Under Armour sinks a basket too
Both the Cavaliers of Cleveland and the Warriors of some place called “Golden State,” which is really Oakland, Calif., in the recently concluded NBA championship series came from perennially losing sports towns, both sorely in need of something, anything, to brag about.
You can’t call the Warriors’ eventual triumph an underdog victory, because they were favoured, but it was a win for the little guy in a different context — namely, the epic battle on the hard court (and other fields of dreams) between sports apparel makers.
As everybody knows, the Cavs are led by the self-proclaimed “greatest player in the world,” LeBron James, who is sponsored by Nike Inc.
The Warriors’ success, meanwhile, can’t be pegged on any one player, but 2015 MVP Stephen Curry — a 6-foot-2 guard — played a big role in the series, and he’s sponsored by Under Armour Inc., an upstart that’s been biting at Nike’s ankles for a few years now.
Investors looking for growth stories might want to take notice.
I’m no expert on sports apparel, believe me, but I suspect the difference in price and quality isn’t very significant. Young consumers’ appetite for celebrity-endorsed footwear and other apparel seems pretty much bottomless — as long as you have the right celebrity.
Nike has long been the reigning genius of sports sponsorships, with the likes of Michael Jordan, Tiger Woods and Kobe Bryant on its roster. But Under Armour, based in Baltimore has pulled off some big sponsorship hits recently, and with relative unknowns.
For instance, it sponsored PGA golfer Jordan Spieth before he even became a professional. Spieth went on to win the Masters in April. In the days that followed his win, online sales of Under Armour golf apparel doubled, according to The New York Times.
You can bet all eyes will be on Spieth and his attire this weekend, when he enters the U.S. Open as the No. 2 favourite behind Rory McIlroy.
Under Armour also took a chance on Curry, luring him away from Nike for an undisclosed sum in 2013, before he’d reached his full potential. Yet, when the company launched a Curry basketball shoe earlier this year, demand was so high it crashed the company’s ecommerce site.
If you look at Under Armour’s sponsorship roster, underdogs and unknowns abound among the odd superstar.
Sure, there’s Michael Phelps, Eddie Lacy and Tom Brady. But there’s also a lacrosse guy, a hockey player, British soccer team Tottenham Hotspur, a ballerina — oh, and Giselle Bundchen, who’s not exactly unknown but indubitably not a member of the sports pantheon, except by marriage.
None of this would matter if it didn’t pay off in sales. But the evidence so far suggests that it is. Under founding chief executive Kevin Plank, Under Armour’s revenue has doubled in the three years to 2014, reaching US$3.08 billion. In the first quarter of 2015, year-overyear revenue rose by more than 25 per cent.
The stock, meanwhile, has been a rising star in an otherwise dark universe. It’s up more than 20 per cent this year. Since its IPO in 2005, Under Armour has returned more than 2,400 per cent. That kind of growth doesn’t come cheap since UA’s P/E is approaching 90.
As well, shareholder rights types won’t be big fans of the stock: Plank controls Under Armour with super-voting shares, a situation the company reinforced this week by announcing it would issue a new tranche of non-voting shares that will effectively create a stock split.
Nike, by contrast, is much cheaper, with a P/E under 30, and it pays a dividend. Its revenue is about 10 times that of Under Armour, and it has a global presence that matches its biggest rival, Adidas AG.
Nike’s shares have done well too, up nine per cent on the year and nearly 190 per cent over the past five years. Its leadership in sports sponsorship is not at all in question, and James — probably the NBA’s greatest player, even if he does say so himself — is undoubtedly among its most valuable assets from a sponsorship perspective. One market research firm estimates James generated US$340 million in shoe sales for Nike in 2014.
Those are numbers that Under Armour can only dream of — and you can bet they are. Nobody expects it to beat Nike, at least not anytime soon, but it doesn’t have to. It just needs to keep on growing, and signing the next big thing.
So far, it seems to have a knack for that.