Early Entrants: Vol. XII – Big East Going to Add a 12th Member

Editor Note: Early Entrants is a series of sports business “rumblings” before the news breaks.

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Big East Going to Add a 12th Member

The Big East Conference officially added its 11th member – welcoming back the University of Connecticut – in a press conference last Thursday. Commissioner Val Ackerman told the media that “there are no plans at this time to add a 12th member school”, but sources tell JohnWallStreet that “at this time” are the words to focus on in that phrase; that it’s inevitable. The conference inked a media rights agreement beyond fair market value in ’13 (the timing was right as it aligned with the launch of FS1 which needed marquee programming) and likely needs to grow to 12 schools to secure an increase when the deal expires following the ’24-’25 school year.

Wondering who the conference might add? The Big East is made up of of predominantly private, academically strong (see: Georgetown, Villanova), Catholic universities that don’t play football; all of whom are based in (or near) major media markets within the Eastern or Central time zone. While this is purely speculation, the St. Louis Billikens – currently of the Atlantic 10 Conference – fit that description and would be hard pressed not to accept a bid if one were presented. If the Big East would consider public universities (outside of UCONN), VCU would have to be at the top of the list.

Sinclair Plans to Introduce a Global OTT Service for The Tennis Channel

Much like ‘new Fox’, Sinclair Broadcast Group (SBGI) has tied their wagon to local news and live sports programming; in addition to buying the 21 FOX RSNs, the company has made investments in both YES Network and Marquee Sports Network (they also own Fox College Sports and Stadium). While those networks (and the rights they control) are all domestic in nature and linear focused (save Stadium), the company is said to have global ambitions for another one of its sports properties; The Tennis Channel. Sources tell JohnWallStreet that SGBI will introduce an OTT service – powered by Sportradar – incremental to local linear broadcasters in respective markets. Look for the company to start buying up global broadcast rights – particularly for tournaments where they have an inside line (see: Laver Cup).


Kwatinetz/IceCube Ready to Pounce “When Sinclair Fails to Receive Approval”

With three U.S. Senators (and Presidential hopefuls) urging the FCC and Justice Department to review Sinclair’s (SBGI) purchase of the 21 FOX RSNs – there are concerns about giving SBGI too much leverage in carriage negotiations and about the company being able to spread their “partisan political” agenda to a wider audience – it is certainly possible that Disney will be forced to re-open the bidding process. If that happens, runners-up Jeff Kwatinetz and IceCube will be ready to pounce. Kwatinetz told JWS that the funding is there and his group remains “committed to acquiring the networks when Sinclair fails to receive approval.” Should The BIG3 co-founders take control over the RSNs, viewers can expect a dramatic change in programming philosophy. Kwatinetz said, “in the morning we would have a program designed to compete with the TODAY Show. There would be a lot of national programming. We would run it as a national network.


Puma the Front-Runner for Zion?

NPD Group analyst Matt Powell recently told Yahoo! Finance that he was “betting that a Chinese brand” would ink Pelicans rookie Zion Williamson to his first shoe contract. Many others have speculated that Williamson will ultimately end up with Nike after the #1 overall selection in the 2019 NBA draft wore the swoosh to several high-profile workouts and appearances, but sources tell JohnWallStreet that it was Puma who “very close to signing Zion” before the top selection got hit with a $100 million lawsuit on the eve of the draft. It’s unclear if the German footwear provider will be able to retain its position as the front-runner while the lawsuit works its way through the legal system – it seems unlikely the high-profile rookie would make an eight or nine figure decision without representation.

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Popular 90s Sneaker Brands Re-Enter Crowded U.S. Basketball Vertical


Performance shoe styles remain out of favor, but that hasn’t prevented a host of companies from re-entering a declining U.S. basketball market in 2018. Back in March, Puma announced its return after a 17-year hiatus and both New Balance and Fila have since expressed their intent to compete with Nike, Adidas and Under Armour in the now crowded vertical.

