Nike has re-upped its apparel deal with the NFL as it continues to just throw money at its struggles.
One of the headlines to emerge from the NFL owners’ meetings this week is the body of franchise owners voting to renew the league’s apparel deal with Nike. It’s certainly a good deal for the NFL, but whether it was the best course of action for Nike is questionable.
The renewal extends the partnership, which will see Nike continue to provide on-field uniforms and sideline apparel for all 32 NFL teams, another decade to 2028. It’s the second extension of the deal which began in 2012. The original deal was valued at $1.1 billion over five years or an average annual value around $220 million. The current value in this new extension has not yet been announced.
It’s possible that the NFL might have given Nike somewhat of a “home-field advantage” in terms of the value of the contract, as it’s unknown how many other athletic apparel providers like UnderArmour may have been in on any potential bidding. It’s also possible that no open bidding took place at all and the league negotiated exclusively with Nike. It’s unlikely that a jump in valuation that Nike originally brought to the NFL’s apparel rights in 2012 was replicated. Reebok had been paying an annual average of about $25 million prior.
While the NFL and its 32 franchises will be enjoying the probable $250-$300 million per year from Nike, exactly where that money is coming from is worth a look. Nike has again shelled out this king’s ransom to hold on to the perception that it is king of the North American athletic apparel landscape, though this emperor may really be nude.
It isn’t that Nike isn’t profitable or growing. It just isn’t growing at a rate commensurate with the continued increases in spending that this contract and others like it demand. According to Businesswire, fourth-quarter 2017 sales grew five percent, with total revenues at $8.7 billion. Given what Nike is already paying out to the NBA, a myriad of NCAA member institutions and individual athletes, the numbers simply don’t add up for robust and sustainable profitability if those expenses continue to grow at a rate faster than sales.
If sales growth continues to be sluggish over the new length of this contract, Nike might find itself unable to continue to be a major player on the athletic apparel contract scene in a decade. It might then be forced to do what it should have now, which is ascertain whether spending a quarter of a trillion dollars on the NFL is really the best decision.