Explosion of Big Data Leading Brands to “Place Big Bets” on Loyalty Programs

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Nike introduced a limited-edition Tiger Woods polo shirt for Nike Plus members on Tuesday morning that sold-out within an hour. It was the footwear and apparel company’s latest effort to engage (and reward) their highest value customers; Nike Plus members spend 3x more than the remainder of Nike buyers. The Beaverton based company isn’t the only brand (or team) finding success with loyalty programs. NPD Group retail analyst Matt Powell told the New York Post that those types programs are “on fire right now [as] brands and retailers [are] discovering their best customers are high-leverage.”

Howie Long-Short: Peter Honig (svp, CSM LeadDog) says that it’s no surprise brands are finding success with loyalty programs because “when you’re talking about discovery, purchase intent or advocacy, the research indicates that rewards and discounts are significant drivers within the consumer’s decision-making process. Nearly 90% of consumers are incentivized by loyalty programs and more than 50% see rewards or discounting as a reason to recommend a product or service to others.” Simply put, if a consumer has a good experience with a brand “they’re going to return and they’re going to evangelize for that brand to their friends and family.” They’re no longer just a brand’s most valuable consumers, they’re also a mobile sales force.

The concept of a loyalty program is not new, but the explosion of big data within the last decade has driven brands (like Nike) to “place big bets” on their renewed efficacy. Honig explained that “for many years sweepstakes and contests were used to attract consumers when a company was running out of creative ideas, so the returns were limited. But with access to real-time consumer insights (editor note: Nike bought Zodiac, an analytics firm in ’18), brands can now re-target the consumer with communications suited to that specific individual. It’s a level of detail and customization that didn’t exist just a few years ago.”

Brands also didn’t have the ability to deliver custom ads and experiences through engagement on television up until recently, as cord cutting and OTT distribution are relatively new advancements. Honig thinks that as digital ad distribution gets more sophisticated brands will see “the real incremental rise in revenues because there is nothing like feeling as if a brand knows who you are and what appeals to you.”

Fan Marino: As Nike “ramps up” it’s loyalty program, Fitbit recently rolled out a beta version of its own Rewards program (users earn points for doing exercise, Adidas, Blue Apron & Deezer are partners) and announced plans to introduce a premium paid version later this year. While the idea of paying for a loyalty program sounds a lot like paying to work (a surefire tell of a pyramid scheme), Honig insists that there’s logic behind it; “people love the idea of exclusivity and can be incentivized with a higher barrier for entry. The basic premise is that membership has its privileges. It’s the AMEX approach.

Of course, setting a high barrier is exclusive by nature, so Peter isn’t sold that premium paid tiers “are going to be the next trend in loyalty programs.” If you add the element of exclusivity to your program, “how do you get the remainder of your target audience to engage? They know that there is additional content or experiences available for an additional investment.

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Woods’ Return to Prominence Generates Interest, Won’t Change Golf’s Fortunes  

Tiger

Tiger Woods’ improbable victory at The Masters Tournament served as a reminder that no active athlete is capable of captivating sports fans across the nation like he can. His ability to attract the casual fan is uncanny and the outsized media coverage he commands when in contention lifts the sport’s profile. Woods playing well drives viewership – and value for his sponsors – but not even Tiger trying to chase down Jack Nicklaus’ record 18 major wins can change golf’s trajectory. NPD Group analyst Matt Powell explained to Footwear News that “there are a lot of systematic headwinds for golf that are just not going away – in particular: millennials are not picking up the game as quickly as Boomers are aging out of it; and the game needs young people to be playing to reverse its fortunes.”

Howie Long-Short: Woods’ Thanksgiving ’09 run-in with a fire hydrant (+ the messy divorce scandal that followed) and a series of crippling injuries resulted in most of the golfer’s major sponsors dropping him (or deciding not to renew their agreements) over the last decade (see: Accenture, AT&T, Buick, Gillette, TAG Heuer), but the brands that stuck by the now 15x major winner were rewarded on Sunday. The sponsorship analytics research firm Apex Marketing estimated that Woods was responsible for $23.6 million worth of exposure (during just the LIVE broadcast) for Nike, Monster Energy and Bridgestone during Sunday’s final round – a figure that would have been higher had bad weather not pushed the event out of prime time. Ratings were flat YoY – despite Woods’ being in contention – because of the move.

