Coca-Cola Invests in BodyArmor, To Challenge Gatorade (PepsiCo)


Coca-Cola (KO) has made a minority investment in the sports drink BodyArmor, as it once again (think: Powerade, Honest Brand) looks to shake up Gatorade’s dominance within the performance drink category (think: hydration). Marketed as a healthier, natural alternative to sugary sports drinks, BodyArmor uses coconut water (lower in sodium, higher in potassium than filtrated water) and excludes artificial colors/high fructose corn syrups from its formula to distinguish its product in a crowded market of enhanced waters, teas and energy drinks. Beyond the equity investment, KO’s bottling system will take over BodyArmor distribution responsibilities, expanding the company’s reach internationally (namely China). Financial details of the pact were not disclosed, but it’s expected that the deal offers Coca-Cola a clear path to full ownership, with the price point to be determined based on “sales and other performance measures”.

Howie Long-Short: Gatorade, a subsidiary of PepsiCo. (PEP), currently controls +/- 75% of the $8 billion domestic sports drink market, but sales are on the decline with consumers becoming more health and wellness conscious. BodyArmor, which has gained in popularity over the last few quarters (it had just 3% market share in ’17), remains a distant 3rd (behind Gatorade, Powerade) with just 6% of the market share. CEO Mike Repole has projected the company will own 10% of the market by 2019. PEP intends on presenting BodyArmor as a premium product when compared with Powerade (which controlled 17.5% of market in ‘17).

The deal makes KO Body Armor’s 2nd largest shareholder, surpassing Keurig Dr. Pepper Inc. (KDP). With KO on board, BodyArmor no longer has the need for KDP to assist with distribution (as they’ve been doing); it’s unlikely KDP will retain its equity in the company, management isn’t interested in owning minority stakes.

It’s been said that BodyArmor “is on track to reach almost $400 million in retail sales this year”, which would place the value of the company between $1-2 billion if you look at the multiples some others within the beverage industry have sold for. For information purposes, KDP acquired 15.5% (since diluted to 12.5%) of the company back in ’15-’16, when the company’s value was said to be less than $200 million. BodyArmor did $253 million in ’17 sales.

Fan Marino: Back in April, BodyArmor introduced its largest ad campaign to date (included 1st TV ad), a comedic series portraying market leader Gatorade as out of touch with the needs of the modern athlete. Conceived, written and co-directed by shareholder (and Emmy/Oscar winner) Kobe Bryant (10% stake), the multi-media campaign places athletes in outdated situations; akin to high performance athletes continuing to drink Gatorade during competition (think: Kristaps Porzingis using carrier pigeons to communicate with family in Latvia, video here). The campaign positions BodyArmor as the sports drink for today’s health conscious athlete, while noting the lack of innovation from Gatorade since its inception in 1965.

All BodyArmor spokes-athletes have equity in the company. In addition to Kobe Bryant, the list of athlete-shareholders includes; Mike Trout, Porzingis, James Harden, Diggins-Smith, Andrew Luck, Rob Gronkowski, Buster Posey, LeSean McCoy, Richard Sherman, Sydney Leroux, Anthony Rizzo, Dez Bryant and Dustin Johnson.

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G-League Now a Viable Alternative to NCAA Basketball, Gatorade Goes Sugar-Free


There were 79 underclassmen and 12 international players eligible for last night’s NBA draft, in addition to those in the 2017-2018 senior class, but just 60 were selected by NBA franchises; meaning hundreds will pursue free-agent contracts (or tryouts) with the hopes of landing a G-League (formerly D-League) roster spot. Though G-League salaries start at just $35,000 (up from $19,000), the league offers players the opportunity to receive round-the-clock, world-class coaching and compensation for their skill-set (hence the large number of underclassmen); while players have the chance to remain stateside and focused on reaching the NBA. For those reasons, the league is also considered an alternative to college basketball for elite high school prospects who fail to meet the NBA’s age requirement (19); back in April Darius Bazley became the highest profile recruit to forego college (previously committed to Syracuse) and international basketball (see: Brandon Jennings, Emmanuel Mudiay) to join the G-League. It is possible to make six figures playing in the G-League, as the NBA added roster spots for 2-way players last year – those designated to split time between their G-League team and NBA affiliate. 2-way players can earn up to $385,000/season.