On Tuesday, New Balance announced its re-entry into the performance basketball market by hiring Darius Bazley (a promising H.S. prospect), to serve as a million-dollar intern (deal worth up to $14 million with performance incentives); in addition to spending January-March ’19 in Boston at NB headquarters, Bazley will wear the company’s basketball shoes upon his arrival to the NBA.

Then on Wednesday, Fila announced it had inked ’18 Basketball Hall of Fame inductee Grant Hill to a lifetime contract (first signed with co. in ’94). The company plans to grow its retro footwear business, but unlike Puma and New Balance, is not expected to release new performance basketball sneakers.

The brash 90s brand And1 has also made headlines in ’18, re-signing Kevin Garnett to the label (first signed in ’03)  and announcing the Nov. 3rd re-release of its popular TaiChi model; the sneaker made famous by Vince Carter in the ’01 dunk contest.

Howie Long-Short: Fila’s ’94 signing of Hill paid immediate dividends. Fila (KRX: 081660) sold 1.5 million pairs of the GH1, Hill’s debut sneaker; the most any retailer had sold for a player’s first signature shoe since the release of the AJ1. Of course, Hill was just the 4th NBA player to receive a signature shoe in their rookie season; Hakeem Olajuwan (’84, Etonic Akeem The Dream) and Shaquille O’Neal (’92, Reebok Shaq Attaq) were the others.

Fila’s ’95 release of the GH2 was even more successful. The company sold $135 million (10% of total footwear revenue) worth of the Hill signature sneaker (more than they did of the GH1). By ’96, Fila had overtaken both Adidas and Reebok (trailing only Nike) in the U.S. basketball shoe sales.

It’s curious to see new entrants in the space considering retro basketball is in decline, basketball is out of fashion and the basketball shoe market is down -13% from its ’15 peak ($1.3 billion). NPD Group reported a “low-teen drop” in basketball sneaker sales during the month of August (last report issued) and Retail Analyst Matt Powell expected a similar result in September, saying “too much performance product forced on the market will weigh on results”; apparently, even more is on the way.

Fan Marino: After 17 years out of the game, Puma (PMMAF) decided to re-enter the performance basketball space in time for the ’18-’19 season. The company made headlines with the splashy signings of DeMarcus Cousins (Warriors), Terry Rozier (Celtics) and Marvin Bagley III (Kings), but their first retail release (a modernized version of the Clyde Court Disrupt) is off to a rocky start on the hardwood; high profile endorsees Kevin Knox (Knicks) and DeAndre Ayton (Suns) both sprained ankles in the shoe last weekend.

Earlier this week, we noted that the NBA was offering elite H.S. basketball prospects a new “professional path”; a six-figure payday (among other benefits) to forego collegiate basketball and play a single season in the G-League. We explained that players projected to be selected in the top 24 selections of the NBA draft would be better off sitting out the season than taking a step up in competition; falling a single slot in the draft would cost the player more (over the first 2 years of their deal) than they’d receive for playing the entire season.

The G-League’s new path isn’t going to hurt NCAA basketball, but the Bazley model could (at least until the CBA is renegotiated and players can enter the draft directly from H.S. in June ‘23); if the NBA’s next class of stars (and their agents) can find companies willing to pay them 7 figures not to play, it’ll wipe out the top talent within the college ranks. Don’t believe me? 9 of the top 10 players selected in the ’18 NBA draft were freshman (Mikal Bridges was the exception) last season.

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


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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WNBA Reports Double-Digit Viewership and Merchandise Sales Growth, Announces League-Wide Sponsorship Deal


The WNBA held its 15th All-Star Game on Saturday June 28th (in Minnesota) and unlike the 2018 MLB (-6% YoY), NBA (-1% YoY) and NHL (-10% YoY) All-Star Games, viewership increased +17% YoY (to 709,000 viewers); making it the league’s 2nd most watched ASG since ’13. The viewership increase for the midsummer game follows the first half of a season that saw the number of viewers tuning in per game rise +35% YoY across ESPN2 & NBATV and +38% YoY (to 247,000) on ESPN. It’s not just increasing television viewership numbers that indicate the league is on an uptick though, merchandise sales on the league’s website are up 50% YoY and Puma recently announced a league-wide footwear partnership with the WNBA; the company’s first deal with a pro sports league. Atlanta Dream forward Angel McCoughtry took notice of all the progress, calling 2018 “the year of the woman.”

