When Nike (NYSE: NKE ) announced last May that it signed high school basketball star LeBron James to a seven-year, $90 million endorsement contract, more than one commentator wondered if the Air Jordan maker had lost its collective mind. Only a half season later, it seems Nike's decision may be a potential gold mine.
LeBron's Air Zoom Generations are flying off the shelves as the basketball star has turned in an impressive start to his rookie season. Playgrounds and basketball courts are sporting the mix of white-and-black sneakers that launched with an initial production run of 140,000 pairs. According to SportsScanINFO, a sports retail market tracking firm, Nike has sold 93,000 pairs of James' shoes already, and many Niketown stores are out of stock. Non-Nike affiliated stores are said to have already sold a third of their initial order.
It's been Nike's most successful product launch in two years and the company's excited about the prospects, but the question remains: Is Nike getting its money's worth?
At a cost of $110 for adults, the Generations ain't cheap, though kids can get a set of kicks for around $60. Industry analysts estimate large shoe retailers like Nike realize about $7 to $10 on each pair of shoes sold wholesale to stores at roughly half-price. That means the Swoosh hasn't even earned $1 million yet on the "Chosen One." For him to be worth $10 million to $15 million a year, he needs to sell $200 million worth of shoes, which doesn't include advertising and promotional costs.
Two commercials featuring "King James" have already premiered, and a third is slated to launch later this year. Start-up costs can exceed $40 million, though they'll be much smaller once the brand is established.
Still, it's the first quarter of a four-quarter game. James has been having an awesome year, by all accounts, averaging 21 points a game, 5.8 assists, and 5.7 rebounds. That's virtually unheard of. Only two other players in league history have averaged 20 points, 5 assists and 5 rebounds per game in their rookie season: Oscar Robertson and Michael Jordan.
James' appeal is primarily with eight to 18-year-old males in both urban and suburban markets, a lucrative demographic for Nike. His sneaker sales are dwarfing the 2003-2004 models of those at rival manufacturers. James' sales are almost double the 49,000 pairs of Adidas' T-Mac III's worn by Orlando Magic's forward Tracy McGrady, and more than double the 41,000 pairs of Reebok's (NYSE: RBK ) Answer 7's worn by Philadelphia 76ers guard Allen Iverson.
As long as he's able to exceed the hype that surrounded his signing, the kids will continue to emulate him and wear what he's wearing. With other James-branded lifestyle products --jerseys, watches, sunglasses and boots-- in the offering or planned, Nike is hitting nothing but net.
Motley Fool contributor Rich Duprey has proven many times he can't jump and does not own stock in any of the companies mentioned.