No brand spent more time on-camera on Sunday than Nike did. Phil Knight’s company no longer makes golf equipment – not even Tiger in his prime could make the sport profitable for them – but Woods continues to endorse their golf apparel and the attention paid to his signature red mock neck golf polo (with a swoosh) brought the company $22.54 million worth of exposure; for comparison purposes, the Nike threads Patrick Reed wore when he won last year’s tournament generated just $12 million worth of exposure. Tiger played Augusta with Bridgestone balls. His caddy carried his sticks in a bag with the Monster Energy logo embroidered on it. The Japanese manufacturer – relatively unknown to the U.S. golfer  – received $134,000 worth of exposure from close-up shots of Woods’ ball, while the placement on his bag earned Monster Energy $960,000 worth.

Woods’ win won’t have a material impact on the 3 businesses referenced, but there’s a school of thought that his return to prominence will spur the sport’s resurgence; both Callaway Golf (ELY, +1.45%) and Acushnet Holdings (Titleist, GOLF, +1.65%) shares rose on Monday. I’m not betting on it and neither is Powell, who explained that “the values of the game just aren’t [akin] to the way millennials do sport: The rules are complicated. It takes a long time to play. It’s not inclusive. It’s not diverse. Representation of minorities is low. Golf courses smell like a chemical factory to keep them green [and millennials are environmentally conscious].” Greens fees are also costly and many millennials lack the discretionary income to pick up the game.

If there is a business that’s going to see a boost from Woods winning his 5th green jacket, it’s going to be TaylorMade. While Tiger been using TaylorMade clubs since 2017, the company just began selling sets of his custom irons (model: P-7TW Milled Grind irons) earlier this month. Bloomberg reported on Monday that they had already seen a “boost in interest” from Sunday’s win. Adidas sold TaylorMade to KPS Capital Partners back in 2016.

Fan Marino: Ron Torossian (CEO of 5WPR) told CBS that despite Woods’ resurgence “in the #metoo era, it will be difficult for [him] to come back as the mega-endorser he once was (he earned $105 million in endorsements in ’09, earned just $42 million in endorsements in ‘18). I don’t think many Fortune 500 companies will come back to work with him.” Ron’s point is valid, brands are certainly less tolerant for abhorrent behavior, but he’s kidding himself if he doesn’t think companies will be falling all over themselves for the chance to work with Tiger. Infidelity didn’t make Tiger radioactive, his inability to win a major over the last decade did; if Tiger is “back” on the course, the sponsors won’t be far behind.

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Zion May Set-Off the “Biggest Bidding War Ever”, But the “Math Simply Can’t Work Out”

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Sonny Vaccaro told ESPN that he believes Zion Williamson is about to set-off “the biggest bidding war ever” – between competing footwear companies – for a professional athlete; suggesting as many as 6 brands could be after the 18-year old’s services. When Williamson takes the floor again in October, he will become just the 10th rookie in NBA history and the first since LeBron James in ’03 (if you ignore Lonzo Ball, BBB) with a signature shoe deal. It’s a rare combination of strength, speed and likability, that Vaccaro says makes Williamson “the most marketable athlete I’ve seen”; the famed sneaker marketing executive even suggested “what Michael did for Nike, Zion could do for somebody new” (see: Puma, New Balance, Anta). But NPD Group retail analyst Matt Powell tells JohnWallStreet that “the math [on a 9-figure contract] simply can’t work out. Even if you look at the deal as an investment in marketing and not in merchandise sales, I don’t think he can create a return in proportion to $100 million.” The Duke star is currently fielding offers and is expected to make his decision before the May 14th NBA draft lottery.

Howie Long-Short: Vaccaro has an eye for talent – he’s responsible for Nike inking Jordan back in ’84 and Adidas signing Kobe Bryant a dozen years later – but suggesting Zion is more marketable than Jordan (or even Kobe) is a stretch. Historically speaking, big men (see: Shaq, KG, Dwight Howard) have never sold a ton of shoes. That’s because the designs tend to be “less aesthetically attractive” due to structural constraints and the target consumer (+/- age 12) isn’t necessarily identifying with the league’s most physically imposing players; “they’re more inclined to try and emulate Steph Curry than Dwight Howard. Simply because of the style of game played at that age.”

