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Nike's Megadeal With Kevin Durant Isn't Bad News for Under Armour, Inc.

Kevin Durant wearing Nike's KD V basketball shoes. Credit: Nike,

It's official: Kevin Durant is not leaving Nike (NYSE: NKE  ) for Under Armour (NYSE: UA  ) . 

According to USA Today, the Oklahoma City Thunder forward and NBA league MVP has landed a new 10-year agreement with Nike worth as much as $300 million, including a $50 million retirement package. For perspective, Nike's previous offer was said to be around $20 million per year and anticipated the expiration of Durant's existing seven-year, $60 million contract.

Durant took to Twitter late Sunday to confirm the agreement:

The deal also trumps a rival 10-year offer from Under Armour worth between $265 million and $285 million, including cash, an equity stake in the company, and a community center built in his mother's name. In fact, according to ESPN's Darren Rovel, Durant was apparently "blown away" by Under Armour's supplementary presentation -- which went into great detail about his life, hometown "flair," and return on investment of UA stock -- and he even stayed the entire day to work out in its shoes.

Why Under Armour didn't stand a chance ...
However, as I wrote last week, Durant legally couldn't choose Under Armour if Nike opted to match the smaller company's offer. And even if Nike hadn't done so, Durant might not have wanted to leave in the first place. Remember, in 2007, he spurned an $80 million offer from Adidas straight out of college precisely because he so badly wanted to sign with Nike.

If we can be sure of one thing, it's that the folks at Under Armour are disappointed by the news. After all, Durant could have provided much-needed clout for Under Armour's young portfolio of basketball shoes. Basketball, for its part, is expected to represent only around $30 million in sales for Under Armour this year, or around 1% of its total expected revenue.

... and why that's not a bad thing
Does that mean "losing" Durant to Nike is terrible for Under Armour? I don't think so. 

First, note that Under Armour may have just effectively forced its single largest competitor to pay more than it wanted to retain Durant's talent. Then again, this is also pocket change for Nike, which delivered $2.1 billion in free cash flow last fiscal year and ended last quarter with more than $5 billion in cash and short-term investments on its balance sheet.

More importantly, investors are also happy because Durant alone would have gobbled up nearly a tenth of Under Armour's current annual marketing budget. I argued that Durant might well have been worth the money, but the risk of such a high-profile sponsorship backfiring was enough to make any prudent investor squeamish.

Now, Under Armour is quickly moving to selectively place its bets elsewhere. According to Under Armour's YouTube feed Tuesday morning, that includes a freshly inked deal with supermodel Gisele Bundchen, who happens to be married to fellow Under Armour athlete Tom Brady:

Bündchen won't exactly do Under Armour's basketball shoe line any favors. But she'll certainly help a great deal in advancing the brand's presence in women's apparel, which Under Armour CEO Kevin Plank recently stated "someday can be as large [as], if not bigger than, our Men's business."

Foolish takeaway
Durant could have been a great asset to either company, but Nike ultimately proved it has the muscle to retain his highly coveted services. In the end, though, Under Armour investors can rejoice knowing their company isn't content resting on its laurels. With or without Kevin Durant, that's just one of many reasons I'm convinced Under Armour stock has what it takes to continue rewarding patient, long-term investors.

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Steve Symington

Technology and consumer goods specialist for the Fool. Steve looks for responsible businesses which positively shape our lives. Then, he invests accordingly. Enjoy his work? Connect with him on Twitter & Facebook so you don't miss a thing.

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