Howie Long-Short: $35,000 as a league minimum salary sounds low, particularly when considering that NBA2K 1st round picks take home the same amount, but at least two-thirds of the league’s players make $70,000 (+ housing & medical); more than a respectable living for 5 months of work. That’s an important distinction to make when considering whether the G-League is a viable alternative to the NCAA; remember, shoe companies are said to have been paying elite prospects +/- $100,000 to attend affiliated universities (see: Adidas, Brian Bowen, Louisville).

The G in G-League stands for Gatorade, a subsidiary of PepsiCo. Inc. (PEP). Back in January, we reported that domestic Gatorade sales had slipped for the time since 2012 (-.5% to $5.9 billion in fiscal 2017), as health-conscious consumers were opting for alternatives to the sugary sports-drink. In Q1 ’18, Gatorade “improved sales performance and trajectories”, but that didn’t stop the company from introducing “Gatorade Zero” this week; the first sugarless (and carb-less) product in the company’s 53-year history. The introduction of “Gatorade Zero” comes on the heels of a marketing campaign by Body Armor portraying the market leader as out of touch with the needs of the modern athlete. Despite a down year in 2017, Gatorade still controls 75% of the $8 billion market sports drink market.

Fan Marino: The G-League is a true minor league (27 teams), developing players who can contribute to NBA franchises. In fact, 53% of all players on an NBA rosters at the close of last season spent time in the G-League. Of course, not everyone is in favor of the G-League capitalizing on kids who failed to achieve their dreams of being drafted. Warriors coach Steve Kerr believes “if you’re truly trying to do what’s right for the kid, and the kid declares for the draft and doesn’t get drafted, you know what? Welcome him back (to school).”

Fun Fact: As the 1st, 2nd and 3rd picks in last night’s draft, DeAndre Ayton, Marvin Bagley III and Trae Young will earn $8.2 million, $7.3 million and $6.6 million respectively, in their rookie seasons.

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BodyArmor Taking Direct Aim at Gatorade


BodyArmor has rolled out its largest ad campaign to date (includes 1st TV ad), a comedic series portraying market leader Gatorade as out of touch with the needs of the modern athlete; to run during the NBA Playoffs. Conceived, written and co-directed by shareholder (and Emmy/Oscar winner) Kobe Bryant, the multi-media campaign places athletes in outdated situations; akin to high performance athletes continuing to drink Gatorade during competition (think: Porzingas using carrier pigeons to communicate with family in Latvia, video here). The campaign positions BodyArmor as the sports drink for today’s health conscious athlete, touting differences like “natural flavors and sweeteners, potassium-packed electrolytes and coconut water”; while noting the lack of innovation from Gatorade since its inception in 1965.

Howie Long-Short: BodyArmor remains privately held, but you can play the company via Dr. Pepper Snapple Group (DPS); as the company participated in a $20 million funding round in August ’15. DPS is the company’s 2nd largest shareholder, controlling 15.5% after a $6 million investment in 2017. The company will report Q1 earnings on Wednesday 4.25.18.

BodyArmor is growing rapidly, having generated $122.9 million “in the 52 weeks ending March 19” (+140% YoY). Gatorade (75%) and Powerade (20%) still control the bulk of the “sports drink” market share, with BodyArmor a distant 3rd (2%); but CEO Mike Repole projects the company will own 10% of the market by 2019, a distinct possibility after having recently added 7-Eleven, Walmart and Sam’s Club as distribution partners. For those wondering, Gatorade is owned by PepsiCo. (PEP); Powerade is a subsidiary of the Coca-Cola (KO) Co.