The sheer number of brands courting Zion make it likely he’ll see a deal worth $100M+, but as Powell mentioned, don’t expect the company that lands the hoops star to generate a positive return on the signing – at least not in merchandise sales. “Brands spend 10-11% of sales on marketing expenditures. If he’s earning $17 million annually, that means he needs to earn out $150 million. He would need to sell more than 2 million pairs at wholesale to hit that mark. It just doesn’t make sense.”

The Knicks, Cavs and Suns have the highest probability of landing the #1 selection in the 2019 NBA draft and the right to select Zion Williamson. Where the player lands will have an impact on how many shoes he can sell, which is why his decision is anticipated before the lottery. “New York City and the mid-Atlantic region (Philadelphia, Boston, D.C.) is the epicenter of basketball in this country, so the Knicks would be the preferred destination from an endorser standpoint. The further west you go, the less interest there is in the sport and in basketball shoes; a small market would also impede Zion’s ability to sell sneakers. But even if he lands in NYC, he’s not going to sell 300 million pairs.” 

Brands offering $100 million pacts will point to the 7-year $87 million contract that James signed and argue that Zion is worth more because of the tremendous social following that he’ll enter the league with; Williamson has 3 million IG followers. It’s a valid distinction, but rookies don’t come into the league and move merchandise. Even LeBron’s shoe “didn’t start selling until the 6th iteration. It took time to establish himself as a superstar in the league, Nike was putting forth a bad product and when James entered the league, much like today, we were in a down cycle for basketball shoe sales.”

Many – including Vaccaro – have pegged Nike as the “odds on favorite” to land Zion (despite the highly-publicized blowout), after all, Williamson chose to play at a Nike school (Duke) this past season.

Fan Marino: Brands would be better off investing big money in teams than in individual players. As Powell pointed out “European soccer teams are getting massive amounts of money, but those deals provide for the opportunity to generate a return on investment – in terms of merchandise sales – because they’re going beyond shoes into the sale of jerseys that can be lucrative.”

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Real Madrid Inks Most Lucrative Kit Sponsorship Pact in Soccer History

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Real Madrid has agreed a 10-year deal with Adidas worth at least $1.25 billion, the most lucrative kit manufacturing pact in soccer history (previously: Manchester United/Adidas worth $97 million/year). The deal’s value, worth more than twice the $59 million/year Los Blancos currently earns from its kit sponsorship agreement (also with Adidas), could rise to as much as $171 million (from $125 million) annually should Adidas reach merchandising and performance milestones. The newfound revenue will be used to help fund the redevelopment (cost: $650 million) of Santiago Bernabeu stadium (their home field) and to sign top-tier talent; the club has been relatively quiet in recent transfer windows.

Howie Long-Short: While Real Madrid re-signed with Adidas (been with company since ’98), the German apparel company wasn’t bidding against themselves; Nike and Under Armour were also interested in outfitting the La Liga club.

For perspective on the deal’s size, consider that Nike is paying the same amount ($1 billion over 8 years) annually to outfit (game jersey, shorts & socks) all 30 NBA franchises. If you’re wondering who signed the better deal (Nike or Adidas), consider that the NBA boasts of more followers/fans (1.5 billion to 689 million) across social media platforms and delivers the greatest “commercial impact” (according to the POWA Index) of any brand in sports.

Fan Marino: Speaking of the NBA, Monumental Sports & Entertainment announced a multi-year jersey patch sponsorship agreement with Geico that will result in the insurance company’s logo occupying space on the Washington Wizards, Washington Mystics (WNBA) and Capital City Go-Go (G-League) game uniforms. Financial terms of the deal were not disclosed, though it’s known that the average patch sponsorship deal was worth $6.5 million to NBA teams in ’17-’18; the Warriors have the league’s most lucrative agreement (with Rakuten), worth $20 million/season. The Thunder and Pacers are the only NBA teams yet to take advantage of the newfound revenue stream.

MLS executives watched NBA teams bring in over $100 million in new corporate sponsorship revenue last season (from jersey patches) and decided they too should increase kit sponsorship inventory. Starting with the 2020 season, MLS clubs will have the ability to sign secondary sleeve sponsorship pacts (each team has a main partner, Houston is the exception); deals projected to be worth $1 million to $1.5 million annually. For those wondering, top-end MLS main kit sponsorship deals are worth $3-4 million/year, though it’s said D.C. United (who is replacing Leidos as its main kit sponsor at the end of this season) is looking to re-set the market; the club is reportedly seeking $5 million per/year, a figure that would place them atop the league (LA Galaxy is currently 1st, $4.4 million/year) in kit sponsorship revenue.

