Already a Bloomberg.com user?
Sign in with the same account.
Sports Business: NEW VENTURES
THE GAME'S THE THING AT NIKE NOW
It's barging into the business of producing sports events
First, Nike made sneakers. Then, it paid huge fees to top athletes to wear them. Now, with the launch of Nike Sports Entertainment, Nike Inc. is taking a long jump into the business of producing and promoting global sports events that feature its growing stable of superstars, including Michael Jordan, Tiger Woods, and Monica Seles.
Nike is kicking off this venture in typical in-your-face style. In early December, the Beaverton (Ore.) company laid out a record-setting $200 million to sponsor the Brazilian soccer team for the next 10 years. Among other things, the 1994 World Cup champions will appear in up to five Nike-organized matches a year. Such deals seem to have huge potential: Nike's first event, Hoop Heroes, a basketball extravaganza in Japan in September starring Jordan and Charles Barkley, sold out in 20 minutes. Track-and-field meets in Japan and Australia are planned for 1998, and negotiations are under way to schedule soccer matches between Brazil and other Nike-sponsored national teams, including those from Italy and the U.S. Tennis events are on the drawing board, as well as a golf tournament featuring Woods in Japan later this year. "What we're trying to do is be in a position to better utilize the assets we have--be they individual athletes or teams," says Ian B. Campbell, director of Nike's new venture.
Their marketing value aside, the events' TV rights, ticket sales, and corporate sponsorships could give a big boost to Nike's booming revenues. On Dec. 18, Nike reported earnings for its fiscal second quarter up 81%, to $176.9 million, as sales jumped 55%, to $2.1 billion. International sales, which accounted for 37% of Nike's total, led the way, increasing 60%, to $779.3 million.
Analysts are bullish about the financial prospects for Nike Sports Entertainment since they expect that the sale of more Nike products-- as well as revenue from ticket sales, TV rights, and corporate sponsorships--will more than offset hefty operating costs. And they applaud Nike's emphasis on soccer, the world's most popular sport. One soccer match, for instance, might initially garner $750,000 from ticket sales, $1 million in TV rights, and some $200,000 for sponsorships. On top of that, experts estimate that Nike could snap up as much as $10 million more annually from sales of soccer shoes and apparel. "It's going to take time, but it will be significant," says Smith Barney analyst Faye Landes.
Becoming a big promoter of the sport could also help Nike cut into the market share of Germany's Adidas, the No.1 maker of soccer shoes and apparel. "This gives Nike immediate entree to international markets in a huge way," says analyst Jennifer Black Groves of Portland (Ore.) brokerage Black & Co.
Still, some in the industry wonder whether Nike isn't spending a bit too freely. The $200 million Brazilian contract, for instance, which is on top of money spent to buy out the team's contract with its previous sponsor, far exceeds anything paid to a soccer team before. "Nike may be its own worst enemy in some regard because it has jacked up costs [so much]," says James T. Gorman, a former Nike executive who is now CEO of Diadora America, a maker of shoes and apparel for soccer and tennis.
A SECOND TRY. Some also question how well Nike can run a business that is so foreign to making shoes and clothes. "Nike doesn't sell sponsorships for a living. It doesn't sell TV rights," says Hughes Norton, agent for Woods and a senior vice-president at International Management Group, the sports management powerhouse that produces a massive roster of events. "It's not rocket science, but sponsors have to know they're getting value for their money." Despite the skepticism, IMG is holding discussions with Nike about co-sponsoring some events, including the proposed golf match in Japan. Moreover, says Norton, the two might actually "collaborate" on producing future events. Nike acknowledges its talks with IMG but says they focus only on routine sponsorship and on helping to sell TV rights, a job for which Nike is considering several other companies as well. "We are not looking for people to help co-produce these events," says a Nike spokesman.
Sports Entertainment isn't a new concept at Nike. A few years ago, it explored the idea of teaming up with Michael Ovitz and Creative Artists Agency to stage major sporting events. The two sides differed in their visions, and the project soon fizzled. But Campbell and some analysts quickly dismiss the idea that this new venture would meet the same fate. Says Smith Barney's Landes: "Underestimating what Nike can pull off is always a bad idea." In other words, just don't do it.By Linda Himelstein in San Franciso