Howie Long-Short: While the partnership deal with Puma is significant and the merchandise sales growth has been impressive, WNBA bulls might want to temper their excitement surrounding the ASG. Even with a +17% YoY increase, the 709,000 viewers that tuned in represented just the 9th largest audience in WNBA ASG history.

As for Puma SE (PMMAF), the company reported a +42% YoY increase in profits (to +/- $36 million) on revenues that rose a currency adjusted +15% YoY (to $1.2 billion) during Q2 ’18, as all regions and product segments reported double digit growth. Quarterly financials would have looked best had the euro been stronger, the national teams they sponsor performed better and if they were seeing returns (not just marketing expenditures) on their basketball business. Shares dropped -5.5% on the news and have continued decline since, closing on Friday at $487.00.

Fan Marino: EA Sports (EA) has taken notice of the rising popularity of the WNBA and acted accordingly. The company announced that gamers will have the option to create female players, in career mode, in NBA Live ’19 (launches 9/7) and that female player “abilities and perks” will be modeled after WNBA stars like Candace Parker. The announcement comes just one year after all 12 WNBA teams were included in the game for the first time. This isn’t the first-time EA Sports has included female players in its games, the company’s hockey series first included women in “Be a Pro” mode back in ’11. In that game, females and males competed against each other; all EA Sports UFC and FIFA games since have featured single-sex matches.

Fun Fact: 68% of the WNBA audience on ESPN 2 is male.

Fun Fact 2.0: Just 7% of the WNBA’s audience on ESPN 2/NBA TV is female and under the age of 35.

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TBT Thriving in Year 5, JWS Talks with Reigning 2x MVP Kyle Fogg


The Basketball Tournament (TBT) will culminate tomorrow (8.3.18) with a $2 million, winner-take-all game live on ESPN. The event, now in its fifth year, is thriving; TBT signed a major sponsorship agreement with PUMA for the ’18 tournament, has placed more games live on ESPN than ever before and is using a radical solution designed to create excitement (and eliminate the incessant fouling) at the end of games. We had the chance to connect with the reigning 2x MVP and Back-to-Back-to-Back TBT Champion (as a member of Overseas Elite) Kyle Fogg, just ahead of today’s semifinal contest, to talk about PUMA’s involvement and his decision to play overseas instead of pursuing an NBA career.

JWS: Puma is sponsoring The Tournament and outfitting the teams (uniforms, shooting shirts), but players are permitted to wear the sneaker brand of their choice. That’s not the case for your professional team, though is it?

Kyle: The Chinese Basketball Association is sponsored by Li Ning, the same brand that Dwayne Wade and C.J. McCollum are signed with; so, everybody has to wear their shoes. If you wear another brand, you must cover the logo. I wear Nike’s and cover the logo, but this year I’ll probably wear the new McCollum’s that came out. I won’t be personally sponsored by them, but it will be OK to wear those shoes since the league is sponsored by that brand. Players that have shoe contracts with other brands are allowed to wear their signature shoe. There are guys on the Chinese National Team who are sponsored by Jordan Brand and they’re allowed to wear what they want, they don’t have to cover the logo. 

Editor Note: PUMA’s participation in TBT is notable as the company chose just 2 partners to invest in as it relaunches itself back into the basketball space; the NBA is the other. PUMA has also committed to offering a blanket endorsement contract to any TBT player that makes it to the NBA during the ’18-’19 season. It’s certainly possible, 16 players did it last year.

JWS: You played one season in the D-League, back when player compensation was low; that’s no longer the case with 2/3 of the players making $70,000 + medical. If that offer was on the table back when you made the decision to go overseas, would you have stayed?