European soccer has a gambling advertising epidemic. 9 of 20 EPL clubs and 17 of 24 EFL Championship League teams have gaming companies as their main kit sponsor (sports betting ads also make up 95% of commercials during live matches in the U.K). MLS currently has restrictions on gambling partnerships, but they are said to be “under review by the league”. Gaming companies will certainly have interest in secondary kit sponsorships and they could bring MLS clubs much needed revenue, but here’s to hoping the league opts to avoid the low hanging fruit; a recent study indicated the U.K. has 430,000 “problem gamblers”, including 25,000 between the ages of 11-16. Incessant gambling advertising is contributing to (if not the root of) the problem.

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Nike Remains Tops Amongst Teens – Vans, Adidas, Lululemon and Converse Gaining Ground

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Teenagers continue to rank Nike as their favorite sportswear and apparel brand, but there’s been a “rebalancing towards Adidas”, according to the results of Piper Jaffray’s 36th bi-annual Taking Stock with Teens survey (8,600 teens across 48 states, average age 16); Vans and Lululemon have also gained significant ground on Phil Knight’s business. As a footwear company Nike remains dominant (though its competitors continue to take mindshare) within the demographic; the 41% mindshare NKE posted was more than twice as great as 2nd place Vans (19%, all-time high, #1 amongst upper-income females), Adidas placed 3rd with 14%, while Converse (NKE subsidiary) came in 4th with 5%. Nike isn’t as popular in the clothing category (22% mindshare, down from 25%), but it remains the most popular brand with teens; no other company posted mindshare higher than 9% (American Eagle). Nike.com was reported to be the 2nd “most preferred shopping website”, behind only Amazon.

Howie Long-Short: In late September, NKE reported both sales growth (+10% to $9.95 billion) and an increase in profitability (+15% to $1.1 billion) for fiscal Q1, but news that gross margins failed to meet expectations and a disappointing growth forecast for Q2 has sent the share price spiraling. Shares are down -13.5% since the company reported, they’ll open at $73.35 on Wednesday 10.24.18.

Among the positives, domestic business “returned to strong, sustainable growth” (for a 2nd straight quarter) and digital sales grew +36% YoY. Moving forward, the company anticipates growth coming from millennials, women and its DTC business; the results of the Piper Jaffray survey would seem to indicate NKE is doing a good job within all 3 segments/channels.

Oppenheimer recently raised its rating on the company to outperform ($90 price target), citing “a technical revolution (that) is underway at Nike”. Analyst Brian Nagel opined that investors have yet to realize how the “power of digital will enhance most all aspects of Nike’s business model, including consumer connections, product innovation and manufacturing.” A rebound of the “broader athletic group” and a growing global sportswear market were the other reasons cited in the note.

Fan Marino: 90s fashion and streetwear remain in fashion, so brands like Supreme, Champion and Off-White also performed well in the Piper Jaffray Survey.

J.R. Smith is apparently a fan of Supreme, he got a tattoo of their logo on his right leg during the off-season. However, NBA bylaws prohibiting the display of commercial logos or corporate insignias on player bodies (or hair) will prevent Smith from serving as a walking advertisement within league games; the NBA has told Smith he’s required to cover up the tattoo or he’ll be fined. There seems to be some ambiguity in the rule though, as several active players are in apparent violation but continue to play without issue; Marcin Gortat (Jumpman logo), Carmelo Anthony (Warner Brothers) and Kyrie Irving (Friends, the TV show) are among those that may need to cover their ink in ’18-’19.

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TV Ratings, Ticket Sales Surge as Fans Clamor to See Woods End 5-Year Drought

Woods

On Sunday evening, Tiger Woods ended a 5-year winless streak (’13 WGC-Bridgestone Invitational) with a two-stroke victory, finishing -11 under to take home the TOUR Championship (the final leg of the FedExCup Playoffs). NBC television ratings surged (Sunday’s final round was the highest-rated telecast in FedExCup history) as Tiger chased his 80th PGA Tour win; 2 victories behind the all-time leader Sam Snead. TOUR Championship ticket sales also received the Tiger bump (+170% YoY) last weekend, as fans scrambled to the East Lake Golf Club (Atlanta) to witness “the greatest comeback story in sports history.”

