SBJ/November 17 - 23, 2003/This Weeks Issue

Sports Executive of the Year: Phil Knight, Nike Inc.

Phil Knight had plenty to review for Nike shareholders in September, including the addition of Carmelo Anthony and LeBron James to the Nike endorser roster with Tiger Woods.

The difficulty with SportsBusiness Journal and our sister publication, The Sports Business Daily, naming Nike founder, chairman and CEO Phil Knight as our joint Executive of the Year is not that he is undeserving; it really is the antithesis. Having built the most ubiquitous trademark in sports and one of the most renowned global brands, one could justifiably ask: Why this year? Why not every year?

The answer lies in Nike's remarkable endurance, singularity of purpose, and clearly defined mission — all of which allowed the world's largest sports company to emerge from a two- to three-year slump in the sneaker market with its market dominance intact and a clear path to future growth.

Coming off record annual and quarterly results, Nike shares, hovering around $63 at press time, were up more than 50 percent from the 52-week low of $41. (To be fair, it's a resurgent time for the industry, with Reebok recently posting its best quarterly results in six years.)

Nike secured key foundations for future success with the addition of the Converse brand in July, buying retro cachet with another established brand and possibly entry into different channels of distribution.

In addition, the company in May signed what could be the

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next decade's two most important endorsers: 18-year-old No. 1 NBA pick LeBron James and soccer wunderkind Freddy Adu, then 13, who will likely be playing professionally before his 16th birthday. Adu is a naturalized U.S. citizen who turns 15 in June.

Nike complemented those signings with the addition of Carmelo Anthony, the No. 3 pick in the NBA draft, and Los Angeles Lakers star Kobe Bryant, although the sexual assault charges facing Bryant since July have rendered him useless as an endorser.

Nike continued to build upon its soccer credentials, second only to worldwide leader Adidas and separating itself from numerous specialty brands, and moved toward a reconciliation with Foot Locker, America's biggest shoe retailer, after a yearlong skirmish over distribution.

Progress was made in other areas of business. While Nike veterans have never been totally comfortable with the company's apparel line — even Knight admits, "I still struggle with the 'f' [fashion] word" — others at the company's Beaverton, Ore., headquarters are gradually becoming more bullish on the category. Apparel now represents about 33 percent of Nike's total revenue, and observers believe that side of the business is being run more efficiently and effectively since it is no longer treated as an accessory to footwear.

And when it comes to advertising, Nike again proved to have few equals, as Knight in June became the first marketer to repeat as "Advertiser of the Year" at the Cannes International Advertising Festival.

Not a bad year, and considering how well-positioned the company is for the future, it is not difficult to assert that sport's most influential company has become even more important over the past 12 months.

“Nike has weathered a storm that hit every
athletic footwear and apparel manufacturer and seemingly come out stronger.”

NBA Commissioner David Stern
"Nike has weathered a storm that hit every athletic footwear and apparel manufacturer and seemingly come out stronger," said NBA Commissioner David Stern. "They've reasserted themselves on the endorsement front, continued to grow their soccer position to the point where they are a real global factor and made appropriate responses to the questions there were about their labor conditions."

Said John Shanley of Wells Fargo Securities: "They are still looking for growth in the U.S., as is the rest of the industry, but they've had some nice hits with products like Shox and Air Force One and they've already seen a nice lift from the LeBron shoe, which should sell out. At retail, their better relationship with Foot Locker has picked up the stocks of both companies and it should really help Nike in the spring selling season. The biggest concerns I see are a slowdown in athletic product demand in Europe, but their Asian business has really improved and there's still a lot of opportunity there."

There are challenges facing the eager Beavertons. Nike's domestic sales continue to lag, along with the rest of the industry, and technology issues at Nike Golf have been well-documented. But Knight remains bullish on the division, and points to Nike Golf's increased share in the ball category, where it now ranks as the fourth-largest brand after sales growth of almost 10 percent in early 2003.

While he feels the golf division is unquestionably gaining market share, he also points to the acquisitions of Converse and Hurley as the businesses with the most domestic growth potential, since they are expected to gain incremental U.S. distribution for Nike products.

'They don't need my meddling'

Now 65, Knight continues to be the inspiration behind the brand and the culture at the company he founded. In a corporate structure typically atypical, he exists within a group headed by two presidents, Charlie Denson and Mark Parker. That leaves him free to be "selectively hands on" in terms of his management style. "They don't need a lot of my meddling," insisted Knight during a recent interview.

Insiders will tell you that one thing Knight "meddled" in a lot over the past year was Nike's biggest PR splash of 2003, the signing of James to a seven-year endorsement deal worth $90 million. Knight's emphasis on signing James was similar to when he successfully lobbied to sign Michael Jordan 19 years earlier, when many within Nike's headquarters were touting the attributes of University of Kentucky center Sam Bowie, who was infamously chosen one pick before Jordan in the 1984 NBA draft.

