Bradley Chubb Discusses the Value of His Name and Likeness

Chubb

Panini America is the exclusive trading card partner of the NFL and NFLPA. Denver Broncos 1st round selection Bradley Chubb (#5 overall) was in Los Angeles on Thursday afternoon, at the NFLPA Rookie Premier and found some time to talk with JohnWallStreet about the value of his name and likeness and the marketing deals he’s signed since turning pro.

JWS: Panini digital trading cards enable players to capitalize on draft night excitement. Did having near-instant access to shareable team branded content help you build your social media following in the minutes/hours after the Commissioner called your name?

Bradley: It did, it built it up a lot for me. It helped me build my brand and helped people to see who I was. When the Broncos made the pick, I know everybody wanted to see the card. I feel like when they (Panini) pushed that out, it helped me out a lot; I got like 50,000 followers. 

JWS: You signed a shoe and apparel contract with Adidas. Basketball players tend to begin relationships with sneaker companies on the AAU level. When did you first begin to use Adidas products?

Bradley: I used Adidas all throughout college. NC State was an Adidas school, so that’s when I really started using the brand and fell in love with it. In high school, I had teammates that would wear Adidas but I always had Nike because I got cleats from my brother. He was at Wake Forest (Nike school) and was giving me his extra cleats.

JWS: Baker Mayfield suggested that if you added up all the marketing deals he’s signed since turning pro, that they would be worth $1 million – $2 million. Does the consensus (minus Cleveland) top defensive player in the draft command similar numbers?

Bradley: No, he’s a quarterback (and Heisman winner) – it definitely goes up for him. As a defensive guy, I made a good amount of money; but, I don’t think it was in the millions or anything like that.       

Editor Note: It’s worth pointing out that in addition to Bradley’s Panini America and Adidas (ADDYY) deals, he’s done marketing deals with both Bose and Old Spice (PG).

Howie Long-Short: As a consensus Top 5 pick, Bradley could have hired a contract attorney, negotiated his own rookie contract and saved himself at least 1% (as much as 3%) in agent fees. Chubb said he never considered doing that, explaining he was “more comfortable” going with his brother’s agent; Erik Burkhardt of Select Sports Group. I would have advised against it (see: rookie scale), but Bradley shouldn’t have any financial issues; he’s going to sign a rookie deal with a total contract value +/- $27.5 million.

Fan Marino: Panini’s trading card index (released quarterly) ranks the top-performing football players in the licensed trading card industry, on factors ranging from secondary-market transactions to collectability based on rookie hype and collector speculation. The newest ranking, released on May 16th, has Chubb as the 11th ranked rookie (top 10 were offensive players); behind 2nd round pick Nick Chubb (his cousin, Browns) and 3rd round pick Mason Rudolph (Steelers). I asked Bradley, if he were to win NFL defensive rookie of the year, how high does he think he could reach on the list?

Bradley: “Pretty high. It just depends on if I go out there and handle business. I mean, it’s good to say all this stuff before the season – if I just go out there and focus on what is important, all the stuff like this (the accolades) will come later.”

Fan: Bigger deal for you? Meeting Von Miller or John Elway?

Bradley: Definitely, John Elway. I met him at the combine and I was star struck.

Looking for Chubb’s rookie card? You can get Panini’s NFL trading card products online at iCollectPanini.com, hobby shops nationwide and retailers including Walmart and Target.

Interested in Sports Business? Sports Finance? Sign-up for our free daily email newsletter list, here!

