Nike Inc. NKE has taken another step toward enhancing its popularity by signing a lifetime endorsement deal with basketball star LeBron James. Though the terms of the deal were not disclosed, this is reportedly the biggest endorsement deal in Nike’s history.
According to a report by The Walt Disney Co.'s DIS ESPN, the latest Nike deal is of much more significance than the 10-year contract signed with Oklahoma City Thunder forward Kevin Durant last summer, worth about $300 million.
Coming back to LeBron James, the Cleveland Cavaliers forward has been associated with Nike since 2003, when he signed his first 7-year shoe deal with the sportswear maker for $93 million. He was then a high school superstar. Later, he signed another deal with Nike in 2010.
So far in his career, LeBron has won two National Basketball Association (NBA) titles, appeared in three other Finals in a losing effort, won four Most Valuable Player (MVP) Awards and two Olympic gold medals.
What the Deal Means for Nike?
Given the strong business it has received from the LeBron range of shoes over the past 12 years, Nike believes the lifetime deal will significantly benefit its business and brands as well as provide incremental value to shareholders. The company sees immense potential for business growth from the increasing popularity and demand for the NBA star’s shoes and apparel throughout his playing career as well as after he retires from the game.
Nike’s strategy of gaining from the popularity of players throughout their career and beyond is not new. This was earlier seen in its Jordan brand, which did handsome business even after the NBA star Michael Jordan retired in 2003.
While the success of Jordan so far has mainly come from the U.S. market and the sale of sports gear to men alone, the company notes that the NBA game has gone global and now women make for about half of the viewership. This has increased the scope for expanding the brand internationally, which means more business. Consequently, the company recently doubled its annual sales target for the Jordan brand to $4.5 billion.
We believe Nike is trying to put together a similar game plan for its LeBron James collection.
While the deal ties the two brands forever, the partnership between the NBA star and the Sports gear behemoth will have to stand the test of time. Apart from that, we note that such deals expose both parties to the pro of rising with every successful game and at the same time the con of falling with every failure.
Nike currently has a Zacks Rank #2 (Buy). Other favorably ranked stocks in the same industry are Caleres Inc. CAL and Francesca's Holdings Corporation FRAN, both carrying a Zacks Rank #2.
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