Nike Bids Adieu to Manchester United Sponsorship – Analyst Blog

Nike Bids Adieu to Manchester United Sponsorship – Analyst Blog

Last week, Nike Inc. (NKE) finally confirmed the much rumored news of ending its 13-year relationship with Manchester United plc (MANU) via an email to Associated Press (AP). As per AP, the 2014-15 season will be the companys last year of supplying soccer equipment to the English Premier League (EPL) powerhouse.

One of the world’s leading sportswear retailers no longer wants to renew its contract, as the sponsorship money sought by the football club is deemed to be too high. According to Bloomberg, Nike has been paying a minimum of £23.3 million (about $39 million at current exchange rate) per season, as per the 13-year sponsorship agreement signed in 2002 with the 20-times EPL champion.

However, the English football club has of late been demanding to raise the new contract price to more than £60 million per season, which Nike believes is not a good value for its shareholders.

Meanwhile, as reported in The Financial Times, Manchester United has successfully struck a new sponsorship deal with Germany-based Adidas AG, the worlds second largest sporting goods retailer. As per the deal, the company will pay a sum of up to £750 million or $1 billion (or £75 million per season) over 10 years.

We believe Nikes decision to quit the race for retaining Manchester Uniteds sponsorship at such a hefty amount is a prudent move. The company has already sponsored 10 out of 32 teams in the FIFA World Cup, 2014, compared with 9 teams sponsored by its arch rival Adidas.

Moreover, in the recently concluded Soccer mega event, Nike made a smart advertising tactic by signing contracts with most of the World Cup playing nations to endorse its brands by displaying its “Swoosh� logo on jerseys and making 53% of the players wear its boots. Nike believes that its marketing strategy will boost the sales of its soccer products in fiscal 2015.

In the last fiscal, Nike has already beaten the German soccer company Adidas in sales growth in the European region. The company registered  high-double-digit year-over-year growth in sports equipment sales in Europe compared with flat sales at Adidas. Looking ahead, Nike expects breezy sales on the back of the FIFA World Cup and will likely leave Adidas behind to become the number one sporting goods retailer in fiscal 2015.

Though sponsorship from big teams like Manchester United generates engagement and online interaction that improves brand recall and extends the shelf life, one should also check whether such hefty investments translate into healthy Return on Investment or not.

Currently, Nike carries a Zacks Rank #3 (Hold). However, some better-ranked stocks in the shoe/apparel retail industry include Brown Shoe Co. Inc. (BWS) and Iconix Brand Group, Inc. (ICON), both carrying a Zacks Rank #2 (Buy).

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