Adidas is offering a $200 million endorsement deal to NBA star James Harden to woo him from Nike. Will their marketing gamble pay off?
“You have to spend money to make money.” It’s an oft-used piece of conventional wisdom that may not be quite as wise as it seems. But if you don’t think it rings true, now’s probably not the time to tell an Adidas executive. Early this week, Adidas offered Houston Rockets guard James Harden a shoe deal that is, by all accounts, monstrously large. According to ESPN’s Darren Rovell, it’s a 13-year, $200 million contract that could actually make last year’s MVP runner-up more money than his contract with the Rockets. That’s right – he could make more money from wearing shoes than he does from actually playing basketball, which is his day job.
While $200 million seems like a lot of money – because it is – it isn’t unprecedented in the shoe business. Harden’s ex-teammate Kevin Durant is making $300 million over the next decade to wear Nike. Nobody’s sure precisely what LeBron James makes in his Nike deal, but he signed a seven-year, $93 million deal as a rookie and a new deal in 2010, so let’s assume he got a raise there (Forbes, for what it’s worth, estimates he makes $20 million a year now). Derrick Rose could make $260 million over the course of his current deal, though he’d probably have to actually spend some time on the court to meet his incentives. Harden’s deal wouldn’t be an anomaly, it fits in.It also makes some sense as a power play. Nike is a behemoth in the basketball shoe market. They own 96% of it. That is, to use an industry term, “a lot.” With LeBron, Durant, and Kobe Bryant all already solidly on team Nike, it stands to reason that Adidas would chase a big splash to try to change the game.
Harden’s jersey was the seventh-most popular in the NBA last year, so people are certainly motivated to buy his gear. Harden narrowly missed out on last year’s MVP award, and the deal includes “reality star-type placement,” as he’s evidently dating Khloe Kardashian. That means not only possible exposure on the various Kardashian family television programs, but also increased proximity to Kanye West – whose own Yeezy line is an Adidas brand. There’s certainly a chance that Harden transcends basketball, both through his talent on the court and exposure off it. And that would make him a very valuable player to partner with.
On the other hand, one player is probably not enough to dethrone the Nike juggernaut. Take Stephen Curry of the Golden State Warriors. When Harden was MVP runner-up, it was because Curry won. Curry’s jersey sold more than any other in the NBA last year. While Curry was NBA champion, Harden’s Rockets lost in the semifinals – to Curry’s Warriors. Curry even has mainstream popularity, after his daughter Riley’s adorable antics at postgame press conferences throughout the playoffs and the Warriors’ victory tour went viral again and again. Pretty much every way you can slice it, Curry is a step ahead of Harden.
Curry is another non-Nike athlete, as he signed a deal with Under Armour in fall of 2013 for the relatively small sum of just under $4 million a year. Since he signed, Under Armour’s footwear revenues have grown by leaps and bounds – in the 2014 fiscal year, revenues hit $431 million, a major jump from the $239 million they brought in for 2013. Curry’s shoe is finding major success on the secondary market, meaning that collectors and sneaker obsessives are chasing it. All signs point to Curry being an amazing get for Under Armour, and in a way he is. But compared to Nike, it’s just a drop in the ocean.
Of the top ten most popular sneakers in Q2 of 2015, seven were Nikes. Curry’s shoe placed seventh. Nike made $16 billion in footwear revenues over the same period Under Armour saw their growth spurt. “Overall I don’t think any athlete really pays for himself today in the endorsement market,” said Matt Powell, retail analyst with SportsOneSource, when Curry first signed his deal. ”The ability of a player to really move shoes is relatively slim.” Their value is instead in legitimacy – that is, if a high-performance athlete like Steph Curry wears Under Armour, it’s a high-performance shoe – and that’s not worth massive money. “I think the days of a blockbuster signing of an athlete to a brand and immediate commercial success are over,” he said.
So is James Harden really worth $200 million to Adidas? No. The legitimacy he would bring the brand can maintain their status as a legitimate option for high-performance athletes, but frankly I don’t think anyone’s worried about Adidas’ quality. It’s the cool factor that has put Nike so far ahead of the competition, and unless LeBron, Kobe, and Michael Jordan himself jump ship, that’s not going to change. James Harden can win the MVP every year for five years and he’s probably not going to unseat 25 years of Air Jordans.
Adidas could have had Curry for themselves, for far less money, and he would have been the more valuable partner. But now that the Steph Curry ship has sailed, the answer isn’t to throw cash at the second choice – that’s never the smart business move. The better choice is to pivot. Instead of wasting money at the inferior option, get creative. Think outside what you would normally do. Instead of dropping $200 million on a guy who won’t take you to the next level, spend the same amount outfitting youth basketball teams that can’t get equipment of their own. To those kids, Adidas will be forever linked with their earliest basketball memories, and that’s where loyalty starts. More importantly, it helps kids who need it, and beyond any public relations boon that comes from that, it’s simply a good thing to do.
If your business needs to spend to solve a problem, make sure it’s the right problem, and that what you do will actually solve it. Don’t spend $200 million on James Harden. Spend it on the future.