Knight pushed hard to sign "King James."
"Believe me, that number got so big, the [James] deal doesn't get signed without my endorsement and I was enthusiastic about him from the very beginning," said Knight, hours after jetting back from Cleveland to witness James' home debut. "He's probably the best 18-year-old basketball player that has ever lived. The question is, 'Will he be the best 25-year-old basketball player that ever lived?' You pay your money and take your chances, but endorsement-wise, he is the whole package."

Adidas and Reebok were in a frenzied competition with Nike to sign James, but it seemed that Nike had no ceiling on what it would pay to obtain him, lest he turn out to be the next Jordan. "Phil told me he had an unlimited budget and planned to exceed it," said a principal at one of the nation's biggest sports marketing firms.

Knight maintained, however, "there was a price we wouldn't go beyond." As for the economics of the whole deal? "The early reads on interest in his shoe [the Air Zoom Generation, due at retail on Dec. 20] and the sale of [James] apparel already shows us what we thought all along," Knight said. "We're going to make money on this deal."

One simmering issue over the past year has been the dispute between Nike and Foot Locker, its biggest retailer with 1,450 U.S. stores. In response to reduced orders from Foot Locker, Nike scaled back or eliminated shipments of its marquee shoes.

But Knight confirmed reports that that feud has ebbed, if not ended, and in recent SEC filings, both Foot Locker and Nike said the chain had increased its U.S. orders. So is there an armistice? "Basically, that's correct," Knight said, "but I think the 'war' with Foot Locker was a little overblown, so now the word 'peace' is maybe a little overblown as well."

Foot Locker officials would not elaborate on their relations with Nike beyond their most recent SEC filing stating the increase in orders. But while the chain is now on track to receive future high-end products, it won't be getting the initial shipment of the LeBron James shoes, which will debut at competing chains, including Finish Line, Athlete's Foot and Footaction. It is unclear whether Foot Locker will receive subsequent releases of the line.

The culture club

Those that know him well say the culture Knight has instilled over the past 30 years is what keeps Nike vibrant. Thus, a brand as ubiquitous as any in the United States can remain as edgy as a start-up, both in products and marketing.

"Normally, when you get to companies of this size, everybody is looking for certainty, if only because of how much their shares are worth," said Dan Wieden, chief creative officer and CEO of Portland-based Wieden & Kennedy, the agency that has been producing Nike's arresting advertising for the past 22 years. "[Knight] is sitting at the head of a $10 billion company built from the trunk of his car, but to this day his passion for sports has not waned and neither has his willingness to take risk. With as much success as Nike's had, he's still not averse to throwing a Hail Mary."

“With as much success as Nike’s had, he’s still not averse to throwing a Hail Mary.”
Dan Wieden, Wieden & Kennedy
Those are admirable qualities for any leader, particularly one Forbes ranks as the 31st-richest American, with a fortune estimated at $5.8 billion. The question is how inseparable is Knight from the brand and its culture?

"Our culture has everything to do with our success, but it is by no means only my doing," Knight said. "Nike is young and irreverent and I am neither."

Many who have worked for Knight dispute that assertion.

"You can't really separate the brand of Nike from the person of Phil Knight," said College Sports Television co-founder and executive vice president Chris Bevilacqua, who left the job of Nike director of global negotiations in 1999.

Tom Fox, Gatorade vice president of sports and event marketing and a former Nike director of U.S. sports marketing, said the relationship Knight holds with the company he founded is similar to the connection former University of Oregon track and field coach and Nike co-founder Bill Bowerman had with Knight.

"The Nike mentality is an athlete's culture," Fox said. "That's one reason there's lots of athletes and ex-athletes working there. Risk-taking is encouraged, and finding the story of an athlete before the hype kicks in is almost second nature."

Adds Liz Dolan, a former vice president of global marketing at Nike who was at the company from 1988 to 1997, "Phil is so relentlessly competitive that you can't help but absorb it."

IMG co-CEO Bob Kain recalls the time he called Knight to advise him that Andre Agassi was going to drop the swoosh for a competitor's offer. "Andre's heart wasn't in it," Kain told Knight.

That was enough to stoke Knight's competitive fires. "I may not have his heart, but I will not lose his feet," Knight told Kain, subsequently signing Agassi to a 10-year extension that is still in effect.

Two stories are told when colleagues are asked to recollect what Knight was most often heard saying around Nike's 175-acre Beaverton campus. One is a Knight dictum: "A good company isn't good at one thing, it is good at 17 things." No one seems to know why the number was 17, but little matter.

The other is a tale that may be more mythical in nature. It involves Knight, when he was a long-distance runner at Oregon, seeking counsel from coach and confidant Bowerman on how he could improve his performance. Bowerman's answer, so legend goes, was that Knight simply had to adjust his speed — and run somewhere between two or three times faster, depending on who is telling the story. This is seen as a window on Knight's management style: focus on the finish line and the goals, and rarely allow his charges to lose their way.

