SBD/September 3, 2014/Marketing and Sponsorship

Nike Likely Will Lose Money On New Durant Deal, But Better Option Than Losing Him

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Nike's decision to match the 10-year deal reported to be worth at least $265M that Under Armour had offered Thunder F Kevin Durant is an "utterly terrible financial move," but something that is "perfectly logical" at the same time, according to James Briggs of the BALTIMORE BUSINESS JOURNAL. Nike will have to retail around $420M annually "worth of Durant's products to recoup its investment in him." SportsOneSource analyst Matt Powell indicated that Nike last year sold $175M worth of Durant gear and is "on pace to increase to about $260 million this year." Briggs notes that shows Nike "almost certainly is going to lose money on the Durant deal," but the company has been "losing money on Durant for seven years." The move to keep Durant "has nothing to do with profit and almost everything to do with blocking Under Armour." Durant would have given UA "credibility on the basketball court" and made it a "legitimate brand" in the sport. He could have showed kids "it's cool to wear Under Armour on the court and convinced other NBA players to join him and take a chance" on the company (BIZJOURNALS.com, 9/3). NBCSN's Dave Briggs said UA coveted Durant because it "needed to land a big name to really make a dent in the athletic shoe business." But CNBC's Scott Wapner said, "I just wonder if Under Armour, in some respects, wins by losing. That's a lot of money." Briggs said revenues from Durant's shoe "could easily exceed" $200M per year, and if the Thunder "can win a title, it doesn’t look like such a terrible deal." Briggs noted Nike did not want "that product to go away" if Durant signed with UA. He said, "They wanted to say, 'We own the best basketball players in the business and always have going back to Jordan.' … They didn’t want to give away owning that industry" ("Fast Money Halftime Report," CNBC, 9/2).

FACE THE NATION: TIME's Jacob Davidson noted if Durant signed with UA, he "wouldn’t just get a fat paycheck -- he would have become the virtual face of the company." Warriors G Stephen Curry has UA's "only major basketball endorsement," and while he is an All-Star, he "doesn’t have the star power of Durant." Davidson: "Being the face of a brand sounds nice, it would also put a lot of pressure on Durant to carry the Under Armour torch. Joining Nike, on the other hand, means being associated with the company’s other big names: Jordan, James, and Kobe. With colleagues like those, Durant doesn’t have to worry about carrying all of the load" (TIME.com, 9/2).
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