Fan Marino: All BodyArmor spokes-athletes have equity in the company. In addition to Bryant (the company’s #3 investor), the list of athlete-shareholders includes; Trout, Porzingas, Harden, Diggins-Smith, Andrew Luck, Rob Gronkowski, Buster Posey, LeSean McCoy, Richard Sherman, Sydney Leroux, Anthony Rizzo, Dez Bryant and Dustin Johnson.

Spurs Coach Greg Popovich didn’t make the list, but perhaps BodyArmor execs should reach out to him; as he too has recently taken aim at Gatorade. Popovich made it known that he’s not a fan of the “sugary” drink and that he remains unhappy the league’s placement of Gatorade on the post-game press conference podium. The outspoken coach said he “shouldn’t be forced to sell” their products.

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Anheuser Busch Brings “Performance Based Model” to Sports Sponsorships

Anheuser Busch

Anheuser Busch (BUD) has introduced an incentive laden sponsorship model, for both teams and leagues, that rewards performance on and off the field (think: playoff appearances, rising attendance, growing TV ratings and increased social awareness). The template for A-B’s new deals include base compensation and a series of metrics (team/league specific) that if met, would trigger a larger investment from the company. VP of Consumer Connections Joao Chueiri said, as “leaders in the industry” it was the company’s responsibility to revamp “legacy (sponsorship) models that were created on consumer behavior that is no longer there.” It is believed that Anheuser Busch is the first “major sponsor” within the sports world to implement a performance based model.

Howie Long-Short: AB Inbev announced on March 1st its best FY earnings report in 3 years, reporting profitability growth within its 2 biggest markets (+1.9% in U.S. and +1.7% Brazil), FY17 revenue grew +9.8% YoY and EPS increased 42.8% YoY to $4.04. Should the board approve a proposed dividend on April 25th, the total dividend for FY17 would be $4.44. It should be noted that for the 5 year period beginning in ’12, BUD’s revenue CAGR of 4.6% exceeds that of all PMCG peers. For reference purposes, BUD closed at $107.79 on 4/2.

Fan Marino: BUD has league sponsorship deals in place with the NFL, NBA and MLB, and maintains dozens of individual team partnerships but, the New Orleans Saints, Los Angeles Dodgers, Minnesota Timberwolves and NASCAR, are the first 4 sports rights holders to work with A-B under the new performance-based model. Expect the off-field portion of these deals to cause problems at some point. If Papa John’s had this type of clause in their contract with the NFL during the 2017 season, one must believe they would have invoked their right to withhold financial “rewards”; a decision that would have pressured the league to restrict players’ rights to protest. Had that occurred, it’s not unreasonable to think that some players would have refused to take the field.

Fun Fact: BUD spent $350 million on sports sponsorships in 2016. Only PepsiCo (PEP) spent more ($360 million).

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Gatorade Sales Decline for the 1st Time Since ‘12


For the first time since 2012, domestic Gatorade (PEP) sales have slipped; -.5% to $5.9 billion in fiscal 2017. Health conscious consumes opting for alternatives to a sugary sports-drink and increased competition from upstarts like BodyArmor (no artificial sweeteners, coloring), have cut into Gatorade sales. Despite the negative news, the company still owns 75% of the U.S. market-share (Powerade has 18%, BodyArmor has 3%). Powerade sales remained flat, while BodyArmor doubled sales over the same period.

Howie Long-Short: Back in October, PepsiCo Inc. (PEP) CEO Indra Nooyi indicated the sales decline was temporary, attributing it to a down summer and slowing convenience store sales; but, trends showing consumers leaning towards healthier alternatives indicates PEP has a larger fundamental problem on its hands. Particularly, when you consider that Gatorade makes up +/- 20% of the company’s North American sales; but, Gatorade Organic (no artificial sweeteners, coloring) is responsible for just $20 million (out of $7 billion, .003%) in revenue since the products’ ’16 launch. The product simply hasn’t caught on.

Fan Marino: Gatorade is title sponsor of the NBA’s official minor league basketball organization. The league has been actively seeking distribution, signing noteworthy (these are not your father’s NBA on NBC broadcasts) deals with both Twitch and Eleven Sports. JWS recently sat down with porn star turned Twitch G-League color commentator Mia Khalifa, to discuss co-streaming and the future of sports broadcasting.

