No. 307: A Whirlwind Week for Nike

One of the biggest questions asked this week: what will Nike do next? In just seven days, Nike landed three major stories. Known to make the best out of controversial situations, Nike’s biggest brand test may come in early summer 2019. That’s when the brand will be tasked with spinning one of the most embarrassing failures in its recent memory. For Nike – a brand that has positioned itself as a sociological compass as of late: this week began as a test of their evolved brand position. Nike has tended to the question: “how do we address what others have broken?” This week, they were forced to ask: “how do we address what we’ve broken?”

It’s been a whirlwind week for Nike. Five days ago, the biggest amateur basketball star since Lebron James was injured after his shoe malfunctioned in a game. The sporting event was in such high demand that tickets were for sale on the secondary market for nearly $2,900 per seat. Students waited the customary 39 days outside of the Duke arena for their coveted seats. And President Obama made a rare, sideline appearance with his custom Rag & Bone “44” aviator jacket and black Allbirds. When Zion Williamson went down with his knee injury, a television camera panned to the former President who is seen pointing with concern, “his shoe broke.”

It’s been a whirlwind week for Nike. Four days ago, the biggest story in recent NFL history settled an alleged collusion case against the league. The former quarterback’s case against the league’s team owners. The case was said to have some merit and it’s rumored that the cash value was substantial enough to please both sides of the table. The case was settled with complete confidentiality, paving the way for the small chance at a return to the gridiron. Colin Kaepernick, who’s announced signing by Nike caused waves throughout all of sports, released his first product with Nike on the day after the conclusion of his lawsuit. Now a symbol in and of itself, Nike’s simple, generic black jersey with his former number sold out instantly.

It’s been a whirlwind week for Nike. Just one day ago, arguably the greatest athlete of all time voiced and starred in a new Nike ad. Serena Williams narrated over just a few of the recent, iconic moments for women in sports. It was an emotional advertisement directed by Kim Gehrig, the same woman who directed the recent Gillette ad that called toxic masculinity into question. While the Gillette ad was met with, both, praise and disgust – the Serena Williams-narrated project was widely loved. In a matter of hours, the ad was reportedly watched over 17 million times across Facebook, Instagram, Youtube, and Twitter. Featuring Simone Biles, Chloe Kim, Ibtihaj Muhammad, and several members of the U.S. Women’s National Soccer Team, some would argue that Gehrig’s ad was the star of the Oscars – the ad’s broadcast premiere.

In our Member Brief entitled “The Nike Report“, I wrote:

Nike wants to own iconography. And in sport, that also means sports history. For a company that wants to own history, they own very little of it today. If you’re a history enthusiast, you can watch clips of Jesse Owens in 1936 Berlin exhibiting heroics in first-generation Adidas track spikes, hand delivered by Adi Dassler. Or you can watch Muhammad Ali swinging at other boxers with Everlast on display. Now, Under Armour owns his rights in a protective attempt to prevent Nike from using their marketing wizardry to build their cache. And in a similar attempt, Adidas owns the rights to Jackie Robinson.

Nike has always been in the business of iconography: Pre, Jordan, Bo, Tiger, Serena, Agassi, Kobe, and now Lebron. But as the brand’s stock trades at historic highs, the Portland company seems to have its eyes set on more. It’s emphasis has shifted towards its role in sports history, supporting people, social movements, and milestones that may not be as popular in the moment as it will be once the history shifts. History has a way of changing things. The way that consumers view things today may be different in a decade or two. The brand seeks to be on the right side of history – as long as it is or will be profitable. Careful capitalism, if you will.

The Zion Debacle

Nike’s week began with a shoe malfunction during one of amateur sports’ biggest stages and ended with a new ad that made consumers temporarily forget about the high profile injury. But from all accounts – Zion Williamson, himself, is undeterred. Several credible sports news outlets are on record with his plan on returning to the team. In a recent San Francisco Chronicle article, “Why Zion will keep playing at Duke“:

Why? Because he’s a competitor, a joyous athlete having the time of his life. Because he couldn’t imagine quitting on his teammates. Because the NCAA Tournament is one of the grand theaters of sport, giving him exactly the exposure he needs going into the draft. And because there’s nothing more ludicrous than the perception that every high-profile freshman is really just a dimwit who never goes to class and spends 14 hours a day on the basketball court.

Unlike many potential first round draft picks, Zion’s earning potential may actually rise if he closes out his “one and done” season in championship fashion. His brand equity has rare potential. Marketers like Adidas, Nike, and Under Armour pay a premium for athletes who are more than the game that they play. Listen to Zion in a post-game interview. He’s as All-American as a kid can be. From his mannerisms to his charisma and book smarts, he has the potential to transcend the sport that he plays. Much like a few of his predecessors.

Below, is a sortable breakdown of the NBA’s top stars and rookies. Williamson currently ranks number 15 among the combination of high powered NBA veterans breakout rookies. Two of his metrics surpass the median social media interest of the group.

