Through the years, Nike (NYSE:NKE) has sponsored a host of top professional athletes, from Michael Jordan to Lance Armstrong to Michael Vick. The latter is currently on thin ice with the company, the NFL, and fans, but he's only one of many athletes with whom the company has partnered. The most successful member of Nike's current roster, for both himself and the company, may be pro golf superstar Tiger Woods. Nike's foray into golf is relatively new, but its association with Woods has helped the company become a major player in that market with surprising speed.
Brainstorming
Time magazine recently re-examined Nike's mid-1990s movement into golf equipment and apparel. At the time, Nike marketing executives gathered to find a follow-up to Michael Jordan and the company's massively successful Air Jordan line. Candidates from the NBA and NFL were considered, but so were figures from sports with which Nike had less association -- including then-teenage golfer Woods.
As Time reported, Wall Street eagerly awaited the decision, and it wasn't pleased with Nike's choice. The market greeted Nike's announcement of its big-money deal with Woods by slicing 5% from Nike shares.
In the small, insular world of golf equipment suppliers, Nike would be competing head to head against such established names as Callaway Golf (NYSE:ELY), Fortune Brands' (NYSE:FO) Titleist, and Adidas Group's (OTC BB: ADDYY) Taylor Made brand. It would be a tough slog for a company that was still largely an athletic shoe marketer, but Nike would soon make definitive progress.
Getting started
In its first years with Woods, Nike only supplied the young golfer with apparel. Not until 2000 could the company furnish him with a competitive golf ball. But that ball may have helped Woods win U.S. Open, the British Open, and the PGA Championship, all in that same year.
The next year, Nike hired Tom Stites, a respected golf club designer and a former club-design protege of the illustrious Ben Hogan. Stites' first effort for Nike, the ProCombo irons, were intended for use by the top 2% of the sport's 27 million players. Nike hoped that the best players' influence would spur more rapid acceptance of Nike as a legitimate club producer by run-of-the-mill duffers. (Yours truly included.)
Next, Nike introduced the Slingshot series, whose more forgiving design was better suited for those of us for whom golf is only a weekend diversion. Its most recent Sumo2 line, released in Feburary, may have been too good; it was recalled after a competitor complained that it violated U.S. Golf Association standards for its duration of contact with the ball.
Meanwhile, Nike has replenished and expanded its stable of golfers and other athletes wearing the now well-known swoosh. Earlier this month, the company announced an endorsement deal with new NBA player Kevin Durant, last year's Associated Press Player of the Year at the University of Texas. Nike's golf contingent now includes female players Grace Park and Michelle Wie, along with such male stars as K.J. Choi, one of the hottest golfers right now. Last year, Woods also signed his third multiyear deal with the company.
Brightening future
Nearly a dozen years after moving into golf, Nike has succeeded to a degree many thought impossible. Still, golf-related sales still constitute only about 4% of the company's more than $16 billion in total revenue. But with dozens of Nike Golf stores having opened in China, and with its equipment selling in domestic retailers such as as Dick's Sporting Goods (NYSE:DKS), the future for Nike's golf segment continues to brighten.
In the meantime, my Foolish interest in Nike has been thoroughly piqued. Its current forward P/E multiple of just more than 16.5 doesn't seem too expensive to me, especially given its five-year PEG ratio of just 1.25. In addition, this $28 billion company sports a balance sheet that CEOs everywhere would die for, while offering investors a 1.3% dividend yield.
Whether or not you're inclined to swat at golf balls, I think you'll agree that Nike's relatively rapid success with links attire and equipment is only a microcosm for the company's wider-ranging growth and maturation. Just as Tiger's always worth watching on the greens, I believe Nike richly deserves Foolish investors' attention.
Further Foolishness, to a tee:
Fool contributor David Lee Smith is hoping his back will ease up and let him return to golfing. He doesn't own shares in any of the companies mentioned, and welcomes your comments. The Motley Fool's disclosure policy prefers an open-faced club, like a sand wedge.
