Endorsements: Why Sport Companies spend so much on athlete endorsements?

"Be like Mike". One of the most recognizable advertisement centered around Michael Jordan in the 1990's. At this time, every single kid wanted to be like Mike. He was the best player in the NBA, putting on the show every night on the court and leading the Chicago Bulls en route to their first NBA Championship. Jordan made everything easy while he was playing but he was as well the man who changed the life of Nike.

Jordan had always worn Converse, the sneaker of choice for both his college coach and the United States Olympic Committee, and the de facto historical choice of most hoopsters. Michael has since said that he, like many players, believed that Adidas made the best product. Had he gotten a decent offer, Jordan probably would've signed with either Converse or Adidas. But Nike made the biggest offer (five-year $2.5 million deal + $500,000, on advertising that would feature Jordan) and Jordan signed with Nike to become the biggest endorsement deal the world has seen.

In 2012, the Jordan brand sold $2.5 billion worth of shoes at retail, its best year ever, according to market retail tracking firm SportsOneSource. Air Jordans made up 58 percent of all basketball shoes bought in the U.S. and 77 percent of all kids' basketball shoes. Most of those kids didn't even see Michael Jordan play.

So, Why Nike decided to land Michael Jordan? Why did they take so many financial risk?

Today, endorsements is one of the most effective way to get the product out there and make it appealing.

The marketing industry these days is so vital and important not only to the marketers, but to the consumers as well. When it comes down to what consumers want or need, it all goes in to how well a product is presented to them. And athletes who're performing in their league, winning record and have the style and the skills help create competitive advantages in the marketplace which help ensure the long-term success and profitability of big name companies.

The increase in revenue created from these competitive advantages from athlete endorsements easily outweighs the costs brands pay athletes in order to endorse products, making athlete product endorsements highly effective.

One of the recent example of how endorsement is actually working is all about the relationship between Stephen Curry and Under Armour. Under Armour is a rising brand,who took over the second place position in the US sportswear market (ahead of Adidas but way behind Nike).

Under Armour is known for making great efforts in increasing its presence in the football sponsorship game ( partnership with Tottenham for instance) and in the basketball sneaker game. With only 0.35% of the market share on basket ball shoes at the end of 2013, its presence is virtually non existent, with Nike holding almost 93% of the market share (thanks in large part to its Jordan Brand).


However, the game is evolving and Under Armour knows it. That's why Under Armour  has made a major statement of its intention to be player in basketball with the pick of Stephen Curry, the world’s fastest rising basketball star. Yet within just a few seasons of entering the NBA, Curry has become one of the world’s most recognizable athletes and one of the sport’s most electrifying players. At age 26, Curry already owns three league records, including the most three-point field goals made by any one player in a season.


 

Curry’s sensational rise is precisely the platform Under Armour has been waiting for to launch its attack on the basketball market.


Here is the latest ad from Under Armour, starring Stephen Curry and Jamie Foxx.

Under Armour is growing faster and the addition of Stephen Curry has almost everything to do with that. But it's not the only one strategy Under Armour is carrying out. Young and talented players are not the only way to promote products and ultimately sell them.

Under Armour knows how relevant are some athletes, no longer in the competition but still selling products and making money. The perfect example is the deal made with Muhammad Ali, 73 years old, regarded as the best boxer ever, but not only:  The legendary boxer was known in the 1960s and 70s for his over-the-top personality, his crafty moves in the ring and his outspoken politics. For Under Armour, it's a means to capitalize on "one of the most recognized and celebrated figures of all time" (Kevin Plank, CEO Under Armour).

However, endorsement is not that simple. In reality, companies have to deal with so many other components to ensure a highly successful partnership.

 

Indeed, whether the athlete is the best in this category or not, companies should look at what's so called "Off-field attribute":

- Personality

- Physical attractiveness

- Role model

- Behaviour outside the field

Brands should look for athletes who possess most of the off-field attributes above. Even when one of these attributes is clearly not achieved, possessing the on-field attributes and the other off-field ones may just be enough. For instance, Tiger Woods, still the biggest earner in terms of product endorsements, has been known mostly for his much publicized marital affairs as well as Kobe Bryant, who lost his endorsements deal with Nutella and McDonald's after the NBA star was caught up in a sexual assault cause.

Injuries is also a big deal for companies and the best example of that is Derrick Rose. Derrick Rose was on top of the basketball world in February 2012. The point guard was the NBA’s reigning MVP after averaging 25 points per game and leading the Chicago Bulls to the NBA’s best record during the prior season. At 22, Rose was the youngest player ever awarded the MVP trophy. He was playing in his third straight All-Star game and in the process of leading the Bulls to the top of the NBA standings.

After signing up a 13 years deal worth $185 million, the nightmare for Adidas has begun. 3 injuries in 3 years for their superstar and a career in doubt. Like the motto said " Timing is everything" and Adidas is now trying to figure out a way of expanding its offering beyond just Rose, even though Rose was the bottom line of their marketing strategy in US.

 

That's why sport company has to manage between player performance on and off the field.

To conclude, these highly profitable rates of return earned on investments by big name brands on endorsement deals paid to athletes are actually, well, quite a bargain for companies to capitalize on in order to increase brand awareness, equity, image and thus long-term success and revenue.

Here are few figures on this point that are worth considering (take a look at endorsements + click on Overall) :

http://www.forbes.com/athletes/list/#tab:oldest_sortreverse:true

Then, here are the Nike highest paid endorsements deal:

http://www.tsmplug.com/richlist/nike-highest-paid-endorsement-deals/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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