Nike's ROI with LeBron James
Thu, 2008-01-31 18:11 — Berger
I made my way to the Rose Garden arena here in Portland last night to take in the Portland Trail Blazers (THE surprise team in the NBA this season) vs Cleveland Cavaliers (LeBron James is the NBA MVP to this point) game. I couldn't help notice that a sizable contingent of Nike executives were seated courtside to watch one of their marquee athletes in action.
Nike Chairman Phil Knight and Nike Basketball Senior Director Lynn Merritt (the man who recruited and ultimately convinced Knight and Nike to sign James out of high school) were leading the cheers for King James. LeBron didn't disappoint the people who are paying him a reported $90M. He poured in 37 points (including 17 in the 4th quarter) and grabbed 14 rebounds. He hit the game winning shot with 0.3 seconds left on the clock...........and then stared and smiled at the Nike contingent as if to say, "this is why you pay me the big bucks!"
LeBron will probably win multiple MVP awards. There's a terrific chance he will win an NBA Championship when its all said and done. But will he ever be the pitchperson Nike envisioned when they signed him to a 7-year contract back in 2003?
Nike is known for signing athletes with "bigger than life" personalities. Nike's commercials don't focus so much on specific product as much as they do building the legend of the athlete wearing the product. There's no arguing the fact that Nike gets a tremendous amount of exposure via their relationship with arguably the best player in the NBA. I get all of that. The question I have is, will LeBron's product ever sell briskly enough to warrant Nike's huge investment?
LeBron is on TV nightly with amazing highlights on SportsCenter. Michael Jordan operates behind the scenes in retirement. Yet sales of the Air Jordan shoes and apparel outpace sales of LeBron James' shoes and apparel by a wide margin. (I've polled a number of people and they all tell me that they'd stand in line to buy the new Air Jordan shoes, but wouldn't be willing to do so for LBJ's new kicks. There just isn't the same buzz or demand for LeBron's product as there is for Jordan's). Is this because LeBron's product isn't as "cool" as Jordan's product or is it because LeBron isn't as popular as a product endorser as MJ?
LeBron's contract with Nike expires in 2010. If you are Nike, its almost a no-brainer that you have to re-sign LeBron after investing enormous amounts of time and money in him thus far. You also know LeBron's upside is the best of any player in the NBA. Here's my question though. LeBron's product hasn't sold nearly as briskly as many Nike executives originally hoped it would. So what kind of a contract do you offer LeBron, who will only be 25 years old? If you offer him less than $90M, he probably sees the offer as an insult. But if you offer him $90M or more, are you confident LeBron will establish himself as a pitchperson on par with Jordan and Tiger Woods?
Keep in mind that Jordan and Woods are "partners" with Nike. In other words, they are guaranteed a certain amount of money, but then they are also paid a percentage of the sales of Jordan brand and Nike Golf product respectively.
Its well documented what Michael Jordan has meant to Nike. Tiger Woods has been worth every penny Nike Golf pays him. When Woods signed with Nike Golf in 1996, the company was a shoe and apparel company. Now Nike Golf sells equipment and golf balls in addition to shoes and apparel and is one of the fastest growing sports brands in the world, raking in an estimated $600M per year (So if you're Nike and you're paying Tiger $20M per year over a 10-year period, isn't that a terrific return on your investment?).
LeBron receives certain bonuses via his deal with Nike if the company hits certain sales marks with his product, but to date, its my understanding that Nike hasn't had to write any substantial bonus checks to James.
Its important to remember that very few athletes are also elite pitchpeople. Just because people like your game, doesn't guarantee they'll buy your product. MJ, Tiger, Dale Earnhardt Jr. and Maria Sharapova have shown they have the power to move product. LeBron can't be placed in that elite group of athletes yet.
One way that LeBron can give an enormous boost to his Nike product is by exciting the fans at the 2008 Summer Olympics in August in Beijing.
LeBron has done a few Nike promotional tours through China and there had been talk a few years ago that LeBron was learning to speak Chinese so he could do his interviews with Chinese media in their language.
LeBron had better take a crash course in Chinese if he's not fluent already. The next 12 months will be very important in determining just how successful he can be as a pitchperson for Nike. If he makes tremendous inroads prior to and during the Olympics, he could increase the sales of his product dramatically (China has 1.3 billion people). But if sales of his product continue at the current levels, it could be very tough for Nike to justify paying LeBron another $90M come 2010. Especially if he remains in "small market" Cleveland.
Its worth noting that LeBron's contract with the Cleveland Cavs also expires in 2010. If he bolts for New York, New Jersey, Los Angeles or Chicago Nike my be willing to gamble that he will sell more product based on the fact that he'll be in a bigger media market.
Should be interesting to see how this unfolds. 2010 will be the "Year of LeBron" for sure.
