THE PROBLEM WITH HEROES
How Nike were blinded by their brightest star
Nike is in the hero business. Since its inception as a running shoe company, it has used its marketing budgets to turn athletes into idols. Tiger Woods and Rory McIlroy are part of a long-standing tradition that includes Michael Jordan, Lance Armstrong, Andre Agassi and Cristiano Ronaldo.
But there are two problems with heroes. First, they sometimes fail. And in the case of Armstrong and Woods particularly, the fallout can be spectacular, revealing the gap between the human being and the marketing myth. The second problem is that heroes can be so compelling that they encourage even the most hard-nosed business brains to fall under their spell. In Nike’s case, the incredible global popularity of Tiger Woods was a catalyst for the brand to venture in to a sector in which they had no experience or expertise.
Nike is the world leader in sports clothing and shoes, but it has found that golf is not the only hardware business not to its liking. The company entered the ice hockey business by buying incumbent brand Bauer and then attempted to build a position in the nascent market for wearable trackers by making its own FuelBand device. Both ventures, like its golf
equipment business, failed.
The reason for these high-profile failures is that the link between sports equipment hardware and clothing/ shoes is tenuous at best. Just because we wear a Nike polo shirt does not mean we’ll buy their clubs. If you look around a pro shop, you’ll see a divide between the major clothing brands and those selling equipment. Under Armour, Adidas, Puma, and Oakley have all built large golf clothing, shoe and accessory businesses without going to the enormous expense of selling clubs under the same brands.
“Nike has a history of entering a new sport and then withdrawing,” says Tim Crow, an expert in sport sponsorship and chief executive of the Synergy Sponsorship agency. “Not that long ago Nike had a major presence in rugby, with the license to make and sell the England and France rugby team shirts. They exited that market and now have no deal with any of the major rugby nations.”
In addition to this lack of growth, Crow points to factors outside of golf that have impacted on Nike’s business decisions. Significantly, they are fighting expensive battles in other sports, particularly football and the major league sports in the US. “They have bigger fish to fry elsewhere,” says Crow, who points to “escalating prices for the big contracts in those sectors”. He’s not kidding. Nike recently agreed to pay Chelsea FC £900million over the next 15 years to design, make and sell the west London football team’s kit. This was on the heels of a similarly huge contract renewal with Spanish club FC Barcelona.
According to Sports Business Journal, Nike’s financial obligations to sports teams, leagues, associations, colleges and athletes reached nearly $6.2 billion last year, up a whopping 32% over the same time a year before. This spike in spending on sponsorship was due to the pressure from Under Armour and adidas. Between 2013 and 2015, Nike’s spending rose an incredible 72%, or nearly $2.6 billion.
“The reality is you see a bit of a jump because they can,” said Jay Sole, a research analyst for Morgan Stanley. “The business is performing very well; the profits are continuing to grow.” In direct contrast, even with Tiger at his peak Nike never had more than a single-digit market share of the golf equipment business.
In the end, the decision to leave was brutally quick, with even contracted players caught unawares and left seeking new deals with other clubmakers. With Nike’s marketing spend reduced, the going rate for golf endorsements will fall, and the other manufacturers, such as Callaway, Titleist and TaylorMade will seek to soak up market share.
“It just goes to show how tough the golf market is,” said Tom Stine, co-founder of Golf Datatech, which tracks industry sales. “It’s a steady market. It isn’t going anywhere, but if there’s one less competitor, then there are more dollars to go to the other companies.”
Paul Hedges agrees. “Any brand that wants to succeed in golf has to really understand the market. I think Nike had been pushing water uphill from day one; and after many years and significant investment, they have clearly decided that it was just not worth the effort.”
‘A PGA club pro is eight times more influential than a top tour pro’
Losing face: Tiger ’s association with Nike may have increased brand awareness, but it didn’t drive sales of golf clubs or balls.