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Study Finds Super Bowl Ads Worth the Spend


30-second advertising spots during the February 4th Super Bowl are selling for more than $5 million (40% of U.S. TV households will be watching), but a collaborative study between Stanford University and Humboldt University (Germany) found that Super Bowl advertisers continue to see meaningful post-game sales during other major sporting events (i.e. March Madness, World Series), within the same calendar year, indicating the spend is worth it. Those that built a social media presence or digital campaign to follow their Super Bowl ad, were successful in keeping their product(s) on the consumer’s mind through baseball season. Companies that were the sole advertiser within a specific product category received the greatest long-term value (see: BUD, PEP). Long-term advertisers received a boost in sales during Super Bowl week, despite the product being purchased before the event (i.e. the ad has yet to run).

Howie Long-Short: Just 10 Super Bowl ad spots remain, so the study is unlikely to impact ad sales (and NBC’s bottom line) for this year’s game. If there are going to be immediate beneficiaries, it’s going to be CBS (rights to ’19 SB) and FOXA (rights to ’20 SB); the rights holders of the next 2 Super Bowls. NBC Universal (CMCSA) said it expects to generate $500 million in Super Bowl ad revenue, a figure in line with the total generated for the last 2 years. Advertisers aren’t worried about the NFL’s declining attendance, that trend hasn’t translated to the Super Bowl; last year’s game drew 111.3 million viewers, the 5th most watched TV event of all-time.

Fan Marino: Mean Joe Greene and Joe Namath participated in iconic Super Bowl commercials, but a lesser known collegiate All-American starred in one of my all-time favorites; Terry Tate as “Office Linebacker”, installing workplace discipline in a 2003 Reebok spot. At 6’5, 300 pounds, with 4.3 40 (yard dash) speed and collegiate All-American (Morgan State) game tape, Lester Speight (his real name) should have been an NFL star; position changes and injuries derailed his promising career. He never played in a professional football game.

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Wizards Owner Expects NBA 2K League to “Dwarf the NFL”

The NBA and Take-Two Interactive Software (TTWO) are launching the NBA 2K League in 2018; 17 NBA teams have committed to participating for a period of 3 years. Each franchise will have the opportunity to select 5 gamers at the March ’18 draft (tryouts begin in January), with the 15-week season (followed by 2 week post-season) set to begin in May. TTWO sold 43 million copies of “2K18” within the U.S. and China, so the NBA is convinced the league will be a success; but as it currently stands, there’s work to do. The NBA 2K League remains without a broadcast partner, a central gaming location (for competition) and has yet decide if competition will be held on Xbox or Playstation systems.

Howie Long-Short: The NBA isn’t the only business convinced esports is going to provide a significant return on investment; through 2016, 50 non-endemic brands had invested within esports and that number has more than doubled over the first 9 months of 2017. Non-Endemic? The term describes a second class of sponsorship; brands not traditionally tied to the business being advertised or product being sold (i.e. NBA – sneakers, balls etc.). Need an example of a non-endemic brand that earned endemic status? PepsiCo (PEP); NFL fans didn’t associate the brand with the sport until the company invested in the Super Bowl halftime show.

Fan Marino: Caps & Wizards owner Ted Leonsis believes “very quickly, esports will be the largest participatory sport with the most active participants”; further projecting the league will generate revenues that “dwarfs the NFL”. Leonsis is bullish because esports is a “global phenomenon”, but so is the EPL (players from 113 different nations have played) and that league generates less than half the revenue ($6 billion) of the NFL ($14 billion). I tend to believe what former AFL Commissioner David Baker recently told us; “it takes 60 years to grow a major league” and to while you can “flash”, to sustain success “it’s got to be multi-generational”.

