It's Nice to be Nike's Friend

Fancy a Tim Tebow jersey from his new team, the New York Jets? How about a Broncos shirt with Peyton Manning's name stitched on the back? If the answer to this and similar questions is yes, you'll be getting your goods from Nike (NYSE: NKE  ) . The firm just unveiled the team uniforms it has designed for the NFL in anticipation of its first season as official supplier of clothes and other accoutrements. This is a lucrative prestige gig for the firm, and as such pushes it even higher as the world's most dominant sports apparel maker. And it won't be the only company getting a boost from the new deal.

Science meets style
Nike is far and away No. 1 in its field, and not only because of the huge amounts of money it spends on marketing and star athlete endorsements (and official supplier deals -- it reportedly paid the NFL $1.1 billion for the current arrangement). Even before Nike co-founder Bill Bowerman took a waffle iron to a running shoe, the firm experimented and innovated to give its products the sharpest competitive edge possible.

That habit was probably a big reason it was allowed to snatch the NFL job from former supplier Reebok, a unit of longtime competitor Adidas (OTC: ADDYY). Up until now, pro football jerseys were usually somewhat baggy and rather generic in terms of fit. In contrast, the Nike versions are more form-fitting, with the practical bonuses of being lighter, faster-drying, and non-water absorbent.

If the new duds are a hit with players -- and they already seem to be -- look for Nike to ink fresh deals with the league to extend its arrangement past the contracted five-year period. Starting this autumn, football fans will be seeing an awful lot of that famous swoosh logo for many years to come.

Ring! goes the cash register
And they'll be buying much of the company's NFL-related product. After all, devotees always need to have the latest version of their favorite team's (or particular star's) gear. Nike has sharp instincts for the consumer market: In addition to costly versions of those sleek new jerseys, fans will also be able to buy jackets, T-shirts, sweaters -- heck, probably any kind of clothing or accessory that can be stamped with a team name and that famous curvy logo.

That's going to add up to a lot of scratch. Reebok saw $250 million in wholesale revenue from NFL merchandise in 2011. According to some estimates, Nike could leapfrog that figure by half a billion dollars in the first year of its deal alone. Although the NFL saw a decline in merch sales last year (due in no small part to the early-season lockout), it still raked in a collective $2.5 billion. Any piece of that action is big, big business.

Playing on the right team
Obviously Nike is the company that will see the lion's share of the benefit from the arrangement. Possibly in anticipation of that, investors have bid up the stock to a few yards shy of its one-year high.

A neat alternative, under-the-radar play could be with one of the firm's retailers, like Foot Locker (NYSE: FL  ) . It's also trading close to its 365-day max, but it has a strong presence in the mid-market with 3,400 stores, is steadily growing its top and bottom lines, pays a rising dividend, and is significantly cheaper than its partner on a forward P/E basis. Meanwhile, it devotes a lot of floor space to Nike products. As such, it has ample room for both financial and share-price growth.

Deeper on the sidelines is another retailer doing well lately and promising to keep it up: 832-outlet-strong Hibbett Sports (Nasdaq: HIBB  ) . The company features the upcoming Nike NFL product line prominently on its home page, and it's a talented retailer that can move inventory -- the perfect combination for a Nike-fueled sales bounce. Compared to Foot Locker, its shares are a little pricey-looking at forward P/E, but the company's net income margins are among the best in the sports retail sphere, and it's effectively growing its business.

Whichever member of Team Nike goes home with the MVP award, investors are sure to benefit. The NFL deal looks like it will produce winners all around.

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Fool contributor Eric Volkman owns none of the stocks mentioned in the story above. Motley Fool newsletter services have recommended buying shares of Nike and Adidas. Motley Fool newsletter services have recommended creating a diagonal call position in Nike. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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