Kyle: I decided to go overseas just because the money wasn’t great in the D-League. I wanted to be able to help my mom and make some money while still doing what I love. If the compensation was better, I probably would have thought more about sticking it out and trying to make the NBA; I think that’s why a lot more guys are doing that now, it’s possible to make a living now playing here (U.S.).  

Editor Note: Kyle is playing under a 2-year $2 million contract in the CBA.

Howie Long-Short: Puma SE (PMMAF) reported a +42% YoY increase in profits (to +/- $36 million) on revenues that rose a currency adjusted 15% YoY (to $1.2 billion) during Q2 ’18, as all regions and product segments reported double digit growth. The performance would have been stronger had euro been stronger, the national teams they sponsor performed better and if they were seeing returns (not just marketing expenditures) on their basketball business. Shares dropped -5.5% on the news and have continued decline since, closing on Wednesday at $500.91.

Fan Marino: Kyle Fogg was a part of University of Arizona legend Lute Olson’s final recruiting class. A 4-year player, Fogg finished his senior year on the All-Pac12 first team in 2011-2012. I had to ask Kyle a few Wildcat related questions.

Fan: How come there is no Arizona team in The Tournament?

Kyle: Most of the guys are in the NBA and they can’t play.

Fan: Who was the best player you played with at Arizona?

Kyle: Derrick Williams. His sophomore year was unbelievable. He dominated everyone, I’d never seen anything like that. He was unstoppable. 

Editor Note: These 2 videos highlight the most memorable moments from Derrick’s sophomore season. Enjoy.

Game saving block vs. Washington

32-point performance vs. Duke  

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Mo Bamba Talks Shoe Deals, Marketing Strategy and the Harlem to Harvard Narrative

NCAA Basketball Tournament - First Round - Nashville
NASHVILLE, TN – MARCH 16: Mohamed Bamba #4 of the Texas Longhorns looks on against the Nevada Wolf Pack during the game in the first round of the 2018 NCAA Men’s Basketball Tournament at Bridgestone Arena on March 16, 2018 in Nashville, Tennessee. (Photo by Andy Lyons/Getty Images)

On Tuesday evening, sports collectibles leader and exclusive trading partner of the NBA/NBPA, Panini America (@PaniniAmerica) held a pre-draft event at the NBA Players Association offices for VIP collectors and hobby stores. Donte DiVincenzo (Villanova), Chandler Hutchinson (Boise State), Michael Porter Jr. (Missouri), Trae Young (Oklahoma) and Mo Bamba (Texas) were in attendance to take pictures, sign autographs, participate in a basketball clinic, and talk about the excitement of seeing their first Panini trading cards. JohnWallStreet had a chance to talk with Mo Bamba about his official visit to Harvard, attending the Darrel Morrey Sloan sports analytics conference (2x) and the impact playing for a Nike school (Texas) will have on who he decides to sign a shoe deal with.    

JWS: You took official visits to Texas, Duke, Kentucky, Michigan and Harvard. How serious was your interest in attending the Ivy League school?

Mo: Harvard was very much a real thing for me simply because it’s one of the best schools in the world. If I could use basketball as a platform to get in there, it would turn some heads and maybe someday I could be (looked at as) one of the top influencers in the world. As the recruiting process went along, eventually I realized that it wasn’t a viable landing spot for me, but someday there will be a 5-star prospect who will be the first to go to Harvard and do things the right way as far as being an academic all-star. I wanted to be that guy. I fell in love with the Harlem to Harvard narrative.

JWS: You’ve attended the Darrel Morrey Sloan sports analytics conference twice. Was there a single message that’s resonated with you?

Mo: There was one panel with David Falk (agent) on it and he was talking about how there was this tennis player whose parents were asking him to market their son, to maximize his earning potential. He told them that there wasn’t much he could do for them, that winning was the best thing an athlete could do to market themselves.    