Skechers Files Federal Lawsuit Against Adidas, Claims NCAA Corruption Diminished Brand Value

Sketchers

Skechers USA, Inc. has filed a federal lawsuit against Adidas America, Inc. (ADDYY) claiming financial damages stemming from illegal payments made by ADDYY company executives to college basketball recruits and/or their families. The suit claims Adidas “denied competitors like Skechers who play by the rules a fair opportunity to compete for the cachet of having trend-setting high-school and college athletes seen in their products, effectively blocked Skechers and other companies from competing on a level playing field for young NBA-level endorsers, and unfairly bolstered consumer perceptions of Adidas’ overall brand quality and image well beyond the basketball footwear market.” The company seeks to recover “Adidas’ ill-gotten profits, damages for lost sales and diminished brand value and an injunction preventing Adidas from making further illegal, undisclosed endorsement payments to amateur basketball players.” ADDYY has since put out a statement calling the complaint “frivolous”, “nonsensical” and has asked that it be “summarily dismissed”.

Howie Long-Short: Adidas wasn’t following NCAA guidelines (neither was Nike) and Skechers added accusations of “false advertising” and “unfair competition”, but it’s difficult to see how they can prove ADDYY’s actions damaged their brand’s reputation. Adidas, Nike and Under Armour were wise to invest in the grass roots level, spent heavily to acquire valuable sneaker/apparel rights on the college level and now control the market when players turn pro. There was nothing preventing Skechers from pursuing multi-million dollar agreements with college programs (or working on product design, adding influencers etc.), besides their lack of fiscal resources relative to the competition; Adidas generated $20 billion in 2017 revenue while Skechers brought in a small fraction of that ($4.2 billion) amount.

These 2 companies have had a history of battling it out in court that dates to 1995. On the same day that Skechers filed this suit, the 9th U.S. Circuit Court of Appeals held up a ruling that will prevent Skechers from selling a shoe that looks nearly identical to Adidas’ popular Stan Smith line. The day wasn’t a complete loss for Skechers though, the court reversed an injunction that had prevented them from selling their Cross Court model; one that contains a 3 stripe design on the side.

Fan Marino: I first learned that Skechers (best known for mom sneakers) was still making basketball shoes when it was disclosed that Big Ball Brand was collaborating with Brandblack, a Skechers backed company founded by David Raysse (former head of Adidas basketball), on the ZO2 Remix (Lonzo Ball’s signature shoe) and Melo Ball 1 (LaMelo Ball’s signature shoe). While Lonzo Ball is certainly the highest profile player to wear a Brandblack made shoe on the court, Jamal Crawford (T-Wolves) and Josh Smith (currently unsigned) have both worn Brandblack sneakers in the past; Crawford has since signed with Adidas. Skechers has endorsement deals in place with retired legends Karl Malone, Kareem Abdul Jabbar and Larry Bird, but there is no indication the company has ever tried to compete for active NBA players.

Interested in Sports Business? Sports Finance? Sign-up for our free daily email newsletter list, here!

Kyrie Only Signature Basketball Sneaker to Grow Sales in 2017, No Adidas Stars in Top 5

Kyrie

According to the NPD Group, LeBron James had the top-selling signature basketball sneaker line of 2017, as Nike continued its domination of the $1 billion performance shoe market. 73.5% of all basketball sneakers sold in 2017 were made by Nike, with that figure ballooning to 81.3% if you count pairs sold by corporate subsidiary Jordan Brand (7.8%). Kyrie Irving (Nike) had the 2nd best-selling shoe, for the 2nd year in a row; with Kevin Durant (Nike), Stephen Curry (Under Armour) and Michael Jordan (Jordan Brand) rounding out the Top 5. It should be noted that Irving was the only player on the list to grow sales YoY, as performance basketball shoe sales have declined -13% from their 2015 peak ($1.3 billion).

Howie Long-Short: Nike controls the performance basketball sneaker game, but it’s sports leisure and retro that is in fashion; which explains why Adidas (see: Stan Smith, NMD, Superstar) shares are +17.5% YTD, while Nike trails behind at +6.9%. Adidas (ADDYY) just reported Q1 ’18 revenue grew 10% YoY, with North American sales up +21% YoY; for comparison purposes, NKE sales declined -6%, UAA was flat during the 1st 3 months of the year.

