Sporting Apparel Companies Compete at World Cup

In the marketing battle for World Cup supremacy, the price is high but the payoff is worth it.

Jul 4, 2014 at 7:42AM

Every four years, the World Cup generates enormous attention around the world. In recent years, it has even captured the elusive American market with a blitz by the U.S. Soccer Federation and others to popularize the sport. In the United States alone, it was reported that 25 million viewers tuned in to watch the Americans take on Portugal in a group stage match. By comparison, only 15.5 million average viewers tuned in for the NBA finals. The World Series averaged 15 million, and the Stanley Cup finals averaged just 4.8 million. America was the last holdout market that soccer has finally captured.

With all this in mind, it is easy to see that the World Cup is an advertiser's dream, and one of the most lucrative markets to be captured is in apparel and sporting goods. Nike (NYSE:NKE) and Adidas (NASDAQOTH:ADDYY) are the two premier athletic outfitting companies in the soccer world, followed at a distance by companies like Puma, Lotto, and Umbro.

With the World Cup now in its knockout rounds, the stage is set for one of the biggest sporting goods and apparel showdowns in recent memory. 

Contender No. 1
German-based Adidas is still being coy about the total amount it has invested in advertising for the tournament, but it is reportedly higher than it ever has been, and according to CEO Herbert Hainer, it's somewhere in the "two-digit million range," per The Wall Street Journal

Adidas is paying FIFA an estimated $100 million for the rights to be an official partner of the World Cup, a privilege that allows its tournament slogan "all in or nothing" to appear on the advertising boards in each stadium, and lets it use the official World Cup logo in its ads. Adidas is also providing the official ball of the World Cup.

But one of the most lucrative strategies at the tournament is to be the provider of team apparel. This not only puts its brand on display as the athletes take the field, it also translates into jersey sales. 

Team Adidas includes Lionel Messi's red-hot Argentina, the dominant German squad, and the dark-horse Colombians. Adidas took quite a hit when early favorite and defending champion Spain was eliminated in the first week. 

Adidas also took a step backward when Luis Suarez of Uruguay -- one of its biggest individual athlete endorsements -- was suspended by FIFA for biting an opponent in the game against Italy. 

Contender No. 2
Nike has also invested heavily in the 2014 World Cup, spending 12% of its total revenue on demand creation. But fourth-quarter earnings, reported at close of business on June 26, were up 11% to a staggering $7.4 billion, with an increase in profit margins because of price increases. Though the fourth quarter ended on May 31, much of the increase can be attributed to World Cup-related products, including the four new tournament cleats released between March and May. The company's revenue from Western Europe also jumped 18% for the quarter, excluding currency fluctuations.

As far as jersey sales go, Nike has had plenty of success. Among the teams it is backing are the home country of Brazil -- with Neymar, one of the most popular players in the world -- along with the juggernaut Netherlands, France, and America's national team.

The biggest hit Nike has taken so far is the loss of Cristiano Ronaldo with Portugal's departure from the World Stage. Ronaldo was recently named the most marketable footballer in the world by sports marketing researchers Repucom.

The bottom line
Depending on how the tournament plays out, either company could be looking at a significant payday, with the ultimate goal of being the outfitter of the eventual champion. According to the latest odds in Vegas, Nike had a slightly better chance of doing that than its German counterpart.

Based on spending versus payoff in the World Cup and projected odds of being the official clothier of the tournament champion, Nike has been the dominant profiteer in Brazil.

Adidas will also walk away from the month-long event with a significant profit -- it estimates $2.7 billion in soccer-related sales this year -- but it looks like it will be beaten out by the American company.

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Paul St.Jean has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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