James Harden Deal Can Bring Adidas Back to Relevance

Adidas is attempting to regain traction in the highly profitable basketball shoe marketplace, as the company signed NBA superstar James Harden to a 13-year, $200 million endorsement contract. Adidas lured the Houston Rockets star away from Nike with the massive contract, as Nike decided that it would not be matching the offer made by Adidas. The deal is Adidas’ latest pursuit to regain relevancy in the NBA.

The basketball segments in both companies have played a big role in the performance YTD, with flagship athletes LeBron James and Steph Curry leading the way. Adidas has slightly underperformed in comparison, returning over 11% YTD. A big reason for Adidas’ slump is that the company does not possess an elite NBA star that can compete with the likes of James and Curry. Athlete endorsements have been essential to the success Under Armour and Nike has experienced in 2015. Adidas has been lacking particularly in the basketball, a highly profitable segment where Nike pulled in $3.7 billion in sales in FY2015, a 19% increase. Basketball is a key segment for these three companies, and has translated to an increase in sales for both Nike and Under Armour.

Adidas should see a significant boost in visibility with this deal, as it immediately makes the brand one to watch for this upcoming season. Adidas has already increased its marketing budget 9% YOY. Adidas has made it clear that it is committed to regaining its status as one of the elite athletic apparel brands and wants to do this by focusing on footwear. Harden will be a brand ambassador going forward. The basketball shoe industry continues to grow as a whole, and Adidas aims to be positioned to compete for a substantial market share if Harden can develop a successful signature shoe line. Harden should also provide a boost in China, as the Houston Rockets has several connections to the country as former Rocket and Chinese basketball star Yao Ming helped build a massive following for the team.

 The Harden deal will certainly elevate Adidas’ visibility in the NBA immediately, as he is one of the biggest stars in the league coming of a career season. The deal makes Adidas immediately competitive against Nike and Under Armour, which recently passed Adidas as the 2nd largest sports footwear and apparel brand in the United States. Curry’s recent NBA championship has played a big role in Under Armour surpassing Adidas. Under Armour’s shoe sales reported a 40% increase to $154 million in Q2. The success of Curry on the court has translated to significant penetration into the NBA shoe marketplace. UA’s Curry One signature shoe line is projected to clear over $100 million in sales in 2015. A successful signature shoe line can add hundreds of millions of dollars to Adidas’ topline. Harden’s former teammate Kevin Durant’s shoe line brought in $195 million in revenue for Nike during 2014.

Signature Shoe Sales 2014

LeBron James: $340 million (Nike)

Kevin Durant: $195 million (Nike)

Kobe Bryant: $105 million (Nike)

Chris Paul: $32 million (Nike/Jordan)

Derrick Rose: $32 million (Adidas)

Carmelo Anthony: $30 million (Nike/Jordan)

John Wall: $8 million (Adidas)

Dwight Howard: $1.5 million (Adidas)

Up and Comers

Kyrie Irving: $7 million (Nike)

Shoe released in December

Damian Lillard: $1.8 million (Adidas).

Shoe released in January

Source: SportScanInfo

Nike currently possesses the top selling basketball shoe lines with LeBron James, Kobe Bryant, Kevin Durant, and the Jordan brand. These four athletes were the top four selling signature basketball shoes in 2014. Currently 16% of NBA players wear Adidas, compared to 64% that wear Nike. Nike controls over 95.5% of the basketball shoe market as of 2014. Adidas had just a 2.6% market share in 2014 in basketball, down from 5.5% in 2013. By signing Harden, these figures should certainly receive a boost.

Adidas’ Ups and Downs

Adidas’ athlete portfolio has been underperforming in recent years and has gone dormant in the competition for top NBA stars and endorsements. Current Adidas star Derrick Rose was tied for 4th in signature shoe sales in 2014, with $32 million. The company signed former MVP Rose in 2012 for $185 million, one of the biggest shoe contracts in history, but the deal has been marred by Rose’s several injuries. The stock currently trades at nearly the identical price as it did in 2012 when the company signed Rose. The Harden deal gives Adidas a second chance to score a new superstar.

 The company also lost Dwight Howard to Chinese brand Peak, who had a particularly unsuccessful stint with Adidas, proving the long agreed notion that big men fail to sell shoes as endorsers.

Adidas’ basketball portfolio does offer several bright spots, as the company signed the current Rookie of the Year winner Andrew Wiggins in 2014. Adidas also has Damian Lillard who has released his own signature shoe this year and John Wall of the Washington Wizards.

Harden is one of the most exciting and marketable players in the NBA, his new contract re-energizes Adidas’ focus on acquiring top athletic endorsements to keep the brand relevant in basketball. It is a sign that the company is committing to reversing a downward trend the company has been facing with its endorsement contracts. Harden is a star NBA player who can certainly produce a successful signature shoe and apparel line that Adidas is currently lacking.

While Nike has LeBron and Under Armour has Curry as their flagship endorsers, Adidas needs its signature athlete to represent and move the brand forward as it takes on its competition. Adidas CEO Herbert Hainer during the company’s latest earnings call said of Harden:

“James Harden will definitely be a creator. As you know, he has been named MVP from his peers and he is a great player, he is an exciting personality.”

CEO Hainer has made it clear that basketball is a market that Adidas wants to remain competitive in. Adidas aims to refocus its athletic portfolio and the Harden deal is a great sign of things to come. By adding Harden, Adidas can have a signature athlete to help unite the brand and lead the push to regain traction in the basketball shoe market.

Comments

comments

One Ping

  1. Pingback: Nike Vs. Under Amour: How Has This NBA Finals Trilogy Played Out For These Apparel Titans? – Magazine News

Leave a Reply

FOLLOW @ INSTAGRAM