Sports Business: Basketball
Yikes! Mike Takes a Hike
How Jordan's exit is shaking the world of sports business
On Jan. 13, when His Airness--aka Michael Jeffrey Jordan--officially stepped down from his throne, the earth didn't stop spinning and the stars stayed in the sky. The world of sports business, however, did register a seismic tremor on its Richter scale.
Life Without Michael will be tough on NBA fans as they file back to a truncated basketball season. But they're not the only ones who will be hurting. His decision to retire after 13 extraordinary years of skywalking across the NBA has shaken the league. After narrowly averting a shutdown of the entire season, the NBA now faces the formidable task of trying to win back fans without its No. 1 draw. The void will be felt by the TV networks, too, as they brace for an inevitable drop in ratings, and by corporations, long buoyed by Jordan's massive appeal, as they struggle with how to replace arguably the most perfect player--and certainly the most perfect pitchman--of his generation.
Jordan is more than a basketball star. As marketers say, he's a powerbrand--a player whose popularity and reach is peerless in the history of sports business. "Michael Jordan is greatness," says Rick Burton, director of the Warsaw Sports Marketing Center at the University of Oregon.FIRST PAIN. The NBA is likely to suffer the earliest and biggest blow. Jordan has pumped about $1 billion in revenue into the league by beefing up attendance, stoking merchandise sales, and increasing the value of broadcast rights, according to Andrew Zimbalist, a Smith College economist who advised the players' union during the lockout. The NBA was already reeling from the effects of its five-month lockout before M.J. hung up his Air Jordans. Many fans, who viewed the feud as quibbling among millionaires, have grown apathetic and say they are less likely to attend games this year. For example, only 75% of Detroit Pistons season-ticket holders have renewed their packages, down from the usual 85%, the team says. And only 30% of people with partial-season plans have re-upped. The Pistons expect both numbers to rise, but neither will reach its usual level.
Clearly, the Chicago Bulls stand to lose the most. Since a group led by Jerry Reinsdorf bought control of the Bulls for $9.2 million the year after Jordan arrived in 1984, the team's value has grown more than 2,000%, to over $200 million. The first pain will be from falling ticket sales. Jordan's retirement could end an amazing streak in which every Bulls game since Nov. 20, 1987, has been sold out. At up to $80 a ticket, "I don't know if people are going to come back to watch an average team," says Chicago sports agent Stephen Wade Zucker.
And the Bulls won't be the only team to suffer. Jordan has been a top draw wherever he plays. In his last visit to the Georgia Dome to play the Atlanta Hawks, Michael pulled in 62,000 fans--an NBA record. And 5,000 had no view of the court. They paid up to $10 to watch the game on a video board suspended from the roof, says Hawks President Stan Kasten. The Vancouver Grizzlies had two sellouts last year--games against the Los Angeles Lakers and the Bulls. Laments Orlando Magic Senior Vice-President Pat Williams: "Our No. 1 product just decided to walk away."
Jordan's absence is sure to suck profits from the NBA's lucrative licensing deals. The Bulls generate more apparel dollars than any team in the league, and Jordan long accounted for as much as a third of the league's sales, according to some estimates. While merchandise licensees didn't expect Jordan to play much longer, the '98-'99 season will be a lost year for an industry that was already seeing sales drop 50% to 60% in the second half of '98, says John Horan of Sporting Goods Intelligence, a Glen Mills (Pa.) newsletter.
As ticket sales decline, so will television viewership. This year, NBC, which has aired NBA games for the past eight years, begins a four-year $1.75 billion contract, and it's bracing for a ratings dip. In 1994, when Jordan forsook the basketball key for the baseball diamond, NBC's season ratings slumped from 4.9 to 4.6. And last year, ratings for NBC, TNT, and TBS were as much as 70% higher fro Bulls games than for others. During the playoffs--not even the finals--games with Jordan pulled down a 10.9 rating vs. a 5.4 for games without him.
Despite the imminent challenge, the network brass remain cool. "We've been here before," says Dick Ebersol, chairman of NBC Sports. "When we acquired the NBA in 1990, there were those who wondered where we'd find a defining superstar on the level of Larry Bird or Magic Johnson, who were about to retire." But despite such stiff upper lips, there is no obvious Jordan successor. And his departure has to be a blow to efforts aimed at luring back viewers. After the NBA lockout ended, Ebersol noted that the league has its work cut out. "There's no question in my mind that the real long-term basketball fan will be back almost immediately," he said. "The casual fan will take us some time."
