Sturgis, S.D. is famous for one thing more than anything: the annual gathering of motorcycle enthusiasts from around the world, held during the first full week of August. The population of this otherwise sleepy town swells from 6,800 residents to almost 400,000 people and generates some $12 million in sales.
But in a bit of irony that also takes a slap at the history of the rally, Sturgis and Harley-Davidson (NYSE:HOG) signed a 75-year agreement earlier this year designating the heavy bike maker the official motorcycle of the event. It's a great bit of PR for Harley, which has a long presence during the rally, but it's also a dig at its rival Polaris Industries (NYSE:PII), which owns the Indian nameplate, the bike that was there at the start of the Sturgis rally.
The start of a legend
Clarence "Pappy" Hoel bought an Indian Motorcycles dealership in 1936, founded the Jackpine Gypsies motorcycle club, and held the first Black Hills Classic rally two years later. While bikers riding any kind of motorcycle are welcome at the event, this is the first time a motorcycle manufacturer has been declared the official sponsor and the deal's length precludes Indian (or any other bike maker for that matter) from sharing the spotlight with Harley-Davidson.
In terms of generating new sales for Harley, it's probably not of great significance even though the new rally point they broke ground on last week will be a constant advertisement for the company.
Sales of the bike maker have been sluggish, with worldwide retail sales and unit shipment growth slowing markedly over the past few years. Harley shipped almost 271,000 units in 2014, up less than 4% from the prior year but at a slower rate of increase than in 2013 when shipments rose 5.2% for the year.
The highlight of Harley-Davidson's fourth-quarter earnings report was the sales growth achieved by its new Street line of bikes, which helped the division record 20% growth year over year. Geared toward riders that are younger or new to riding, or to the Harley brand at least, the Street 500 and 750 models seem to be gaining some traction, and there are two ways the Sturgis sponsorship agreement could play out.
Rolling thunder or road rash?
On the one hand, the pact has angered some riders who object to Sturgis singling out one manufacturer over the other. Although it seems doubtful giving Harley-Davidson center stage will keep bikers from making the annual pilgrimage to Sturgis, it risks unnecessarily alienating some non-Harley riders.
Yet on the other hand Harley does get a new platform to showcase its bikes. Because demo rides will be part of the bike maker's presence in the plaza, introducing riders to motorcycles they may not have considered riding before, like the Street models or perhaps even the all-electric LiveWire, it may also attract buyers it otherwise wouldn't have.
And it could very well be that those riders most upset by Harley getting the deal wouldn't have ever ridden one of its bikes anyway. Just as Harley-Davidson has its die-hard enthusiasts, other manufacturers have their own as well, and the resurrection of the Indian nameplate by Polaris has gained a lot of adherents.
Harley's pipes aren't so loud these days
Polaris' fourth-quarter motorcycle sales surged 50% to $103 million, almost solely because of the Indian brand, which was the fastest-growing motorcycle brand last year, with retail sales surging 250%. The company is making a lot of smart moves to counter Harley's advantages and it is meeting it across all of the price points.
Financial details of the sponsorship agreement have not been made public, but the renamed Harley-Davidson Plaza the city began constructing earlier this month has a $2.3 million price tag, including funds that Harley and other vendors located on the street contributed.
There are also risks on both sides of this long-term agreement, as 75 years is a long time and a lot can happen, both economically and to the manufacturer. Sturgis, however, said the deal has built-in protections for it, which while unnamed, suggests it puts Harley on the hook, though for what we don't know. Sturgis's mayor merely says trust him.
For Harley-Davidson, though, becoming the official motorcycle sponsor of the Sturgis rally is a public relations coup over its hard-charging rival and that shouldn't be discounted. Whether it translates into greater sales for the heavy bike maker, however, is a result still in the future.
Follow Rich Duprey's coverage of all the motorcycle industry's most important news and developments. He has no position in any stocks mentioned. The Motley Fool recommends Polaris Industries. The Motley Fool owns shares of Polaris Industries. 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.