Sales of athletic footwear have plummeted since shelter-in-place orders went into effect (NPD Group reported -76% YoY during the 4th week of March, -75% YoY during the 1st week of April). The closure of brick and mortar retailers combined with skyrocketing unemployment numbers have decimated the industry. U.S. sales figures showed signs of leveling off last week (-73% YoY, week ending on 4.11), but with no telling when stores will re-open or how long it will be before the economy bounces back it’s fair to assume athletes seeking lucrative footwear and apparel endorsement contracts this spring/summer – including those in the ’20 NBA draft class – are likely to be disappointed in what the market bears.
Howie Long-Short: To be fair, footwear and apparel companies were already in the process of establishing a “new normal” as it relates to the size of athlete endorsement deals when Coronavirus hit (they had little choice, performance shoe sales have declined 5 years running). Save Nike with Zion Williamson (who signed a $75 million deal), “brands have been waiting for [players to turn into stars] before handing over big money. Most of the rookie shoe deals signed by NBA players over the last half decade [maxed out] between $1 million and $2 million.”
There’s a case to be made that even at $1 million, brands would be better off investing their money in something other than a pro athlete. In fact, NPD Group retail analyst Matt Powell believes the “entire endorsement model” needs to be rethought. He says that successful brands aren’t just outfitting stars, trotting them out on the court/field and expecting consumers to make a purchase. Instead, “they’re actively working to build trust with their fans. They’re looking to position themselves as a brand that does the right thing, that supports good causes.” Nike executives donating $15 million to Coronavirus aid response is an example of a footwear company ‘doing well by doing good’.
Footwear and apparel companies do benefit from on the on-court visibility of their endorsees and products, but “it’s more of a long-term brand-building tool [than anything else]” (i.e. rarely do endorsement deals – particularly those with big money tied to them – generate a positive ROI). Powell explained “companies in the space tend to spend between 10% and 12% of sales on marketing. If an endorsement contract is worth $20 million, that means the athlete needs to sell 200 million pairs of shoes at wholesale [for the deal to pencil out]. Even at the industry’s peak, nobody was posting those numbers.”
It’s no surprise with 20+ million Americans having lost their jobs since the Coronavirus outbreak began that footwear and apparel sales have fallen off a cliff. “In times [of financial] trouble, the first categories to slow down are the discretionary ones. People are spending money on essentials (think: rent, cell phone) and their kids – not on shirts and shoes.” The lack of live sporting events on the other hand is a non-factor in the decline. Powell said, “when games are going on the business doesn’t improve, so the assumption is that the business doesn’t get worse in their absence.”
Despite the industry’s current struggles, there are endorsement deals to be had for players within the 2020 NBA draft class. Powell said brands will likely be willing to lock up players for “small money.” It’s also possible that prospective endorsers could look to get creative with compensation (think: equity) to avoid paying out cash in the short-term.
NBA agent Happy Walters agreed with Powell’s belief that rookie endorsement money is going to be tight – at least for “the next year or two, until the shoe companies’ stocks recover and consumer spending picks back up.” It’s fair to wonder if the anticipated reduction in marketing budgets had any impact on Jalen Green’s decision to bypass college basketball for the NBA’s ‘professional pathway program‘. Williamson significantly enhanced the value of his sneaker deal by spending a season at Duke. If Green was advised by his agent Aaron Goodwin that no matter how successful he might be in college that the shoe money simply is unlikely to be available next summer, the decision to go to the G-League makes more sense.
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