Why Is Reebok Crazy About CrossFit?

Fitness legend Rich Froning just signed a massive endorsement deal with Reebok. Why is the apparel maker so crazy about CrossFit?

Jul 31, 2014 at 3:32PM

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Rich Froning at the 2012 Reebok CrossFit Games. Derrick K. Irions, Wikimedia.

After a modest beginning, CrossFit has brought its brand of fitness to thousands of locations across the world. There are now more than 7,000 affiliate gyms in existence, up from just 18 in 2005. And the swelling number of participants isn't just good for CrossFit's brand, it's good for its best athletes as well.

Enter Rich Froning
Rich Froning, the sport's equivalent of Michael Jordan, recently won a record fourth-straight CrossFit Games title. The victory came days after he signed a long-term endorsement contract with Adidas (NASDAQOTH:ADDYY) subsidiary Reebok.

While the financial details weren't disclosed, Reebok reports Froning is now one of its highest-paid athletes, and it says the deal will last for the remainder of his career. The potential size of the contract is so large, in fact, it prompted ESPN reporter Darren Rovell to liken Froning's arrangement to "Peyton Manning [money]."

Why is Reebok so high on CrossFit?
Reebok famously sponsored both Manning brothers for almost a decade, paying them millions in the process. But CrossFit is not the NFL. And as it happens, it's not even close to reaching the popularity of a major North American sport. So why is Reebok funneling money into it? 

That's a question with multiple answers, though growth may be the most important factor. As mentioned above, CrossFit has expanded in a Starbucks-esque fashion over the past half-decade.

Most important, start-up costs are low. All the average location must do is pay for an annual $3,000 affiliate fee, a $1,000 trainer certificate, a few thousand dollars worth of insurance, a real estate permit, and property and equipment rental.

Because of this, U.S. CrossFit gyms now outnumber traditional competitors like Gold's Gym and 24 Hour Fitness. "It was important to us that there wasn't a huge barrier to entry ... we made it easy just for normal people to open a business," Lauren Jenai, the ex-wife of CrossFit founder Greg Glassman, recently told ESPN. 

The money is rolling in
Exact financial statistics are hard to come by, but Inc. reports CrossFit HQ likely made close to $100 million in revenue last year.

Some of that money comes from Reebok, the outlet says, which has sponsored the CrossFit Games since 2011. Another chunk of revenue is made from ESPN, which has televised the games in four consecutive summers. Affiliate fees account for most of the remaining revenue.

According to Inc., Glassman approximates the affiliates made an additional $1.5 billion-$2 billion in 2013, combined.

A shift in strategy
Additionally, Reebok's linkage with CrossFit -- and Froning -- illustrates a newfound focus on participatory sports.

The apparel maker also has a relationship with Spartan Race, a leading name in the mud run industry. Like the CrossFit Games, Reebok is a Spartan Race title sponsor, and it receives significant TV exposure from the event's championship.

This shift in strategy was apparent earlier this year when Reebok unveiled a new delta-shaped logo, one that AdAge says focuses "on fitness rather than elite athletes." Reebok shared more insight in a press release:

Through the millennia the delta has been a symbol of change and transformation. The Reebok Delta has three distinct parts each representing the changes ... that occur when people push themselves beyond their perceived limits and embrace an active and challenging life.

Self-actualization by way of fitness? That message is a far cry from Reebok's past marketing tactics, which centered on superstar athletes and big-budget apparel deals with major sports leagues.

This change is likely a response to plodding financials. Poor toning shoe sales and the loss of its exclusive NFL deal forced Reebok to cut jobs and lower forecasts two years ago. After previously expecting 2015 revenue to hit almost $4 billion, that projection is now less than $3 billion.

What's next?
It is too early to tell how Reebok's new strategy will work out over the long run. But the more CrossFit continues to grow, the smarter it looks. Its latest sponsorship deal with Rich Froning is just the latest indication the brand will continue to bet on the budding sport.

Forbes once said CrossFit's success is the result of its ability to "blur the line between spectator and athlete," and the outlet is exactly right. Unlike some fitness programs, CrossFit has the allure and exposure of a traditional sport. And unlike most sports, it allows the average fan to participate. Because of this, Reebok has to be very optimistic about the future.

Jake Mann has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. 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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