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LB
I agree with this. Can't wait unitl the 2010 to see what both the Cav's and Nike are going to do. It should be very exciting.
Not so fast
A comparison between those who wait for pairs of Air Jordans and LeBrons isn't quite a fair one. Most people who wait in line for Jordans are looking to buy the limited production of retro (re-released) Jordans, not the new models. In addition, there are several models of Jordan shoes released each year, whereas LeBron gets approximately three models per year .
Unresearched post
You really need to talk to someone in the shoe industry before talking about Nike/Lebron's ROI. I don't have those resources, so my speculation is hereby just as good as yours.
Look, if Starburys can have a RETAIL price of $15, that would suggest that Nike's cost of goods can't be more than $15 per shoe -- okay, let's be conservative, let's DOUBLE that to $30. Economies of scale, baby.
If Lebron's shoes are selling for $150+, do the math. That's a nice profit margin.
Let's look at it another way. If Nike Golf is bringing in $600 mil and Nike's revenues are $2 bil, then perhaps we can safely say Jordan and Lebron brands are bringing in at least $1 bil. Then perhaps we can safely say Jordan is bringing in 2/3rds of that, so maybe Lebron is bringing in $333 mil.
Invest $90 mil to get $333 mil? I'd say that's a pretty good ROI. In fact, I'd say that $90 mil to get only $90 mil would have been good ROI in terms of merely the marketing. Like you said, Lebron will win MVPs and championsips. You can see why Reebok was willing to pay up for Lebron.
In 2010, what Lebron goes for will be more Lebron than Nike. Especially with Adidas unwilling to go for one-guy stratospheric numbers (hence the 1-of-5 "team" campaign with KG, Chauncey, Gil, et. al.). Esp. when you know LRMR has got to know the real numbers. It's entirely what the brand can bear without jeopardizing Lebron's ability to rake it in in the future. And right now I'd speculate that Nike the brand with $2 bil in revenues can bear a lot.
$90 mil was pretty much how it balanced out at the time. In 2010, I'm sure the forces of supply and demand will yield a larger number.
Response to "Poor Man's Commish" Comment
Poor man - I can assure you I have shoe industry resources and they tell me that the sales for LeBron's shoes and apparel have been disappointing. I'm not saying that Nike is regretting they signed LeBron because they aren't at all. But I think they hoped to move more product with LeBron than they have so far. He can't be put in the same class as MJ and Tiger when it comes to moving product for his endorsers.
Lebron sells Nike to the world
When I was in middle school and Jordan was destroying the NBA, his shoes were very important. Buy Nike (and I live in Portland) is much larger and diverse than that company. Having a players shoes and the top players shoes are not nearly as important to Nike in terms of sales. They are a much bigger company with ten times the products of Jordan's day. Therefore, Jordan's shoes as special to that era and symbolize it.
But Jordan doesn't play anymore and Nike is trying to sell to the world. I was in Japan and China last year and met with Nike reps, and they are selling a brand, not shoes. Out of (probably) the most known athletes in the world, Lebron is in the top 5. Of who they are (Jordan, Ali, Woods, Ronaldo/Ronaldino, Beckham), Lebron is the only American athlete currently playing a major sport.
Bottom Line is Lebron makes Nike more famous and a stronger brand all over the world, regardless of his individual shoe sales. As more of the world watches the NBA, that will only increase while Jordan's influence on young people (especially peoples whose societies didn't grow up w/ basketball = Asians) will decrease.
PS. Your captcha is too difficult or doesn't work well. This is the 4th time trying to submit the comment.
Aaaanndd NBA seems to be ...
Aaaanndd NBA seems to be ... ???
Jordan Brand > Lebron
The ROI on Lebron can't be as great as Nike hoped to see. Carmelo Anthony's shoes outsell the Zoom Lebrons and I dont think that its because there are so many feet that need shoes out in Denver. The jumpman on the Melo shoe sells those shoes much better than the swoosh on a shoe that Lebron rarely wears.
Lebron does wear his Zoom Lebron shoes, but rarely in colorways that are available to the average kid at the local foot locker. That being said, I don't know why Nike isn't having Lebron wear the shoes that are exactly like the ones they are trying to sell to every 14-18 year old in America.
The Lebron 6 looks to be a bit more promising than prior models, but we will have to see how the market reacts this fall.
LBJ vs. MJ apparel
The big difference between the two is the team contract. Nike knew Jordan wasn't leaving Chicago, heck everyone knew that.....it's a little different with Lebron. His situation is for the most part still up in the air. When he re-signs with Cleveland or goes to New York which ever it may be....NIKE will dump tons of money in this kid and rightfully so. You surely don't want to drop a ton of money coming out with a bunch of Cavs stuff if he's going to up and move to New York because then you'll have a bunch of product that no one wants. Nike expects Lebron to be as big or bigger than Jordan...wishful thinking....maybe, only time will tell.
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