Howie Long-Short: NBC posted a 5.21 overnight rating (meaning 5.21% of all households in metered markets) on Sunday (round peaked at 7.1), representing an audience increase of +206% YoY; NBC also reported the number of minutes streamed (18.4 million) rose +521% YoY. While that would be a big number for most sporting events, it’s peanuts compared to the 13.6 rating the NFL’s Sunday night game (NE at Detroit) drew. Saturday’s 3rd round performed better on a head to head basis, beating every college football game on the slate (with 3.1 overnight rating) except Texas A&M at Alabama (3.5 rating).

While Woods will move the needle for television and ticket sales, he simply doesn’t do the same for golf equipment sales. Back in June ’17, Phil Knight said that despite Woods’ enormous success and popularity, Nike “lost money for 20 years on equipment and balls.” If he didn’t move equipment (apparel is a different story) for NKE in his prime – or at least enough to offset R&D costs -, he’s not going to for TaylorMade either (his current equipment provider).

Woods won the Tour Championship playing with Bridgestone Golf’s TOUR B XS ball. He averaged 304 yards off the tee, finishing 3rd in driving accuracy and 1st in putting average. Bridgestone Golf falls under the Bridgestone Corporation umbrella, best known for their rubber & tire business (world’s largest tire maker). Bridgestone Corp. recently reported operating income for H1 ’18 declined -1.4% (to $1.8 billion) despite net sales remaining flat (to $15.6 billion), a minimal growth from the company’s tire division was more than offset by a -40% YoY decline (to $78.8 million) in OI from its Diversified Products division. The Japan based company trades over the counter under the symbol BRDCY.

Fan Marino: Tiger Woods will lead team U.S.A (against Europe) in their quest to retain the Ryder Cup. The 42nd edition of the annual event will take place at Le Golf National (outside Paris), Friday-Sunday.

The greatest comeback story in sports history? Give me a break. Sure, Tiger managed to come all the way back from cheating on his wife to beat 29 other golfers in non-major (insert eye roll here), but as Ted Berg kindly reminded us, Mario Lemieux was diagnosed with Hodgkin’s disease in the middle of the ’92-‘93 NHL season. Following 2 months of radiation, he returned to the ice (on the same day as his last treatment) and still finished with 12 points (160) ahead of 2nd place (Pat Lafontaine). I don’t know, that sounds like the better story.

Fun Fact: With the win, Woods has now cleared more than $1 billion in career earnings.

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Nike Makes Wise Business Decision, Kaepernick Face of 30th Anniversary Ad Campaign

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Colin Kaepernick has extended his relationship with Nike (has been with company since ’11) and become the face of their new 30th anniversary “Just Do It” campaign. The campaign debuted on Monday with a simple message that read “believe in something, even if it means sacrificing everything” over a picture of Colin’s face. Kaepernick, who has been portrayed as the leader of the NFL player protest movement, has been unsigned (by NFL teams) since the end of the 2016 season. While financial terms of the deal were not disclosed, it’s been reported that Kaepernick’s deal is worth “millions per year” + royalties, putting it on par with the contracts held by the NFL’s top players. The deal is expected to include a “Kaepernick 7” line of shoes and apparel.

Howie Long-Short: Nike made the decision to extend Colin and make him the face of this campaign anticipating backlash from the political right, but the company is wisely playing the long game here understanding any negative short-term noise will be far outweighed by future sales gains. Nike’s target client is America’s youth (18-29), not the 60-year-old racist white guy cutting swooshes off his socks, and Colin remains popular with the younger demographic; in fact, his jersey ranked as the 39th (as of Q2 ’17) best-seller among all NFL players despite his absence from an NFL roster. Sacrificing older, low discretionary-income red state buyers for younger, affluent, progressive buyers in blue states seems like a wise decision; even if most Wall Street analysts refuse to say so because they’re avoiding the divisive topic.

Sadly, Nike’s decision to sign Colin wasn’t about protesting racism or social injustice (though, the company would like the media to position it as such), but about the bottom line; as Twitter user @MichaelMirer so perfectly put it, “democratic socialists buy sneakers, too”. If the snark went over your head, Mirer is playing off Michael Jordan’s famous line when asked why he avoids discussions about politics – because “republicans buy sneakers, too.”

Nike (NKE) shares declined -3.16% on Tuesday (to $79.60), making it the worst performer within the Dow Jones industrial average, but the decline is not tied to fears over boycotts related to the Kaepernick news. Adidas (ADDYY, -2.4%) and Puma (PMMAF, -2.62%) were also down on Tuesday, leading us to believe the downturn is more closely related to the NAFTA negotiations.

