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 Become First Brand to Live Stream High School Football on Twitter

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Adidas (in collaboration with Intersport) will become the first brand to “live stream high school football games on Twitter”, when it kicks off its “Friday Night Stripes” series on September 7th. The 8-game showcase will feature weekly match-ups between nationally ranked programs nationwide. Live streams of the game feed will include a twitter timeline featuring “real-time conversation about the action.”

Howie Long-Short: Game coverage will be accessed by visiting @AdidasFBallUS, so Adidas should see their Twitter following rise. That should suit ADDYY well, as the company has done a good job (at least relative to NKE) converting brand sales once customers are on their site. It’s worth pointing out that H1 footwear sales rose +20% (see: retro) and apparel did even better, on the back of a strong World Cup (sold record 8 million jerseys).

Stephen Wilmot (WSJ) made a strong argument that ADDYY shares are undervalued. Even after an 8% jump on August 9th (following earnings), 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. Shares closed at $119.02 on Tuesday.

For those wondering, Intersport creates sports marketing platforms. While you may know them as the company behind the 3x3U basketball tournament for college seniors (held at Final Four), they own one of the most infamous pieces of video footage in sports history. Intersport was the only production company rolling on January 6, 1994 when Nancy Kerrigan was attacked with a police baton. The company has said it’s earned 7-figures from licensing the footage, receiving $10,000-$15,000 (or $250/second) each time it’s used.

Fan Marino: Fans of youth sports are going to experience a sharp increase in the number of games available to a broadcast audience over the next several years, as OTT platforms give rights holders the ability to reach niche audiences directly. How long before high school kids start complaining they aren’t being fairly compensated for their name, image and likeness?

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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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Adidas Tempers World Cup Sales Expectations

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Adidas AG (ADDYY) has tempered merchandise sales expectations in Russia for this summer’s World Cup, citing international sanctions (see: Ukraine crisis) that have weakened the ruble as declining oil prices have slowed the Russian economy. In 2014, (hosted Sochi Olympics) ADDYY had over 1,100 stores across Russia/CIS, but over the last 4 years the company has closed 500 of them and reallocated the marketing dollars accordingly. The absence of several prominent teams (see: U.S., Italy, Netherlands) is also expected to have a negative impact on merchandise sales.

Howie Long-Short: Though Adidas currently does just “a little more than half” the sales total it did during its ‘14 peak ($1.3 billion, 3x Nike’s total w/in market) in Russia, the company now operates at higher margins in the region as a result of strict cost discipline and an increase in pricing. Adidas reported a -16% sales decline in Russia/CIS (and -5% decline in EMEA) in Q1 ’18 with CEO Kasper Rorsted attributing the disappointing result to “challenging market conditions”.

Though Adidas has acknowledged it won’t approach the total sales figures that it did in ’14 (Brazil), the company is expecting sales of team soccer jerseys (the most popular merchandise item) to set a record during this World Cup. Twelve (up from 9 at ’14 WC) of the 32 teams competing in Russia (including the host country) will be wearing ADDYY kits, the most of any apparel provider (Nike is 2nd with 10 teams). For reference purposes, ADDYY sold 8 million jerseys in 2014.

It’s worth noting that Adidas is also the manufacturer of the official match ball. German soccer consultant PR Marketing projects the company will sell 10 million balls after moving 14 million “Brazuca” balls in ‘14.

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, with the Asia-Pacific (+15%) and Latin America (+10%) markets also experiencing double-digit growth during the most recent quarter. ADDYY shares are down -16.5% over the last 2 months, but remain +10.5% YTD; closing on Tuesday at $110.28.

Fan Marino: The U.S. team’s absence from the tournament may hurt total merchandise sales, but it hasn’t had a negative impact on domestic viewership through the first 4 days. Matches on Fox and FS1 have averaged 2.24 million viewers (including 4 million+ for Germany/Mexico & Brazil/Switzerland), a 32% increase over the Group Stage average from the last 4 World Cups combined.

Telemundo (CMCSA) is experiencing similar success thus far. The network drew 6.56 million TV viewers for the Mexico/Germany game, making it the most watched Group Stage match in Spanish-language TV history and the most watched sporting event in network history.

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Fashion Labels Take Activewear Market Share, Activewear Brands Now Reside on 5th Ave

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Activewear brands and the retailers who sell their products have had a difficult start to 2018, as sales were “essentially flat between February and April.” NPD Group senior sports industry advisor Matt Powell attributes the struggles to “the proliferation of fashion brands emulating performance wear” (think: Moncler’s Grenoble collection, BIT: MONC); including high fashion labels like Isabel Marant that are now launching activewear lines. It’s not just the athleticwear labels (think: Under Armour – UAA, Columbia – COLM) that are hurting from the industry crossover though, athletic specialty/sporting goods stores are also struggling as “department stores now capture more activewear sales than the true sports channels.” Activewear is the fashion industry’s fastest growing category, expected to grow 6-7% in ’18; compared with 2-3% for the balance of the fashion and footwear industry.

Howie Long-Short: One company that has not been negatively impacted by the trend is Lululemon Athletica. LULU posted “astonishing” Q1 ’18 results, before increasing its full year financial forecast. Net income grew +141% YoY (to $75.2 million) on revenue that rose +25% YoY (to $649.7 million), with e-commerce growth (+62% YoY), new customer acquisition (+28% YoY, 30% of which were men) and a significant rise in gross margin (from 49.4% to 53.1%) highlighting the quarter. Shares popped 16% (to $122.19) following the June 1st report; they’re up 55% YTD and 135% over the last 12 months despite the February resignation of CEO Laurent Potdevin (workplace misconduct) and other public missteps (think: see-through tights). Adidas (ADDYY), Champion (HBI) and Patagonia were also all strong performers within the activewear category during the first quarter.

Fan Marino: While fashion brands are working to take activewear market share, activewear companies are taking up residency on 5thAvenue (NYC) alongside high-fashion retailers. Why? As Powell explains, “to be next to some of the most prestigious names in the industry really elevates the prestige of the athletic brands.” Adidas, Asics (TYO: 7936) and The North Face (VFC) already have stores open on 5th Avenue, Nike (NKE) and Under Armour have signed leases on space and Puma just announced it’ll be opening a 24,000 SF retail store on the street.

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Bradley Chubb Discusses the Value of His Name and Likeness

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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.

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

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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.

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