Under Armour (NYSE:UAA) made an incredible bet on basketball star Stephen Curry, who is proving to be the ideal athlete for the UA basketball brand, because he's a rising star. Curry's team, the Golden State Warriors, came out of nowhere, with no NBA playoff appearances in the last 40 years, to become one of the hottest teams in the league this year. Under Armour could be on the same track.
Banking on basketball
Basketball is definitely for ballers these days, as athletic companies are paying billions for sponsorship rights to the top players and teams in the league. Under Armour recently lost to Nike (NYSE:NKE) in a bid for NBA uniform rights, however, NBA uniforms and other logo'ed apparel are not where the money seems to be in basketball. Branded basketball gear, particularly shoes, is what has made Nike's basketball segment explode. Key sponsored athletes, like Michael Jordan, and the empire of apparel from his legacy, as well as modern players like Kevin Durant and others, have helped Nike to grow to claim an estimated 95% of the U.S. basketball shoe market share.
Under Armour is rushing the court, now, hoping to gain on basketball, too, particularly with shoes. It's using up-and-coming stars who will help push its basketball segment toward $1 billion in revenue. Stephen Curry could be the start of UA's own basketball empire.
Under Armour's underdogs
Under Armour has taken a unique approach in sponsoring athletes, using relatively unknown athletes with stories of fighting through adversity to resonate with its own image as a disruptive force. When these lesser-known or niche athletes make huge wins and suddenly gain the spotlight, UA's investment pays off.
Take Jordan Spieth, for example, the 21-year-old golfer who recently won the PGA Masters. UA first signed Spieth when he was 19 and relatively unknown. Today, it appears the company placed the right bet on Speith, as some analysts predict sales of Under Armour's golf apparel could double in the next three years from $200 million to $400 million.
Stephen Curry is the perfect model for Under Armour's basketball segment. Curry is just 6 feet 3 inches tall and 190 pounds, making him much smaller than most other players on the court with him. He also comes from a small school (Davidson College), and did much less in his early career than his star player opponents like Kobe Bryant.
Like it did with Spieth, UA recognized something in Curry when they signed him in 2013. That bet paid off as Curry led his team to the NBA finals this year, and won the NBA's MVP award for the 2014-2015 season.
UA's next billion-dollar segment
While it's not likely that UA will overtake Nike in basketball shoe sales anytime soon, it does look like the company still has a lot to gain in this segment. Under Armour CEO Kevin Plank said that he wants to build a $1-billion-dollar basketball segment. That's a big goal. Under Armour’s total footwear net revenue was $161 million for the quarter ended March 31, up 41% year over year.
Under Armour released its newest sponsored shoe, the Curry One, back in February, and the shoe sold out. According to SportsOneSource, UA's basketball shoe sales have already tripled this year. As Curry continues to make huge advances on the court, Under Armour is going to continue to make huge gains in sales. When Q2 earnings are released, we'll get to see just how much this segment has helped UA's bottom line.
Betting on this underdog
Under Armour has a long way to go to try and catch up to Nike, not only in gear sales, but also in sponsorships, as Nike still consistently sponsors the highest-profile athletes in many sports. In basketball, Nike is definitely dominant. But that doesn't mean that Under Armour doesn't have a lot to gain as the underdog. Catching Nike is not the goal... yet.
Right now, UA is focused on making the right bets, and building its brand in the right ways, such as with Stephen Curry. Its basketball segment could reach Plank's $1 billion sooner rather than later if it keeps performing as well as it has been lately.