It’s worth pointing out that Adidas did not have a signature basketball performance shoe among 2017’s best sellers, despite having MVP front-runner James Harden on the payroll. Derrick Rose (post injury) and Damian Lillard are 2 other guys that fail to move the needle for the company.

Fan Marino: Curry falling from 3rd in ’16 to 4th in ’17 is disappointing, if not unsurprising, news for Under Armour; which overestimated consumer demand for the Curry 4. In wake of the disappointing release, UAA performance basketball shoe sales dipped -39% in 2017. The company now controls just 12.1% of the market.

While Jordan hasn’t laced up in 15 years, the AJ32 technically counts as his signature shoe. Retro AJ models aren’t counted in signature basketball sneaker sales figures, but if they were, Jordan would be running away with 1st place. The retro market did $3 billion in 2017 sales, 3x performance; and Jordan Brand took in 65% of that revenue.

Interested in Sports Business? Sports Finance? Sign-up for our free daily email newsletter list, here!

Fanatics to Take on Nike, Adidas, Under Armour

Fanatics 200x200

Aston Villa Football Club (AVFC) has announced that Fanatics, Inc. will replace Under Armour as the exclusive licensing rights holder for all club merchandise, in time for the 2018-2019 season; but, unlike traditional sports merchandising deals, the company logo will not adorn team gear. Instead, the online retailer of licensed sports apparel will negotiate separate pacts for various pieces of merchandise (think: match-day kit, practice gear, fan apparel) with multiple 3rd parties. The rising value of kit sponsorship deals for the world’s most prominent clubs and the resources required to turn a profit on those partnerships, have left second-tier clubs like Villa with little marketing attention, less merchandise to sell and inevitably depressed revenues; opening the door for a new entrant. With the deal, Villa becomes the first English club to adopt the manufacturing model used in North American sports; Fanatics will manage everything from production to point of sale (including the Villa Park store and e-commerce platforms).

Howie Long-Short: This deal is sensible from the Fanatics perspective because it requires minimal capital expenditure to enter the potentially lucrative English football market. Villa’s status as a second-tier club meant that Fanatics faced little competition for the rights; and the company already maintains production and warehousing facilities in the U.K., properties acquired in their $225 million acquisition of Majestic Athletic. It remains to be seen if the club can increase merchandise sales without a major sportswear label’s logo on their products (hint: they will be), but if successful, sponsorship rights will continue to rise as the traditional players (NKE, ADDYY) look to retain control over the apparel space. Much like cable television providers and sports broadcast rights, the current establishment can’t afford to lose their association with sports teams/leagues and still manage to hit their growth targets.

There are several ways to play Fanatics, as Bank of America (BAC), Alibaba Group Holdings (BABA) and Softbank (SFTBY) are all stakeholders. In September, Softbank invested $1 billion in to the company; bring its total valuation to $4.5 billion (or +/- 2x revenue). For comparison purposes, retailers Dick’s Sporting Goods (DKS) and Hibbett Sports, Inc. (HIBB) currently have market caps ($3.33 billion, $494 million); roughly half of what they generated in 2017 sales ($7.92 billion$973 million). Of course, Fanatics is far better positioned for long-term success, maintaining (among other advantages, like a DTC model) exclusive long-term licensing agreements with all the major U.S. sports leagues through at least 2030.

Fan Marino: The team’s match-day kit is going to be designed by Luke 1977, a Birmingham based (where the team plays) premium menswear brand. The company’s logo will replace Unibet on the new design. For what it’s worth, Luke 1977 was named the ’10 Young Fashion Brand of the Year, beating out Diesel, Fred Perry and Firetrap in the process.

Interested in Sports Business? Sports Finance? Sign-up for our free daily email newsletter list, here!

Kanye West Is Not the Highest Paid Person in Footwear, Top Adidas Exec Steps down

Yeezy

Kanye West made several outlandish claims on Wednesday, including an assertion that he’s “currently the single highest paid person in footwear” meaning, “I make more money on shoes than Michael Jordan.” He added that he expects his label to do $1 billion in 2018 sales (for comparison purposes, Jordan Brand did $3.1 billion in ’17), that the brand is the 2nd fastest growing business in history and that the company is on its way to becoming a decacorn ($10 billion valuation, would need to do $3 billion in sales annually). In other Adidas news, President Mark King has announced he will be stepping down effective July 1st; to be replaced by Zion Armstrong.

