Paid Endorser Model “Broken” in U.S., Works in Asia

Osaka

Naomi Osaka, coming off the U.S. Open championship, will sign a contract extension with Adidas (ADDYY) worth $8.5 million/year at the completion of the season; the deal will be the largest the company has ever issued a female tennis star. Osaka’s half-Haitian, half-Japanese heritage, makes her particularly appealing to the western brand seeking to expand its reach in Asia. Interestingly, Osaka’s deal comes just 2 months after Uniqlo, another company “with plans for breakneck speed growth in Asia”, signed men’s tennis star Roger Federer (as a global ambassador) to a 10-year $300 million deal.

Howie Long-Short: NPD Group retail analyst Matt Powell recently said the “paid endorser model is broken”. He’s right, U.S. consumers have gotten smarter and they know “how phony these pay-to-wear (sponsorship) deals are”, which helps to explain how Under Armour could have Steph Curry, Tom Brady and Bryce Harper on the roster and still see their share price decline -60% (from $51+ to $20+) over the last 3 years (UAA shares are +39% YTD so that drop had been worse). Of course, the Osaka and Federer deals aren’t about the U.S. market and generally speaking the Asian consumer is more likely to be influenced by an athlete endorsing a product than the American consumer would be.

So, if sneaker/apparel brands are not earning a return on their investment in athletes, could the end of lucrative long-term (think: Harden. Adidas. 13 Years. $200 million.) sponsorship deals, for domestic stars, be far behind? According to Matt (and a couple of NBA agents), that reality is already here. Most NBA players receive just a “small fee and free product”, while NFL players are offered compensation packages “worse than your standard NBA deal.” One agent told hoops hype “there are probably five relevant superstars out there and while every is chasing deals there aren’t any deals out there to actually get.”

Fan Marino: Elite NBA players earn more money from endorsements than athletes from any other American professional sport. In 2018, the NBA’s 10 highest paid endorsees took in $234 million in off-court earnings, 2.6x ($90 million) the amount NFL’s 10 most marketable players generated; LeBron James ($52 million) alone will take in more than the Top 10 MLB ($25 million) and NHL ($20 million) endorsees combined.

On Friday, Sara Germano (WSJ) translated an investment research note stating, “there may also be potential upside in apparel, as recent NBA player moves to highly dense markets may have resulted in incremental sales” to “Wall Street for LeBron moved to LA.” LeBron is certainly going to sell a lot of jerseys in L.A. (he was #2 in the league last year) but don’t expect his Nike sneakers to fly off the shelves, performance basketball sneakers remain out of style in the U.S. and even Laker’s legend Kobe Bryant “never sold a lot of shoes in the U.S.”

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Author: John Wall Street

At the intersection of sports & finance.

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