and domestic teams. Adidas will be under pressure to shift more units if it is to achieve a good return on investment.
Adidas certainly won the sponsorship World Cup, indeed our poll of industry experts (result announced in the week beginning 21 July) currently has it way out in front of other official sponsors. The company is also certain to stem the relentless march of Nike in terms of football market share. But our poll also shows Nike way out in front in terms of most effective ambusher, and despite its bad week, its shareholders might still be looking as happy as Mario Goetze over the next few years.
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