Howie Long-Short: Mark King has been credited with spearheading the company’s U.S. turnaround, so his loss hurts. In addition to perception changing collaborations developed with celebs like West and Pharrell Williams, he built a pipeline of desirable lifestyle (and retro) sneakers (Superstar, NMD, Stan Smith) and landed marquee sneaker and apparel contracts with Louisville, Miami, Texas A&M and Kansas.

Adidas sales were up 35% YoY in fiscal 2017, enabling the company to surpass Jordan Brand in U.S. sneaker sales and Under Armour in apparel sales. ADDYY will release Q1 ’18 earnings results on May 3rd.

Fan Marino: While it’s possible West earns more on per pair basis, there’s simply no chance he’s out-earning Jordan. His signature line is produced in such limited quantities and so few times/year (just 12x), that it couldn’t possibly generate comparable revenue. Jordan earned $110 million in 2017 royalties, 3x more than the next highest paid athlete (LeBron James). To put that number in perspective, West’s 2013 contract with Adidas in its entirety, was worth less than 10% of that figure ($10 million); he has since signed a new deal. Of course, West doesn’t just trail Jordan; he’s certainly behind Nike Chairman Emeritus Phil Knight too. Knight’s company did $34.35 million in 2017 sales. It must be noted that West has been acting erratically of late, earlier this week he fired his long-time manager Scooter Braun to “leave the traditional music business.”

Interested in Sports Business? Sports Finance? Sign-up for our free daily email newsletter list, here!

Nike to Remain NFL On-Field Apparel Supplier Through ‘28

NikeNFL

Nike has signed an 8-year extension to remain the NFL’s game-day uniform and on-field apparel supplier. The company will also continue to issue cleats and gloves to players who maintain individual endorsement deals with the brand. As part of the long-term agreement (’21-’28 seasons), Nike has agreed to participate in “several programs; including youth and player initiatives.” Financial terms of the deal have not been disclosed.

Fan Marino: It’s safe to assume the deal’s value at least matches the $1 billion commitment (over 8 years) Nike (NKE) made to the NBA in June of 2015. While NKE has the NFL and NBA under long-term contracts, Under Armour (UAA) landed MLB’s uniform contract with a 10-year commitment (no terms disclosed) in December 2016; replacing Majestic Athletic. Adidas (ADDYY) has contracts in place with both the NHL (7 years, estimated $490 million) and MLS (6 years, $700 million) through ‘24.

Howie Long-Short: The 10-year deal that MLB signed with Under Armour (UAA) was supposed to begin in 2020, but Fanatics’ May ‘17 acquisition of VF Corp’s (VFC) Licensed Sports Group (which included Majestic Athletic) expedited the timeline. Fanatics’ $225 million acquisition means that UAA and Fanatics fan gear will now be available in time for the MLB 2018 season (including the postseason dugout collection) and Under Armour uniforms will be on-field for Opening Day 2019.

As for NKE, CEO Mark Parker stated the company was experiencing a “significant reversal” in North America following a 3rd quarter where they effectively “tightened distribution” (see: Jordan brand), “accelerated innovation” (see: Russell Westbrook signature line, Justin Timberlake Super Bowl edition) and increased digital sales double digits.

Interested in Sports? Sports Business? Sports Finance? Sign-up for our free daily email newsletter list, here!