JWS: That’s interesting because one would assume you would have had a better chance to win a college basketball championship had you gone to Duke or Kentucky. Do you have any regrets about going to Texas?

Mo: The only thing I regret about the recruiting process is not committing earlier. I bet on myself. I didn’t need an institution to back me up.

JWS: You have yet to sign a sneaker/apparel deal. Does the fact you played for a Nike school have any impact on who you will end up with?

Mo: No, not necessarily. I went to Under Armour camps, I went to Adidas camps and I got the feel for different shoes. I’ve also considered Puma. Ultimately it just comes down to who I feel closest to and who will put the best plan in motion for me as a professional basketball player.

Howie Long-Short: Earlier this week, we wrote that Puma (PMMAF) had announced its re-entry into the $1.131 billion U.S. basketball market with the signing of Marvin Bagley III (5 years). That was just the start of things — the company has since announced the hiring of Jay-Z as Creative Director, locked up DeAndre Ayton (plus Michael Porter Jr. & Zhaire Smith) and signed Walt Frazier (1st basketball player to endorse brand) to a life-time deal. While the company made has made headlines bringing in 2 top rookies and the rap icon, their choices are puzzling. Big men traditionally do not move shoes and celebrity ambassadorships rarely result in increased sales (save Rihanna/Puma). Jay-Z may not help the company sell any sneakers, but he should be able to help them land stars that are signed to his Roc Nation Sports agency.

Trae Young is another guy who Puma had been targeting. Young ultimately selected Adidas over Puma and Nike. It’s worth pointing out that neither Bagley, Ayton, Porter Jr., Smith nor Young signed with the company that outfitted their collegiate team.

Fan Marino: With a 7 foot 10 inch wingspan, Mo Bamba is set to become the “longest” player in NBA history (or at least the 19 year history of the NBA draft combine – Manute Bol reportedly had a 8 foot 6 inch wingspan); for comparison purposes, that .5 inch wider than Rudy Gobert’s and 2 inches wider than Shaq’s.

However, unlike those traditional bigs, Bamba can run. At May’s combine, the time he posted sprinting ¾ of the length of the court beat the times put up by Russell Westbook and John Wall at their respective combines. With a skill-set like that, it’s no surprise experts have Bamba projected to go as high as 3rd in this evening’s draft. DeAndre Ayton is expected to go first to Phoenix. The Sacramento Kings are expected to pick between Marvin Bagley and Luka Doncic at #2.

Moments after being drafted tonight, Mo Bamba’s first Panini NBA trading card will be made available on the Panini Instant (#PaniniInstant) online platform (https://qr.paniniamerica.net/2myjt) along with other NBA Draft Picks.

Speaking of DeAndre Ayton, he signed an exclusive autograph/collectibles deal with Panini America on Wednesday afternoon. Panini plans to feature the Arizona center on packaging for 2018-2019 products and his autograph can be found in packs of NBA and collegiate licensed packs. Suns fans will have the chance to buy his first card shortly after he shakes the commissioners hand.

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Puma Steals Bagley III from Nike, Announces Entry into U.S. Basketball Market


Marvin Bagley III has signed a 5-year footwear and apparel deal with Puma, rumored to be worth up to $9 million annually, the largest rookie shoe deal since Kevin Durant signed a 7-year $60 million deal with Nike in 2007. Bagley, projected to be a Top 5 selection in Thursday evening’s NBA draft, will become the first NBA player to be sponsored by Puma since Vince Carter signed a 10-year $50 million deal with the company back in 1998; Carter terminated the deal in his Sophomore season to sign with Nike. Puma is negotiating with several other rookies (Trae Young has been mentioned) in the 2018 draft class and will reportedly target veterans with expiring shoe contracts later this fall, as the company looks to re-enter the lucrative U.S. performance basketball shoe market (down 13% from $1.3 billion peak in ’15).