Knight has built a strong, cohesive culture for Nike that begins with the company’s 175-acre headquarters in Beaverton, Ore., and spreads outward to 23,000 employees around the world.
"People that work at Nike understand that no matter how big the company gets, the mission is to serve the athlete," said Rick White, who was general manager of Nike's subsidiary brands from 1997 to 1999.

"He is not likely to tell you exactly how to do something," recalled Dolan, now host and producer of "Satellite Sisters," an ABC Radio Networks radio talk show heard weekly in 72 U.S. markets, "but he constantly reminds you of the goal, and that's to win."

Bevilacqua was reluctant to provide specific details on some of the high-profile athlete and league deals he engineered during his five years at Nike. But he recalls learning from Knight that whichever side has time on its side has a pronounced advantage. He also remembers advice from Knight during some very protected deals. "He made it clear that if you didn't get it done, you shouldn't come home," Bevilacqua said.

The imagery

Together, Nike and ad agency Wieden & Kennedy have crafted some of the most memorable advertising of the past 20 years, cementing Nike's reputation as a brand that either knows the intersection of sports and pop culture better than any other, or perhaps actually creates it.

The legacy is one in which ad phrases become embedded in everyday life, with "Just Do It," "Bo Knows" and "It Must Be the Shoes" common refrains. Spike Lee's treatment of Michael Jordan and his animated interactions with the Looney Tunes characters spawned the film "Space Jam."

There are other indelible images from Nike campaigns — including Pete Sampras and Andre Agassi playing tennis in the streets of Manhattan, or the Brit streaking a soccer pitch, garbed only in a scarf and his Nike Shox that was a critical hit in 2003.

"If you want to have a hall of shame and show some bad ads, we might win that one, too," Knight said with a laugh, "but we do actually work hard at taking risks." Knight has come a long way from the man who told Wieden, when they first met, "I hate advertising." Now he sits as the only two-time advertiser of the year winner at Cannes.

"He used to think there could be no better advertising than having an athlete wearing Nike shoes on the cover of Sports Illustrated," Wieden said. The strategy remains unscripted. "There has never been a search for a formula. From the beginning, what was exciting was that nothing was off limits. It was always, 'What you did yesterday was great, but for tomorrow I want to see something new and different.' That's also what's made them great designers."

The best advertising injects emotion into consumer categories where it really doesn't exist. The Nike/W&K combination never had the dilemma of a boring category because sports connects with all aspects of the human condition on a daily basis. Still, they've exploited it for marketing purposes like no one before or since.

"What you learn at Nike is the connection between athlete, brand and consumer," said Professional Bowlers Association Commissioner Fred Schreyer, director of sports marketing at Nike from 1987 to 1993 and founder of the now defunct Nike Sports Management division in 1992. "That's how Nike can be everywhere and still stay 'cool.'"

A sports junkie

For all the mysticism ascribed to Knight, those who have worked with him say he is easier to understand than most people think. He's just a sports junkie who happened to translate and amplify his passion into athletic shoes.

Sure, signing James, Anthony and Adu were nice coups in 2003. His time with MJ is memorable. But he still tells confidants that the best day of his life was in July 2000 when he chatted with Lance Armstrong from Armstrong's coach's car while the five-time winner was traversing the mountain stage of the Tour de France, followed by a quick helicopter ride over to Scotland to witness Tiger Woods win the British Open at St. Andrews.

“Our
culture has everything to do with our success, but it is by no means only my doing. Nike is young and irreverent, and I am neither.”

Phil Knight
"I'll see Phil at the [Nike] cafeteria and he doesn't want to talk about the new deal we're negotiating," said Tom Ross, who runs Octagon's men's tennis business, which includes high-profile Nike endorser Lleyton Hewitt, "but he'll talk about Pac-10 football with me for 20 minutes."

"He's the world's ultimate sports fan," Dolan said. "Because he's so passionate about sports, he intuitively understands who's out there as an endorser that the public will be passionate about."

The love of sport and the lessons learned in athletic competition are part of the foundation supporting Nike. The Nike culture is the rest — and Knight and Nike deserve kudos for maintaining that strength while growing to more than 23,000 employees.

"In terms of running a business that big, to be able to have all those employees on the same page is remarkable," Schreyer said. "It has always been very clear what Nike's brand stands for — the athlete — and that's what separates them."

Wieden compares Knight's infatuation with sports to his own obsession with advertising. Each man's passion is so genuine that the creative work, and the shoes, are built on instincts honed to near perfection. Accordingly, the odds are long that Knight will ever retire; nor will Wieden ever sell out to one of the holding companies that control much of the agency business.

"Look at the heads of all the agency conglomerates — none of those guys actually have anything to do with advertising; they have no love of the craft, they are strictly balance-sheet guys," Wieden said. "Phil is still deeply involved in sports and it shows in everything Nike does."

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