Puma Re-Entering Basketball Business After 17-Year Hiatus

Puma

Puma (PMMAF) has announced that after a 17-year hiatus, it will be re-entering the basketball business. The brand, which generates the bulk of its sales from soccer and running related products in Europe, sees “substantial upside” to building a basketball vertical within the U.S. PMMAF will also aggressively target Greater China (known for its appreciation of the sport), expecting the region to become its most lucrative market by ’22. The marketing strategy will focus on the “culture around the game”, using “culturally relevant” athletes and entertainers (as they’ve done successfully with Rihanna) to market the new product line. It must be noted that despite Puma and ADDYY’s optimism, the U.S. basketball sneaker business remains “challenged”; Foot Locker (FL) reported Q4 ‘17 comparable store sales down “high single digits” YOY for the category.

Howie Long-Short: Puma (PMMAF) wants to increase profitability, so entering a Chinese market that generates the highest profit margins in the world on sporting goods is logical. The stated goal is to lift operating profit from 5.6% in ’17 to 10% by ’22, reasonable when you consider Adidas (ADDYY) and Nike (NKE) reported profit margins of 9.8% and 13.8% respectively in 2017 (ADDYY also just raised its target to 11.5% by ’20). The announcement was made at a capital markets day where the company also announced it expects currency-adjusted consolidated net sales to grow 10% annually until 2022, plans to increase DTC sales from 23% of sales to 30% of sales (over the medium term) and a proposed dividend of 25%-35% of consolidated net earnings to begin in ’19; resulting in share prices closing +5.73% (to $504.87) on Wednesday. It should be noted that back in January, Puma’s parent company Kering S.A. (PPRUY) announced it would be spinning off the brand to focus on its high-margin luxury businesses; shares are up 32% since.

Fan Marino: The game of basketball has changed since Puma last occupied the space, most dramatically as it relates to volume 3-point shooting (see: Steph Curry, Trey Young). USA Basketball is doing what it can to prevent the next generation of basketball stars from standing on (or 5 feet behind) the 3-point line. New rules eliminate 3-point FGs for players under the age of 11, to promote shooting from a “developmentally appropriate distance”; and provide for smaller basketballs and lower baskets for younger kids. The implementation of a shot clock for grades 9-12, was the most controversial rule change enacted.

Interested in Sports? Sports Business? Sports Finance? Sign-up for our free daily email newsletter list, here!

Sneaker Companies Offering “Blank Checks” to AAU Programs Run by Parents of Star Players

Bagley

The Oregonian released a piece worth reading, detailing how sneaker companies skirt NCAA regulations by sponsoring grassroots teams run by the family members of top prospects. Sponsors are permitted to provide shoes, uniforms and cash for under-funded travel to teams; but, the story describes a system where Nike, Adidas and Under Armour are targeting the family members of star prospects who control their own programs, offering a “blank check” for their allegiance. The cash being pocketed by the family (it’s alleged Josh Jackson’s mom gets $10,000 mo.) equates to a “direct endorsement” of the player, an “extra benefit” that theoretically would make a prospect ineligible under NCAA guidelines. Of course, the sneaker companies are writing these checks, are doing so for good reason; an analysis of 2017 NBA first round picks indicated that most players signed professional shoe deals with the company who sponsored their grassroots team(s).

Howie Long-Short: Basketball sneaker sales have fallen off a cliff in the last 24 months, down 26% to $950 million. Nike (NKE) controls 80% of the market, with Under Armour (UAA) in a distant 2nd place (12.1%). Adidas (ADDYY) accounted for less than 5% of all U.S. basketball sneaker sales in ’17; but, Mark King, the President of Adidas Group North America, has said the brand will “focus on improving its basketball products this year.”

Fan Marino: The NCAA has never investigated the Bagley case, but the circumstances appear to be particularly questionable. In 2008, the Bagley’s filed for Chapter 7 bankruptcy; claiming a household income of $44,000. Four years later, shortly after Nike sponsored the Phoenix Phamily (the team Bagley III played on, coached by Marvin Jr.), the Bagley’s moved into a California home estimated to be worth between $750,000-$1.5 million; with rent in the area ranging from $2,500-$7,500/mo. The elder Bagley readily acknowledge he was using Nike money to “make ends meet.” That’s not great news for Duke fans. In 2010, Renardo Sidney (Mississippi State) was declared ineligible after it was found his family received “preferential treatment” from Reebok. It was later announced Reebok had signed Sidney’s father to a $20,000/year consulting agreement. Duke is headed to the Sweet 16, but their appearance very well may be vacated at a later date.

