Nike Driving the Distance: Why Sticking With Tiger Was the Right Move

This past weekend, Tiger Woods finished 15 strokes under par to win the 2013 Bridgestone Invitational, which was fueled by an astonishing 61 (11 strokes under par) in the second round. After his victory at the Arnold Palmer Invitational back in March, Tiger Woods regained his usual spot as the No. 1 golfer in the world, a throne he has not resided on in nearly three years. Since then, Tiger has maintained that title through his fourth-place finish at The Masters, his first-place finish at The Players Championship, and his most recent victory at the Bridgestone Invitational. 

He's back
Tiger Woods was the center of attention in November 2009 when very public allegations of his infidelity arose and were subsequently confirmed. During this time period, a large majority of Tiger's sponsors, including Accenture, AT&T, Gatorade, and Procter & Gamble, to name a few, dropped him. . One of the very few companies to stick by Tiger's side was Nike  (NYSE: NKE  ) . For Nike, Tiger the family man had nothing to do with Tiger the athlete. Six months after the infidelity scandal broke out, Nike lost 105,000 customers.  Similar to the Fool's investment style of buying and holding great companies for extended periods of time, Nike has stuck with Tiger through thick and thin. 

Nike Golf 2008 2009 2010 2011 2012 2013
Revenue( in Millions) 729 648 638 658 726 791
Change (year over year)   (11.11%) (1.54%) 3.13% 10.33% 8.95%
Change (2008 as base)   (11.11%) (12.48%) (9.74%) (0.41%) 8.50%

Source: Nike 2008-2013 10-Ks.

Tiger Woods has been the face of Nike Golf ever since he signed his $100 million deal back in 1996, and as the above chart illustrates, in the few years after the scandal, Nike took a large hit in revenue generated from that sector of its business. During 2010 and 2011, Tiger fell to the 68th and 128th world rankings, respectively. Consequently, Nike Golf revenue fell from its 2008 numbers. Although things looked gloomy for Nike for the two to three years after Woods' scandal, just like his golf career, revenue bounced back. As the above chart indicates, since 2010, revenue generated via Nike Golf has increased almost 24%. This biggest jump in revenue, from 2011 to 2012, can be attributed to Tiger's extraordinary revival of his golf game. He went from the 128th-ranked golfer in the world all the way up to the second-ranked! From 2012 to 2013, Tiger has moved from second to first, and Nike Golf's revenue has increased accordingly. Expect to see continued growth in this sector due primarily to Woods' renewal of his contract with Nike, which he signed last month, his recent victories, and sales from his most recent shoe release, the Nike TW '14 Men's Golf Shoe. It's safe to say that when Tiger wins, revenue goes up. 

Callaway's consistent competition
One of Nike Golf's biggest competitors in the industry is Callaway Golf  (NYSE: ELY  ) . With products ranging from golf clubs and balls to bags and sportswear, Callaway strives to be the elite retail producer in the golf industry. During Tiger's struggling years in 2010 and 2011, Callaway Golf's revenue greatly exceeded that of Nike Golf's, recording $967 million in 2010 and $886 million in 2011. Since Tiger's career revival, Callaway's seen revenue decrease to $834 million in 2012, and analysts predict it to fall to between $825 million and $800 million for the 2013 year. Based on this downward revenue trend, it appears as if Nike is slowly defeating its opponents in yet another sports market. This success can be in part attributed to the revitalized career of Tiger Woods.

Foolish takeaway
It's quite evident that Nike Golf is on the rise. This sector of the company has already released a new line of golf apparel this past spring, and just recently released two new types of golf shoes. Look for sales to increase as Tiger heads into arguably the most important tournament of the year, the PGA Championship, this weekend.

Nike knows that the retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


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