LeBron James' seven-year, $90 million endorsement contract may have been the big news last year, but what many in the U.S. failed to notice was that Nike (NYSE: NKE) had already spent the real cash a year earlier -- $500 million on British soccer franchise Manchester United for a 13-year sponsorship deal.
Manchester United is the second-most valuable sports franchise in the world, according to American consultant FutureBrand, and comes with a ready-made fan base of 50 million, of which a significant portion are from the fast-growing Asia-Pacific region. The deal involves Nike taking over the club's replica uniform merchandising business, which means Nike gains from every player on the team's star-studded roster where apparel is concerned.
In addition, the ongoing European Championships 2004, with an estimated cumulative viewership of 8 billion, features many international superstars clad with the trademark swoosh on their boots (or, for the non-soccer fans out there, cleats). And unlike the tournament officials, Nike does not just pick teams out of a hat -- two of the four semifinalists bear Nike's world-famous checkmark of approval on their uniforms.
Deals like these are propelling Nike's efforts overseas. Since its emergence as a serious football (um, soccer here in the States) brand in 1994, Nike has grabbed a strong foothold in German giant Adidas' traditional home turf. This in turn has led to outstanding growth in soccer-crazy Asia.
Revenue in the Asia-Pacific region rose a full 12% (after discounting for changes in currency exchange rates) to $1.6 billion for just-completed fiscal 2004. There is still a lot of potential in the region -- revenues are yet to come close to Nike's revenues in the U.S. and Europe -- and soccer is the key to tapping this huge demographic.
It's refreshing to know that despite the staggering amounts Nike spends on sponsorship deals, its Just-Do-It list includes the entry "enhance shareholder value." Having just completed a $1 billion share repurchase program that began in June 2000, the board of directors has authorized a new four-year, $1.5 billion plan to begin immediately.
Ninety million dollars for a player, $500 million for a team, and $1.5 billion for shareholders? Now that's a company with its priorities right. Earnings per-share growth of 27% for 2004 and the way Nike continually treats shareholders like superstars make it a worthwhile investment to consider. Why go for the underdog when you can have a piece of the favorite?
Americans wishing to explain to Fool contributor Tim Goh why what they call football is played with the hands can email him. He does not own stock in any of the companies mentioned.
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