This Should Terrify Nike Inc Stockholders Everywhere
Here’s a sentence I never thought I’d write: Nike Inc. (NYSE:NKE) may be under siege from Under Armour Inc. (NYSE:UA). Every young athlete now has Under Armour as a staple in their fitness wardrobe, making the company a serious competitor to Nike. (Source: Under Armour is on pace to be one of the fastest growing sports brands in history, Business Insider, October 14, 2015.)
Moreover, Under Armour knows how the secret of holding onto that base.
Slick commercials featuring the world’s greatest athletes used to be the exclusive province of Nike. If you won an NBA title or a FIFA Championship, you expected an offer by the next morning. A Nike pay cheque was the real prize.
Cut to two months down the road and that athlete’s face would be plastered over every billboard and TV screen. Last year’s standout athlete in the NBA was Stephen Curry of the Golden State Warriors.
Not only did Curry have the best shot and handles in the NBA, but he won a Championship and the Most Valuable Player award. How big was his Nike contract?
To put it simply, he didn’t get one. Under Armour beat them to the punch.
Two years before, Nike failed to match a $4.0 million offer from Under Armour, losing the young point guard for a fraction of his worth. It was short-sighted not to fight for a player of his talent. (Source: Stephen Curry extends sponsorship deal with Under Armour through 2024, ESPN, September 16, 2015.)
But that kind of oversight is a trademark failing for entrenched business powers that haven’t faced real competition in a while. They develop blindspots.
Meanwhile, Under Armour’s early courting of Stephen Curry shows the benefits of a young and hungry firm. Nike better watch out.
Nike Stock is Vulnerable to Under Armour’s Advances
Under Armour shoe sales are up 40% in the last quarter, directly reflecting the popularity of Stephen Curry. His personally-branded sneaker, the Curry One, came out during the last NBA season. They made $153 million in three months off that shoe.
Curry’s follow up, the Curry Two, will hit stores on October 24th. The firm has also attracted big names from other sports, like Tom Brady, the legendary quarterback for the New England Patriots.
The success of UA stock rests on the loyalty of these athletes. Selling athletic wear is a brand-centered business; people want to wear it if their favourite stars wear it. That’s why Under Armour is careful to show the love.
“Stephen is a once-in-a-generation talent and has unprecedented influence on the game of basketball,” said Adam Peake, Under Armour’s vice president of global marketing.
“His work ethic, uncompromising self-belief, and commitment to the community are characteristics that make Stephen the perfect partner to ignite the growth of Under Armour in the sport of basketball and around the world.” (emphasis mine)
And Under Armour is showing their support with more than just words. They are offering athletes equity sharing, a piece of the profits they help earn. Nike never traded any piece of the back end profits for endorsement deals, and that will be their downfall.
Why Under Armour Stock is a Steal Right Now
Investors of Under Armour stock got a huge surprise at the shareholder meeting in September. Stephen Curry, the newly crowned King of the NBA, walked on stage and pulled a contract (literally) out of his back pocket.
He resigned with Under Armour till 2024. It felt like a turning point.
“Under Armour has felt like family since day one,” Curry said in a statement. “In the first two years of our partnership, we accomplished so much both on and off the court, and I’m looking forward to being part of the brand’s story for the rest of my playing career and beyond.”
That’s a powerful moment. Having the NBA’s newest superstar at their shareholder meeting is the kind of PR genius I’m talking about. All through last year’s playoff season, Under Armour fired a barrage of slick commercials featuring Curry as the company’s poster boy.
The day after the shareholder meeting, Under Armour stock hit its all-time high.