 Rookie YearShoeAverage Value ($M/yr)TwitterInstagramTSP% IG Growth
LeBron James2003Nike3242,200,00047,200,00089,400,00052.80%
Steph Curry2009UA1213,200,00024,200,00037,400,00064.70%
Kobe Bryant1996Nike1614,100,0009,300,00023,400,00039.70%
Dwyane Wade2003Li-Nang87,900,00012,600,00020,500,00061.50%
Russell Westbrook2008Nike Jordan55,940,00012,400,00018,340,00067.60%
Kevin Durant2007Nike2517,400,000353,00017,753,0002.00%
Kyrie Irving2011Nike84,300,00012,500,00016,800,00074.40%
James Harden2009Adidas146,170,0009,100,00015,270,00059.60%
Joel Embiid2014UAN/A1,600,0003,300,0004,900,00067.30%
Ben Simmons2016Nike4-6765,0003,900,0004,665,00083.60%
Paul George2010Nike5.52,060,0007,500,0009,560,00078.50%
Damian Lillard2013Adidas101,580,0005,100,0006,680,00076.30%
Karl-Anthony Towns2015NikeN/A452,0002,300,0002,752,00083.60%
Zion Williamson2019TBDTBD229,0002,500,0002,729,00091.60%
Luka Doncic2018NikeN/A376,0002,300,0002,676,00085.90%
Jayson Tatum2017NikeN/A393,0002,200,0002,593,00084.80%
Donovan Mitchell2017AdidasN/A418,0002,100,0002,518,00083.40%
Brandon Ingram2016Adidas2371,0002,000,0002,371,00084.40%
Derrick Rose2008Adidas112,620,00041,5002,661,5001.60%
Kristaps Porzingis2015Adidas3-6354,0001,600,0001,954,00081.90%
De'Aaron Fox2017Nike2225,0001,200,0001,425,00084.20%
Trae Young2018AddidasN/A204,0001,200,0001,404,00085.50%
Dennis Smith2017UA1.5-2192,000802,000994,00080.70%
Michael Porter Jr2018PumaN/A36,300684,000720,30095.00%
Marvin Bagley III2018Puma6-879,900565,000644,90087.60%
Buddy Hield2016NikeN/A113,000447,000560,00079.80%
Deandre Ayton2018PumaN/A59,700353,000412,70085.50%
Josh Jackson2017UAN/A64,300331,000395,30083.70%
Myles Turner2015NikeN/A95,100169,000264,10064.00%
Zhaire Smith2018PumaN/A19,00040,00059,00067.80%
AVG4,117,2105,609,5179,726,727
MEDIAN405,5002,150,0002,668,750

This begs the question, which shoe brand will land Zion? By most accounts, Nike will be the shoe brand that markets a fortified signature shoe for the 6’7″ 290 pound, 19 year old phenom out of Salisbury, North Carolina. Both Duke and UNC are deeply entrenched in Nike lore. Michael Jordan’s brand is adored at his Chapel Hill alma mater. And no college coach in America is paid more by Nike than Duke’s Michael William Krzyzewski.

According to Patrick Rishe, a sports business writer for Forbes, Williamson is looking at a shoe endorsement deal that will yield an annual value of $9-10.5 million. This figure would place him seventh overall, far surpassing the NBA’s existing rookie deals – even the highly inflated Puma deals. And ESPN’s Dan Le Batard was quoted as saying that Williamson’s brand and visibility is worth a rookie contract worth $80 million.

The story of the week was about Nike’s short term recovery. While the brand temporarily lost $1.1 billion in value after the injury, the stock’s devaluing was a red herring of sorts. At the surface, pundits and casual observers viewed the malfunction as a gift to Adidas, Puma, or Under Armour. Summer 2019 is shaping up to another example of Nike’s masterful messaging. All data and smart commentary points to a different conclusion.

Footage of this product malfunction will be on repeat for as long as the young athlete is in the spotlight. It’s part of his Williamson’s story. Nike’s next shoe, specially designed for him, will likely be marketed as ‘fail proof.’ It will be a product advancement and a symbol of material progress. If things go their way, Nike will engineer first shoe made for a giant who plays with the explosive leap and versatility of a player 100 pounds lighter and five inches shorter. Fortunately for Williamson, it’s in Nike’s best interest to offer him one of the richest rookie contracts in its history.

Read the No. 307 curation here.

Report by Web Smith | About 2PM

No. 292: GOAT, the media brand

OFF

Marketplaces are beginning to own demand. Today, a high school kid named Darius Bazley signed an endorsement with New Balance for $14 million.  When you make an agreement like this, you forfeit your ability to play NCAA basketball. In his case, it is by design. He’ll train for the next year in preparation for the 2019 NBA Draft. And in the meantime, he’s successfully monetized his early success and hedged against later injury or failure. He’s a millionaire without playing a single moment of NBA basketball.

In May, Bazley signed with the prominent agent Rich Paul, who represents LeBron James, John Wall and Ben Simmons among Klutch Sports’ 18 N.B.A. clients. This week, Paul revealed he has arranged for Bazley to spend the heart of the college basketball season — January, February and March — as an intern at New Balance.The internship, to be precise, is folded into a handsome shoe contract Bazley, 18, has landed with New Balance on the lure of his pro potential. According to Paul, Bazley’s multiyear deal will pay him $1 million “no matter what happens” with his N.B.A. career — and can pay up to $14 million if he reaches all performance incentives.

