Oct 14, 2010

NFL owners approved a five year exclusive uniform/sideline apparel deal with Nike this week, marking the end of the NFL’s relationship with Reebok (owned by Adidas).  The move marks Nike’s first return to NFL uniforms since 2001 — the company previously only held footwear and glove rights.

Nike’s new deal will take effect in April of 2012.

Although the terms of the deal were not disclosed, Sports Business Daily reported that Reebok paid the NFL a reported $25 million a year to become the official equipment supplier…in 2001.  Needless to say, with the NFL’s marked increase in popularity over the last nine years, Nike paid a  larger sum for the right to supply the NFL’s jerseys and sideline apparel.

And as for the apparel itself?  Apparently we can expect a radical change to the NFL’s uniforms, according to CNBC’s Darren Rovell’s interview with Nike Brand President Charlie Denson,

Darren: Many fans want to know how much you are going to change the jersey. Will it be similar to what you’ve done in college with pretty significant overhauls?

Denson: We plan on changing the NFL jersey dramatically just like we’ve done with the college programs, using new thinking and the greatest technology available. The NFL program hasn’t had the same type of advancement in recent years. (via CNBC)

It’s been an impressive few months for Nike.  When they weren’t stealing Adidas’ spot light as title sponsor during the 2010 World Cup, or being mentioned as the “big sponsor” behind Team USA basketball during this summer’s World Championships, they apparently were plotting to score a sponsorship deal with the NFL.  The NFL deal comes on the heels of Nike reaching an all-time high stock price (a record which has since been broken), after the company set several financial records, including highest gross margins, free cash flow, and direct-to-consumer sales.

While Nike is riding the high of what will be a huge NFL deal, what about the company that lost the sponsorship, Reebok?

To say that the revenue obtained from the NFL deal was a large piece of Reebok’s revenue pie?  That’d be an understatement.

Citigroup Inc. estimates that nearly $350 million of Reebok’s $565 million in annual US sales came from their NFL contract (approximately 2% of Adidas’ overall yearly revenue).  While Reebok does have licensing deals with other sports (MLB, NHL, MLS) and high profile endorsers (Chad Ochocinco, Sidney Crosby, Peyton Manning, and John Wall all endorse the ZigTech line), the sales obviously pale in comparison to the roughly 60% of sales generated from the NFL contract.

$350 million dollars…So, does losing more than 62% of their yearly U.S. sales revenue effectively kill Reebok?  Not exactly.

There has been a shift within the Reebok organization towards womens athletics and fitness, hence the ZigTech line, and Reebok’s wildly successful Easy-Tone shoe product.  Of course, for the sake of comparison, Reebok’s Easy-Tone shoes, which were consistently sold out at various stores during the summer months, allowed Reebok to double their market share in the womens footwear industry to 7% (approximately $90 million in sales), with Nike still dominating the industry with more than 30% of the market share.

$90 million is a far cry from $350 million…but such is the cost for shifting the company’s focus.

Nike has always had an advantage over its two competitors; it took Reebok being purchased by Adidas in 2006 to even make the yearly revenue comparable.  They simply have more money to spend on the big sports sponsorships, especially when they’re otherwise intrinsically tied to the sport, as they are with football.

Maybe, for now at least, Adidas and Reebok are resigned to finishing in second place.

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