Nike (NYSE:NKE) and Under Armour (NYSE:UAA) have been battling on the court this year, with the NBA Finals in June pitting Nike's Lebron James of the Cleveland Cavaliers against Under Armour's Steph Curry of the Golden State Warriors. The Warriors won the title, but Nike quickly flexed its basketball muscles, signing as the NBA's official apparel sponsor in a $1 billion deal.
Nike's NBA sponsorship award is a big win for the company, but Under Armour answered with a win of its own. Under Armour signed a deal with the NBA in August to be the presenting partner of the NBA's youth program, Jr. NBA, as well as the title partner of the NBA Draft Combine starting in 2018, which will make it the outfitter of the Draft Combine and have it develop a retail line of Draft Combine apparel for fans. Here's why this deal might be even better than the NBA deal Nike won in June.
Nike's basketball dominance
Nike's recent deal with the NBA to be the official apparel supplier starting in 2017 is a major win for the brand, since basketball is one of Nike's most important sports, as it made up about 15% of its total FY 2015 revenue and was its fastest-growing segment of the year, with a 19% increase in revenue year over year. Key sponsored athletes such as Lebron James and Kevin Durant, as well as Michael Jordan as the Jordan brand continues to grow, have helped Nike to claim an estimated 95% of the U.S. basketball-shoe market.
Being the dominating basketball brand hasn't come cheap, and Nike has increased its sponsorship spend significantly in recent years, up 32% in fiscal year 2015, which ended in May, before this $1 billion deal was even signed. But it seems to working, as Nike's basketball apparel market share and revenues continue to grow worldwide.
Why Under Armour's NBA deal is such a major win
Under Armour has been making its own push into basketball, and while it's still a very small player in this market compared with Nike, basketball could still be a large segment to Under Armour. UA CEO Kevin Plank says he will try to expand basketball apparel and equipment sales to reach $1 billion in annual sales in coming years. This year, Under Armour released its first signature basketball shoe, called the Curry One, for Steph Curry.
Under Armour's "Will to Win" campaign, which features athletes who persevere against the odds to become the best in their sport, is perfectly suited for the Jr. NBA and the Draft Combine, where the company can continue to market itself as the brand for rising stars, just as it's done with the lesser-known athletes it's sponsored who then became national champions, such as Steph Curry, Jordan Spieth, Misty Copeland, and others.
The Draft Combine, the multiple-day event where basketball players can show off their skills in hopes of getting picked up in the NBA draft, also aligns well with UA's "Will to Win" image. Additionally, the NBA is preparing to expand its youth market efforts seeking to sign up 5 million youth players over the next two years through basketball clinics and tournaments.
Is Under Armour Basketball something to bet on?
Under Armour has a long way to go to try to catch up to Nike, not only in basketball sales, but also in sponsorships, as Nike still sponsors more of the highest-profile athletes and college teams and is the clear dominating force in professional basketball. Still, Under Armour has a lot to gain in its basketball segment and is making those gains in ways that align nicely with its brand image and target audience, like this Jr. NBA and Draft Combine deal. And though the deal amount hasn't been disclosed, it's probably doing that at a fraction of a cost of Nike's billion-dollar deal. Basketball, just like running, golf, and other segments that are growing, is just one more reason to believe in Under Armour's long-term growth strategy.
Bradley Seth McNew owns shares of Nike and Under Armour. The Motley Fool recommends Nike and Under Armour. The Motley Fool owns shares of Nike and Under Armour. 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.