Business Insider’s report that Meek Mill is set to “become a co-owner of Lids” (he’ll also head up creative strategy for the company) is the latest example of an athlete or entertainer looking to leverage their brand in an entrepreneurial capacity. The news comes less than a week after Shaquille O’Neal – who has managed to build his own “sprawling business empire” on the back of a likable, bigger than life personality – proclaimed that he “would love to purchase Reebok”; saying the company has been “diluted so much [under Adidas’ ownership] that it’s almost gone [from the consumer consciousness]” and that he could “bring them back to basketball and fitness [relevance].” O’Neal recalls that time fondly. His history with the brand goes all the way back to ’92 (amid their early 90s heyday), when they signed him to a $15 million rookie shoe deal.
Howie Long-Short: Reebok is perceived to be a dying label because their classic styles (40% of ’18 sales) are outselling today’s performance models (sales within that category actually declined in ’18). Rumors that Adidas had been looking to divest themselves of the brand, a -3% YoY revenue decline in FY18 and the recent news that Dick’s Sporting Goods is ending its licensing deal with company have only fed the narrative. But Adidas AG CEO Kasper Rosted is optimistic about its future. 2018 revenues declined because the company was closing stores that were underperforming (and it had allowed various licensing deals to expire), costs are down and there is a hope that “new footwear lines like the Crossfit Nano and Floatride Run will spur [an increase in] sales.”
David Simmons, founder of DESBall Ventures, explained that the influx of new entrants into the footwear and apparel space has resulted in “sportswear companies really becoming streetwear companies – lifestyle brands that happen to make sneakers. That transition means there is brand equity in the Reebok name and with the right endorsers and business partners (company recently named Beyoncé creative director) it could make a comeback; no different than what Puma has done with Rihanna or New Balance with Kawhi.”
Reebok is “a legacy brand with market share, real-estate and household name recognition”, so it remains valuable. While the retail sector remains out of favor and the company is not currently turning a profit, Simmons says that the company could easily follow Nordstrom’s strategy – “selling off-price products at the outlets, introducing a few pop-up shops for new releases and doing everything else online” – and generate the returns that would make a private equity investor happy. The brand’s “path to profitability” (Rosted said in ’18 that the company would be profitable before 2020) also makes it attractive from an investor standpoint. That’s noteworthy because while SHAQ has made a lot of money in his lifetime (in ’16 Forbes pegged his net worth at $400 million), he’s not going to take down Reebok alone; Adidas paid $3.8 billion for the company back in ’05. It’s worth noting that SHAQ doesn’t even own namesake (think: merchandise, endorsements) – he sold them to Authentic Brands Group in 2016 (financial terms were not disclosed, he took stake in ABG as part of the deal). If O’Neal is going to leverage his own brand to turn Reebok around, he’s going to need ABG’s participation.
Fan Marino: It’s reasonable to believe that if an O’Neal led consortium were to acquire Reebok it would license the label back to Adidas or another manufacturer (think: ABG, Sports Illustrated’s publishing arm and The Maven); it’s highly unlikely the financier will have an expertise in footwear production. As Simmons (who worked in shoe sales at Saks Fifth Avenue prior to entering VC) noted “Reebok has commitments and contracts to fill and as you saw with Big Baller Brand, it’s difficult to build a sneaker company from scratch. It’s relatively inexpensive to build a shoe, but it’s very expensive to sell it and P.E. groups (and ABG) excel at building businesses and monetizing brands. It would be a really good match for a company that has underperformed for some time.”
Editor Note: Simmons is hosting the Gila Summit in Los Angeles on 7.10.19. All proceeds will go towards supporting research for Hereditary Hemorrhagic Telangiectasia (HHT), also known as Osler-Weber-Rendu Syndrome.
Interested in Sports Business? Sign-up for our free daily email newsletter list, here!