‘It will dwarf the NFL’: The NBA’s going all-in on esports with the NBA 2K League

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NBA sponsors spent a record $861 million during the 2016-2017 season, a 7.8% jump from 2015-2016 and a significant increase from the projected 4.3% annual increase in overall sports sponsorship expenditures. Sponsorship dollars are expected to rise again during the 2017-2018 season, with a new 8 year/$1 billion Nike (NKE) uniform deal beginning and teams selling advertising patches on their jerseys for the first time. State Farm, Anheuser-Busch Inbev (BUD), Gatorade (PEP) and Tissot (OTC: SWGAY) were the league’s most active sponsors during the ’16-’17 season.

Howie Long-Short: The data was compiled by ESP Properties, a sports & entertainment research and consulting firm owned by WPP (WPPGY), an international advertising & PR firm. Back in August, WPPGY cut full year revenue projections to between 0-1% for 2017 as some of their high-profile clients have cut back on ad spend (the consumer goods sector, in particular). CEO Martin Sorrell warned that Facebook (FB) & Google’s (GOOGL) dominance as advertising platforms and Amazon’s (AMZN) disruption of the retail sector are holding back ad growth world-wide. If he’s right, things are going to get worse for WPPGY (and others in the advertising world) before they get better.

Fan Marino: 9 of the league’s 30 teams had team sponsorship revenues below the league average last year; Charlotte Hornets, Denver Nuggets, Detroit Pistons, Milwaukee Bucks, Minnesota Timberwolves, New Orleans Pelicans, Philadelphia 76ers, Sacramento Kings and Utah Jazz. Only Charlotte and New Orleans do not have jersey patch sponsorships in place for this season. Is it a coincidence that the other 7 were proactive in securing lucrative ad patch deals? Probably not.

Sponsorship Spend On NBA Tops $880M, Will ‘Skyrocket’ With Nike, Jersey Deals


Gatorade (PEP), the official sponsor of the NBA’s developmental league, is using their partnership with the G-League for more than just branding; they’re using its players as “lab rats”. The G-League and the Gatorade Sports Science Institute are working together to test product formulations and ingredients that will advance hydration and fueling techniques. Gatorade Head of Consumer engagement Kenny Mitchell describes a process where new products are tested at the developmental level and then launched with NBA players, who have the reach and influence to showcase the latest innovation.

Howie Long-Short: Gatorade recently introduced the GX sports fuel customization platform. The GX ecosystem combines Gatorade’s science-backed products with newly designed equipment and real-time biometric and tracking technologies, to provide athlete specific fueling recommendations. Technological innovations include a smart cap (for squeeze bottles) and a digital sweat patch. I like the decision by the Pepsi Co. subsidiary to go down the sports science route. Performance fuel pods and personalized bottles are new revenue streams for a company that needed to rebrand itself, as sales of its sugary drink have declined.

Fan Marino: Gatorade was recently fined $300,000 by the California AG for disparaging water. Yes, you read that right. In 2012, the company released an iPhone game called Bolt! The premise of the game was to run through the levels, drink Gatorade to remain fueled and avoid dangerous water that would compromise the game character’s performance. AG Xavier Becerra found the message to be “morally wrong and a betrayal of trust”. It was a video game targeting teenagers. The taxpayer’s dollars spent prosecuting this case should have been used elsewhere.

Gatorade’s NBA Partnership Focuses On Innovation, Not Just Rebranding


Looking to invest in sports, but not confident in your ability to select individual equities? SportsETFs has launched a Pro Sports Sponsors Index, consisting of 66 companies that are official sponsors of the 4 major sports leagues. Trading under the symbol (BATS: FANZ), the equally weighted index is a collection of highly recognizable brands including Coca Cola (KO), Pepsi (PEP) and McDonald’s (MCD). With sports media rights set to increase at a compound annual rate of 5.5% through 2020 and with sports sponsorships expected to increase at a compound annual rate of 3.9% over that same time period, the ETF hopes to capitalize on the growth potential associated with pro sports league partners.


There’s a new way to bet on the companies that bet on sports

Fan Marino says: I found it noteworthy that NASCAR sponsors were not included. I was looking forward to seeing Carl Long’s marijuana-vaping company, on the list.