Nike to Slash Budget for Endorsement Deals
Nike Inc., which has parlayed expensive endorsement contracts with star athletes to dominate the athletic footwear business, said Thursday that it will trim $100 million from its sports marketing budget and shift the savings to general advertising and marketing campaigns.
Nike also said that Geoffrey Frost, the company’s global advertising director since 1996, had resigned.
The two developments occurred as Nike continues efforts at jump-starting stalled sales and profit. The giant footwear and apparel company continues to be hurt by the Asian economic slowdown, criticism of working conditions in the company’s overseas factories and savvy marketing thrusts by competing brands such as Adidas.
In a statement quoting Andy Mooney, the company’s global brand manager, Nike said it will chop $100 million from its $500-million sports marketing budget during the next three years. Money saved by the move will be shifted to the company’s $400-million general advertising and marketing fund.
Aside from Nike’s endorsement contract with superstar Michael Jordan, Mooney said Nike will “completely [review] every athlete, every team and every event we’re involved with over the next three years.”
The company anticipates “fierce competition for some of the jewel properties” in the professional and collegiate sporting world. But Mooney said that, due to “supply and demand,” renewal costs for many of its endorsements “will be significantly lower than they currently are.”
Nike characterized the shift as “no fundamental change,” but sports marketing observers say the move shows the depth of change facing Nike as it tries to revive revenue.
Many sports marketers have been critical of expensive endorsement contracts, arguing that relatively few athletes have the power to sway fashion-conscious younger consumers.
The endorsement cuts are part of a new economic reality at Nike. The company’s earnings declined 35%, to $163.8 million for the first quarter ended Aug. 31, on revenue that fell 9% to $2.5 billion. Nike said that advance orders for footwear and apparel were 15% lower than a year ago. In the last year, Nike said it would eliminate nearly 2,000 jobs in the U.S. and abroad in order to put production in line with anticipated demand.
Apparel industry observers say that, along with fashionable shoe manufacturers such as Vans and Airwalk, Adidas’ offerings have been more in tune with what youthful shoppers want.
Adidas has used its European clout to build bridges to soccer, the world’s fastest-growing sport. And the German company has signaled its intent to challenge Nike on its own turf, possibly by signing an endorsement deal with a National Football League team.
Analysts say Nike recognizes the need for changes in its marketing and in its product lines.
“For a period of time they’d gotten sloppy,” said Jennifer Black, an industry analyst with Black & Co. “But now they are starting to show some new technologies, sharper pricing and an understanding of the need to segment their products to combat market saturation.”