Time is about the only thing that stands a chance of dulling Jordan's highly polished image. His slam-dunk appeal as an endorser will change little in the short term. Even though Jordan's agent, David Falk, long ago signed Jordan to multiyear deals with corporate partners, marketers still show the same zeal for the superstar today.
Gatorade is typical: It doesn't plan any immediate changes in its marketing program because of Jordan's announcement. The brand--which has more than doubled its sales during Jordan's tenure as an endorser--will continue using him in about one-fifth of its commercials, showing him both on and off the court. "Michael has a work ethic and competitiveness that transcend the court," says Susan D. Wellington, president of Quaker Oats Co.'s U.S. Gatorade division, which has used Jordan as an endorser for eight years. "Right now, I'd like to meet the idiot who stops using him."SECOND SHOCK. Nike Inc., Jordan's first and most important major corporate partner, also says it plans to deepen the relationship. The athletic-shoe company has made elaborate preparations for Life Without Michael on the court, creating a separate Team Jordan brand that could be expanded beyond athletic wear, says Larry G. Miller, president of Nike's Jordan Brand.
Still, Nike certainly didn't need another hit to its sports-marketing machine. Even before the Olympics scandal in Salt Lake City started giving sponsors like Coca-Cola, U S West, and UPS the jitters, sports-star saturation was starting to show. Nike annually spends $500 million on endorsements and sponsorships that range from Jordan to the Brazilian national soccer team. Yet its earnings are off by more than 50% in its just concluded second quarter, in part because of higher endorsement expenses and the NBA strike. Nike recently said that it would trim $100 million from its endorsement budget for 1999.
Its sales, already battered by Asia's economic slump and shifting fashions, are likely to suffer as Jordan's retirement and ill feelings from the NBA lockout keep fans away from the game. The retirement effect hit as early as Jan. 12, when news stories about Jordan's expected announcement were all over the daily papers and TV. Nike shares slipped more than 4%, to 42 5/16, as investors worried that sales of the company's athletic shoes and apparel would take a bad bounce upon Jordan's exit.
The biggest question for Nike is whether Jordan's brand can endure over the long haul. "People fade in retirement," says Jim Davis, chairman and CEO of New Balance, which does not use endorsers. "His name will be out there for a year or two, but after that, it won't mean a hell of a lot--at least in terms of endorsements. When an endorser is not seen in action, his value diminishes."
Most athletes who have maintained a high profile after retirement--like Joe Namath or Arnold Palmer--have done so by endorsing adult products. Jordan is far more popular than Palmer ever was, particularly globally, and he could continue endorsements that don't directly relate to sports. Nike has portrayed him as a fleet-footed CEO and will focus more on his core values of hard work and dedication in future ads. Sara Lee Corp. pays him to promote Hanes underwear and Ballpark Franks and almost never shows him on the court. "You can still use Michael Jordan the person," says Jim Andrews, editor of IEG Endorsement Insider, "but you may need to change the message."CORPORATE PLAYER. Still, a huge part of Jordan's appeal has always been to kids. That's why he starred in Space Jam, a Warner Bros. live-and-animated movie that brought in $250 million globally. By 2010, though, there will be an entire generation of kids who have not watched His Airness play a single game. To them, he may have more in common with Joe DiMaggio and Joe Montana--legends of yesteryear--than with the stars of the moment. "If he's not positioned well, it's just a question of a couple of years before he loses the power of being a credible and meaningful endorser," says Seth M. Siegel, co-chairman of Beanstalk Group, a New York firm that negotiates licensing deals for companies, including Coca-Cola.
Even so, Jordan will still have much to offer Corporate America. His uncanny connection to consumers could translate into a job as a corporate adviser or even director. "He could provide consumer-marketing advice at the top of the company and an increase in the company's image," says Charles A. Tribbett III, managing director for headhunters Russell Reynolds Associates Inc. in Chicago.
Looking businesslike in a black suit and gold tie at his farewell press conference, Jordan said he will indeed look to the corporate world to satiate his "competitive juices." And he barked: "A lot of people say Michael Jordan doesn't have any challenges away from the game. I dispute that."
The first challenge for Jordan and his advisers is to decide quickly how to position him. He could do another movie and hit the speaking circuit. He could become a part-owner of an NBA team, as former Pistons star Isiah Thomas was until he sold his share of the Toronto Raptors. Or maybe he could get involved in public-interest causes or politics, as former New York Knicks star Bill Bradley did. Senator Jordan. Now there's a mountain Michael hasn't conquered.By Roger O. Crockett, with David Leonhardt and Richard A. Melcher in Chicago, Mark Hyman in Baltimore, Ronald Grover in Los Angeles, Linda Himelstein in San Francisco, and Richard Siklos in New YorkReturn to top