Nike "Just Does It" at the World Cup

by Tony D'Altorio

Nike "Just Does It" at the World Cup

by Tony D'Altorio, Investment U Research

Wednesday, June 16, 2010

Worldwide, Nike (NYSE: NKE), is a powerful company. Just like Wheaties, it's a brand of champions. And at $37 billion, it has the matching market cap to boot.

Nike dominates certain markets, such as college basketball. 52 of the 65 teams in the 2010 NCAA March Madness wore its 'swoosh' on their shoes.

But elsewhere, it faces surprisingly stiff competition... like on the soccer - or football, depending on where you hail from - field.

So while the battle for the World Cup heats up, Brazil and Italy aren't the only ones duking it out.

Nike vs. Adidas

Nike and Adidas ADR (OTC: ADDYY) have taken to the pitch and both seem well matched. They began well before the 2010 games began.

Nike reported $1.7 billion in sales of its core brand soccer gear and equipment in 2008. Its German rival, meanwhile, brought in $1.6 billion at the current dollar-euro exchange rate.

But despite Nike's recent, well-played sponsorship deals, Adidas has an edge with contracts to supply 12 of the 32 teams competing in the World Cup this year. No other company can claim such a high number.

Adidas is also supplying FIFA - the international soccer federation - officials. And it should stay just ahead in its profitable soccer shoes business as well. Yes, Nike's new premium Mercurial Superfly II shoes have nearly kept pace. But Adidas' F50i currently has the lead.

Adidias also spends about $71 million per year sponsoring World Cup teams while Nike totals only around $58 million.

Yet the seeming underdog does have a few positives going for it.

  • For one, it backs Brazil, the only international team with many outside fans. Nike can expect a decent amount of extra revenue from that.
  • And, of course, there's all of the controversy surrounding the Adidas soccer ball, which apparently does "weird" things aerodynamically. Those complaints could give Nike ample room to score for the next World Cup in Brazil in 2014.

Nike Takes the Ambush Approach to Dominating the World Cup

As the World Cup games have shown this far, Nike has stellar marketing and better ad campaigns.

Adidas paid millions as an official World Cup sponsor. Yet Nike's so-called ambush ads have generated a lot more buzz.

  • Nielsen found that Nike's "Write the Future" ad helped it gain twice as much attention on blogs and social network sites. Initially launched online on May 22nd, it features Wayne Rooney of England and Cristiano Ronaldo of Portugal.
  • It has since been viewed over 14 million times on YouTube alone and over 29 million times on all web platforms. In contrast, Adidas launched its ad featuring David Beckham and Snoop Dogg last week. And so far, it has only received around 3 million hits.

By featuring its well-done ad earlier, Nike hijacked much of the online conversation. Marketers increasingly see that kind of chatter as vital to spreading company messages. So this is no small victory.

Then again, it's not much of a surprise. Or, at least, it shouldn't be. Nike has a long tradition of ambush marketing. Since the 1990s, the company has handed out T-shirts and flags with its logo to Olympic crowds.

Nike's Future Points Towards Emerging Markets

Previously, Nike published its intent to increase its sales from $19 billion to $27 billion. If its World Cup advertising is any indication, it has identified a new way of reaching that.

It already seems to have dodged the recession with expanding profit margins and $3 billion of cash on its balance sheet. Nike can lay much of that credit onto its other seven brands. Among them, Converse, Cole Haan, Hurley and Umbro all target distinct consumer groups.

They've also been expanding sales by double digits.

Yet even now, Nike still has room to grow. While it controls a third of the global sports shoes market, it claims a mere tenth of global sports clothing.

In addition, while the company's U.S. sales are slowing, management appears very interested in emerging markets. It is already profitable in China, and India and Brazil's burgeoning middle classes provide similar potential.

Of course, the 2014 World Cup being held in Brazil certainly doesn't hurt either...

It looks like Nike has a clear shot at its goal from here. Adidas might as well concede.

Good investing,

Tony Daltorio

comments powered by Disqus