For what it’s worth, according to Apex Marketing Group, the “Just Do It” campaign generated $43 million in media exposure over its first 19 hours; less than one quarter of the responses were negative.

Fan Marino: Nike’s decision to place Kaepernick at the center of a campaign that kicked off just 3 days before the start of the NFL season can’t be sitting well with league owners. Nike is among the league’s top partners and signed a 10-year deal (through ’28) to become the NFL’s game-day uniform and sideline apparel provider back in February; the same league Kaepernick is currently suing in court over allegations its owners have colluded to keep him unemployed because of his activism. Last Thursday, Colin earned a small victory in his grievance against the league as an arbitrator ruled the case can advance.

While Kaepernick’s involvement will certainly draw the most attention, he’s just one of several athletes represented in the 30th anniversary “Just Do It” anniversary campaign. Serena Williams, Odell Beckham Jr., Shaquem Griffin (Seahawks) and Lacey Baker (skateboarder) are all also featured.

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Adidas to Replace Puma as Arsenal Kit Manufacturer, Shares Rise +8% on Q2 Earnings

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Arsenal has agreed to a 5-year $385 million kit deal with Adidas that will replace the club’s existing pact with Puma, at the completion of this season. Adidas will pay +/- $77 million/season (beginning in ‘19) to become the official kit provider of the Gunners, double what Puma had been paying. The deal is being touted as the 3rd most valuable kit pact in the world, behind just Nike’s agreement with Barcelona ($134.5 million/season) and Adidas’ contract with Manchester United ($96 million/season).

Howie Long-Short: Adidas (ADDYY) issued Q2 earnings on Thursday, reporting group sales rose 10% YoY (to $6 billion) during the most recent quarter. North America (+16%), Greater China (+27%) and the e-commerce sector drove the growth. Perhaps ADDYY’s most impressive feat has been continuing to grow the top line without resorting to discounts; the company reported gross margins rose +2.2% (to 52.3%) in the quarter ended in June, as the company continues to sell shoes at full-price. Shares increased +8% on Thursday’s report, closing at $119.89.

Stephen Wilmot (WSJ) made a strong argument that ADDYY shares are undervalued. Even after Thursday’s 8% jump, Adidas is trading at just 23x prospective earnings; compared to Nike’s 29x. That’s despite Adidas growing sales (16% vs. 3% in U.S.) and profits faster than their rival, not having to deal with any potential #MeToo backlash or increase employee wages.

Fan Marino: The newfound revenue should give Arsenal additional cash for transfers next summer. It’s been reported that new manager Unai Emery was given just $90 million to work with during this summer’s window.

Arsenal will become the 7th Premier League team to be outfitted by the German footwear and apparel company, joining Manchester United, Leicester City, Cardiff, Fulham, Watford and Wolves.

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Rice Commission Recommends Summer Camps as Alternative to Shoe-Sponsored Tournaments

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The NCAA Commission on College Basketball has recommended the installation of regulated summer camps to help offset the number of shoe-sponsored tournaments (think: AAU) that top prospects participate in. Seeking to stem the influence shoe companies have over players within the recruiting process, the Rice Commission has proposed regional events that would be run by USA basketball and supersede (in terms of talent/coaches attending) existing tournaments. The Commission isn’t recommending the elimination of all shoe-company sponsored events though, as the proposed camps would only account for +/- 15% of the prospects in a given class; USA Basketball CEO Jim Tooley explained, “our job is to help grow the game, not stifle it.” Recommendations are expected to be voted on within the next 30 days; if approved, the changes could be implemented in time for summer ’19.

Howie Long-Short: Nike, Adidas and Under Armour are all active on the travel basketball circuit, each running their own leagues.

On May 3rd, Adidas reported that efficiency savings drove bottom line growth +17% (to $647 million) in Q1 ’18. Accounting for currency effects, sales rose roughly 10% YoY (to $6.4 billion) with the company’s Adidas Originals line and running, training and soccer verticals driving the growth. North American sales rose +21% YoY and sales in China rose +26% YoY; Asia-Pacific (+15%) and Latin America (+10%) also experienced double-digit growth during the most recent quarter. NPD Group Analyst Matt Powell is reporting that “H1 footwear sales are up more than 20%; apparel even better.” The company will publish H1 financial results on August 9th.