Howie Long-Short: Puma is coming on strong and now taking aim at the U.S. market; in addition to their aggressive basketball ambitions (Nike controls 81.3% of the market including Jordan brand), the company announced it has signed a lease for 24,000 SF on 5th avenue for a North American flagship store. Puma has surpassed Under Armour and is now third in sales among athletic apparel brands, behind just Nike and Adidas.

Puma SE, a subsidiary of Kering, trades over-the-counter under the symbol PMMAF. The German athletic footwear and apparel brand reported net profit rose +36% YoY (to $82.5 million) in Q1 ’18, with sales increasing double-digits across all product categories and markets (+15.6% in U.S.). China/Asia experienced “exceptionally high growth” (+35%), while the running, training and sportstyle categories grew the fastest. PMMAF also increased FY18 sales (from +10% to +10%-12%) and EBIT (from $354-$377 million to $360-$383 million) guidance during the April earnings call.

Fan Marino: Nike won’t be pleased with this decision, considering they’ve been paying for Bagley’s allegiance since 2012. In 2008, the Bagleys filed for Chapter 7 bankruptcy, claiming 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 family moved into a California home estimated to be worth between $750,000-$1.5 million; rent in the area ranges from $2,500-$7,500/mo. The elder Bagley has acknowledged the family used Nike money to “make ends meet.”

That kind of arrangement isn’t atypical, The Oregonian released a piece back in March detailing how sneaker companies skirt NCAA regulations by targeting the family members of star prospects who control their own AAU programs; offering a “blank check” for their allegiance. What is unusual, is Bagley took Nike money and then signed with Puma; analysis of 2017 NBA first round picks indicates that most players signed professional shoe deals with the company that sponsored their grassroots team. It’s worth noting that Bagley’s deal with Puma includes a commitment from the brand to continue funding his father’s AAU program.

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Puma Joining Wearables Sector, Sued by Nike for Patent Infringement


Puma SE has announced it will be joining the wearables sector, signing a 10-year global licensing partnership with Fossil Group. The 2 companies will collaborate to bring Puma branded watches and smartwatches to market by the end of 2019. Fossil Group (FOSL) will design, manufacture and distribute the sport-focused line of watches, as it does for several high-end fashion labels (see: Diesel, Michael Kors). It is expected that the Fossil x Puma line will run on Wear OS (formerly Android Wear) software.

Howie Long-Short: Puma SE is a subsidiary of Kering, trading over-the-counter under the symbol PMMAF. The German athletic footwear and apparel brand reported net profit rose +36% YoY (to $82.5 million) in Q1 ’18, with sales increasing double-digits across all product categories and markets (+15.6% in U.S.). China/Asia experienced “exceptionally high growth” (+35%), while the running, training and sportstyle categories grew the fastest. In early April, with currency adjusted sales +21% YoY, PMMAF slightly increased FY18 guidance (from +10% to +10%-12%).

Puma SE’s cautious approach to entering the wearables sector (with a licensing partnership, as opposed to building their own technology) is a wise one. Both Nike and Adidas have already tried and failed, only to later sign partnerships with Fitbit (Adidas) and Apple (Nike) respectively. There’s no reason to believe Puma would have had a different result.

On a separate note, Nike is suing Puma, accusing the competitor of patent infringement in federal court. Nike alleges the unauthorized use of “Flyknit, Air and cleat assembly technologies”, related to Puma’s Ignite, The Jamming and evoSpeed SL FG products. NKE is seeking a permanent injunction and has asked that damages be awarded. Puma plans to dispute the charges and has no intention of stopping production in the interim.

Fan Marino: In other Puma news, the company announced it will become the official kit sponsor of AC Milan for the 2018-2019 season; and the official kit sponsor of Sao Paulo Palmeiras (Brazil) for the 2019 season. Those clubs join Borussia Dortmund (BORUF), Arsenal FC and the National Football Associations of Italy, Switzerland, Austria, Cameroon, Ivory Coast, Ghana, Czech Republic and Senegal in the Puma football portfolio.

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Puma Re-Entering Basketball Business After 17-Year Hiatus


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.

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