In America, sneaker culture has been a catalyst for many notable shifts in media, sports, education, and business. Shoe promotion began with a marketing concept that continues to evolve. Almost 100 years ago, Converse sneakers debuted with little to no fanfare. This is the way things remained until four years later when pro basketball player Chuck Taylor made a few design suggestions. His celebrity endorsement set a marketing precedent that continues today. Without Mr. Taylor, there would have been no Michael Jordan or Kobe Bryant or Lebron James – basketball athletes who we can attribute billions of dollars in economic impact.

People find meaning in sneakers, so their choices are driven by brand identity.

Elizabeth Semmelhack

With this storied foundation, ne of Y-Combinator’s 100 most promising startups is responsible for one of the most meaningful maneuvers in online retail marketing.

The precursor to GOAT was a startup called GrubWithUs and it was failing despite $7 million in capital raised by cofounder and CEO Eddy Lu. GOAT, short for greatest of all time, was a last minute hail mary that scored. Thanks to a resale promotion of Kanye West’s then-popular Adidas shoe, the eCommerce reseller and database exploded in popularity in 2015.

After four months of operation, in November of 2015, the then-nobody company launched a Black Friday campaign discounting the hottest styles of the year at retail prices. “That year we were talking about the Turtle Doves, the Supreme Fives,” said Lu. “The internet picked it up and it kind of blew up, and every kind of blog picked up this Black Friday campaign.” Over 100,000 users installed the app to take advantage of the sale, causing the newly-launched startup app to crash repeatedly. 

Business Insider

This fueled a new fundraise of $5 million in 2016. And an additional $80 million over the next two years. In March of 2018, GOAT merged with legendary sneaker reseller Flight Club, a New York City retailer credited with pioneering the online reseller space. Partly to bolster its street credibility but mostly to better compete against StockX, a sneaker stock market of sorts. Funded by Quicken Loans and Cleveland Cavaliers owner Dan Gilbert and decidedly more connected in the sports world, the StockX app has raised $50M in the past few years.

Kyle Kuzma’s Partnership with GOAT

You may not have heard of Kyle Kuzma but the second year player hit the ground running as an NBA rookie in the 2017 season by averaging 16.1 points in 31 minutes for the Los Angeles Lakers. In the final year of a two year Nike deal, Kuzma is permitted to wear any shoe with a Swoosh. And given that the NBA recently loosened its dress code for the 2018-2019 season, athletes can now wear any color of sneakers during their games. To recap, GOAT partnered with a young, up and coming player that:

  • plays for the most visible NBA franchise
  • plays in one of GOAT’s most pivotal markets (Los Angeles, California)
  • plays beside the most visible player in the NBA (Lebron James)
  • is permitted by his current contract to work with GOAT (Nike)

GOAT, the media brand. By partnering directly with an NBA basketball player, GOAT is cutting out many of the media companies that have grown to become gatekeepers for sneaker culture. Rather, GOAT is laying the groundwork to control its own content. They can determine the shoe featured and the day that it’s worn. In doing so, they can optimize around the varying degrees of serendipity that these types of partnerships influence. The result: greater organic predictability as their stable of athletes continues to grow through and beyond the NBA.

In covering Wish’s good fortune, 2PM discussed the unpredictability of these types of arrangements in depth in No. 276:

With Lebron’s recent signing, the new face of the organization will move the Los Angeles Lakers from number five to number one overall in jersey sponsorship value. The anticipated $25 million in advertising value that Wish is set to generate in 2018-2019, on top of other advertising efforts, may finally push Wish into a mainstream media conversation dominated by few.

In that article, we assess the value of Lebron James’ arrival in Los Angeles. GOAT’s arrangement with Kyle Kuzma took advantage of this increase in value for the Los Angeles Lakers. Given his exclusivity with Nike, Kuzma will likely work closely with James (who has a lifetime deal) to feature shoes that will further increase the resale value of select Nike shoes.

Kuzma is currently entering his final season of a shoe deal with Nike. The first brand ambassador for the GOAT app, he will be seen in pre-game and on court in shoes that will be featured on the homepage of the site. In theory, this will not only drive traffic for the shoe reseller, it will increase the value of the shoes that have been injected into the LA Lakers storylines.

Screen Shot 2018-10-22 at 2.48.42 PM
GOAT’s September search analysis: a needed shift towards Nike business

The NBA’s brass has been incredibly creative, allowing their players to forge their own futures outside of their time on the court in ways that have been increasingly beneficial for the league For Kuzma, this is a smart partnership. But it is also a new door into the NBA’s marketing machine. Self-expression isn’t just about pre-game any longer. And for GOAT, an app that got its start by way of an Adidas craze, the Kuzma partnership allows them to hedge with deeper ties to Nike.

Learn more about GOAT here. And read the no. 292 curation here.

By Web Smith | About 2PM