Interested in Sports? Sports Business? Sports Finance? Sign-up for our free daily email newsletter list, here!

Adidas Increases 2020 Profitability Outlook, Announces Share Buyback Plan

Adidas 200x200

Adidas (ADDYY) released its Q4 ’17 earnings report and while the company missed analysts’ revenue expectations, it reported top line growth (+16% YOY) and bottom line growth (+32% YOY) that left CEO Kasper Rorsted “extremely happy with the results.” The company expects to continue growing sales (+10%) and profits (+13%-17%) in 2018, albeit at a slower rate. On Wednesday’s earnings call, Rorsted also announced that the company had raised its 2020 profitability outlook to 11.5% and announced a plan to buyback $3.72 billion worth of shares (+/- 9%) by ’21; news that sent ADDYY’s share price up +9.4% ($116.80) by the days’ close.

Howie Long-Short: Adidas sales were up 35% YOY in fiscal 2017, enabling the company to surpass Jordan Brand in U.S. sneaker sales (and Under Armour in apparel sales). ADDYY now holds the #2 spot in the category behind NKE. How did that happen? As UAA and NKE focused on basketball sneakers (-20% in ’17), ADDYY built a pipeline of desirable lifestyle sneakers (Superstar, NMD, Stan Smith). Simply put, they’re producing a quality product desired by the consumer.

Fan Marino: Fun fact: Adidas sold 1 million pairs of sneakers in 2017 that were constructed from plastic found in the ocean. The Ultraboosts, each reusing 11 plastic bottles, were created in collaboration with Parley for the Oceans (an environmental organization).

Interested in Sports? Sports Business? Sports Finance? Sign-up for our free daily email newsletter list, here!

Adidas Signs on as Founding Partner of Pacific Pro Football League

Pac-Pro

Adidas (ADDYY) has signed on as a founding partner of the Pacific Pro Football League, a developmental league for players who seek an alternative to college football. In addition to the company’s involvement in the formation and development (branding, marketing, design etc.) of the new league, Adidas will be the exclusive footwear and apparel supplier of the 4 Southern California based inaugural franchises. Scheduled to launch in the Summer of 2019, the league will provide NFL hopefuls with the opportunity to be paid while waiting to become draft eligible (NFL rules require players to be 3 years out of H.S.). Pacific Pro Football League CEO (and NFL super-agent, reps Tom Brady), Don Yee, has long been a vocal advocate of paying college football and basketball players.

Howie Long-Short: ADDYY CEO Kasper Rorsted announced that the company grew revenue “15%-20%” (to more than $24 billion) in 2017; crediting increasing e-commerce sales and strong sales numbers within China (their most profitable market) and North America for driving the growth. Rorsted’s statement aligns with previous guidance issued; projecting 2017 sales to increase 17%-19%, on a currency adjusted basis. ADDYY will release its full-year ’17 earnings report on March 14th.

Fan Marino: Unlike the XFL, the Pacific Pro Football League envisions itself as a feeder program for the NFL; a far more attainable goal than competing with the NFL for talent. The 2017 NFL rookie minimum was $465,000; even if Vince McMahon could convince 6th and 7th round picks to join him by offering them $500,000 and was willing to spend his entire $100 million investment on players, he doesn’t have enough capital to fill 4 53-man rosters. H.S. graduates without a college degree are lucky to find a $30,000/year job with benefits. Yee understands the dynamics working in his favor (NFL CBA, lack of alternatives for players) and he’ll land better players at far lower salaries, as a result. I like this league’s chances to succeed.

Interested in Sports? Sports Business? Sports Finance? Sign-up for our free daily email newsletter list, here!