Nike (NKE) reported fiscal Q4 earnings on June 29th. News of sales growth in North America (+3%) following 3 straight declining quarters, increased revenue growth guidance for fiscal ‘19 and a $15 billion share buyback plan sent shares rising +11% to an all-time high ($81.00). The share price has declined -4.5% since, closing on July 30th at $75.96.

Under Amour (UAA) is the most recent shoe/apparel company to post financials, having done so on July 26th. While the company’s U.S. business failed to gain much momentum (+1.6% YoY), international sales surged (+28% YoY) during Q2 ‘18 and the company managed to reduce excess inventory; news that was welcomed by investors, as shares rose 5% on the report.

Of course, Q2 wasn’t a “victory” for UAA, the company reported a quarterly net loss of $95.5 million and announced it would be committing another $80 million (in addition to the $130 million it already committed) to its long-term restructuring efforts. Despite the heavy spending on a turnaround (focus going from men to women/kids, $80-$100 price point) and continuing headwinds (think: leisure over performance), UAA shares are up +39% YTD; closing on Monday at $20.11.

Fan Marino: The NCAA is likely to continue allowing coaches to attend shoe-sponsored tournaments in April (at least for now), so the Commission’s recommendations are just for the July recruiting period. While that makes little sense (and is unlikely to curb corruption), the NCAA is already complaining that the $9 million price tag to replace the summer’s recruiting events is prohibitive; they certainly won’t go for the spring events too, at least not now. It’s tough to pity the NCAA though knowing the organization takes in +/- $1 billion in media rights revenue annually through 2032.

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All 3 Winners of 2018 Men’s Majors Had Mixed Golf Bags as Equipment Sponsor Free Agents

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For the 3rd time in 2018, a USGA golfer won a men’s major without an equipment sponsorship. Francesco Molinari (British Open) joined Brooks Koepka (U.S. Open) and Patrick Reed (Masters) as tour members with Nike apparel/footwear deals, but without an exclusive equipment provider; enabling each to play the 14 clubs (and balls) best suited to their game. Francesco Molinari and Brooks Koepka have been playing as equipment free agents since Nike’s ’16 exit from the golf equipment space, while Patrick Reed left Callaway following the ’17 season after attributing his tour struggles to the equipment. Molinari won last weekend’s British Open playing with TaylorMade clubs and a Bettinardi putter (he does have a deal with them), Brooks Koepka won June’s U.S. Open with a mixed bag that included TaylorMade, Nike, Mizuno and Titleist clubs (including a Scotty Cameron putter), while Patrick Reed played Augusta with Ping, Nike, Titleist, Callaway sticks and an Odyssey (Callaway subsidiary) putter. All 3 players won their respective majors using Titleist Pro V1x balls.

Howie Long-Short: Several of the club manufacturers associated with this year’s major winners are publicly traded; including Nike (NKE), Mizuno (TYO: 8022), Titleist (GOLF) and Callaway (ELY).

Golf stocks are far outperforming the S&P YTD; Callaway Golf (ELY) is +37% YTD ($19.06), Acushnet (GOLF) is +13% YTD ($23.83) and the S&P is +5.5% YTD ($2,820.40). While it would be easy to attribute the sales growth to Tiger Woods’ return, both companies have been headed in the right direction for some time; ELY is +104% over the trailing 3 years, while GOLF is +32.75% since its ’16 IPO. The U.S. Golf Economy Report indicated that the industry’s strongest sales growth was coming from the equipment category, a far more logical reason for ELY & GOLF’s outperformance. Both ELY and GOLF are expected to report Q2 ’18 earnings next week (August 2nd).

For those wondering, Bettinardi and Ping have never been publicly traded. TaylorMade was acquired by KPS Capital Partners (P.E.) for $425 million in late ’17.

Fan Marino: Howie may not be willing to credit equipment sales to Tiger’s return, but there’s no doubt that Tiger contending for his first major championship in a decade was the catalyst for last weekend’s British Open drawing the tournament’s highest television rating since ’06 (5.0 overnight); the last time Woods won the claret jug. In fact, the only British Open to draw a larger audience was the 2000 tournament, which Woods also won; to complete the career grand slam. Interestingly, the highest rated tournament of year thus far has been the Masters (7.6 overnight); where Woods failed to make the cut.

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