How To Get in On The Big Money In Sports

The late David Halberstam, the best-selling author and Pulitzer Prize-winning journalist, relayed an interesting story in “Playing for Keeps,” his authoritative biography of Michael Jordan published in 1997. Seeking to underscore the global impact and cultural significance of Jordan during the height of his fame in the 1990s, Halberstam recalls friends going on safari in Africa who reported seeing children – almost all of whom were poverty stricken and living in squalid conditions – wearing tattered Chicago Bulls jerseys with the number ‘23’ emblazoned on the back.


The globalization of sports and their attendant heroes has only grown in the roughly 20 years since. The popularity of the National Basketball Association began to spike in China after Jordan and the rest of the ‘Dream Team’ won a gold medal at the 1992 Summer Olympics in Barcelona. That was amplified by the emergence of Yao Ming, who was drafted first overall in 2002 and later became a national hero at home. The National Football League, for its part, has played at least one regular season game in London every year since 2007, ginning up speculation that the league will one day place a team there, especially now that its ‘Los Angeles problem’ has been solved.

Meanwhile, the flow has worked the other way, too. Soccer, once an afterthought in this country, has experienced a boom, with Fox shelling out $425 million for the broadcast rights to the World Cup in 2018 and 2022, more than four times what was paid to air the event in 2010 and 2014. Also, NBCUniversal, a division of Comcast, last year unloaded nearly $1 billion to air English Premiere League matches – a relative bargain given how much the audiences have grown year to year, not to mention what ESPN, Disney’s primary profit engine, has paid other sports leagues for the their broadcast rights.

In fact, international soccer has become such a phenomenon that in some corners of this country Argentinian superstar Lionel Messi is more of a household name than Mike Trout, widely considered Major League Baseball’s best player. And, importantly, international soccer typically attracts a younger demographic than other sports, a key consideration for advertisers. As more people watch, ad buys will become more valuable, meaning rights fees will continue to go up, all of which creates a virtuous cycle that almost assures the nation’s newfound coziness with soccer will only continue to grow in the future.

So in an era when sports are increasingly becoming global cultural and lifestyle imports, who are the big winners, outside of the leagues and television networks? Look no further than the brands that both outfit these leagues and sponsor their stars:

Nike has a stranglehold over the domestic basketball shoe market in addition to licensing agreements to make uniforms and other related attire for highly visible entities, including the NFL, national Olympic teams across the globe and countless prominent college athletic departments, such as Alabama, Ohio State and Oregon. Jordan Brand, a Nike subsidiary, is still churning out apparel and paying dividends for the company nearly 13 years after Jordan retired from the NBA.

Though its most recent earnings announcement demonstrated slower sales growth than many analysts expected, that was mostly due to the strength of the dollar, which has weakened in recent weeks. Otherwise, quarterly profits grew by 20 percent. Remember, with the Olympics in Brazil on the horizon, Nike will have plenty of opportunities to gain more exposure and promote its products this upcoming summer.
**Another major player is Under Armour. If the company is trying to replicate the success Nike had with Jordan and, to a lesser degree, Tiger Woods, it’s off to a good start. Under Armour has sponsorship deals in place with Stephen Curry, the NBA’s most electric star and reigning Most Valuable Player, and golf’s Jordan Spieth, who at 21 is a two-time major championship winner and one of the top-ranked players in the world.

Its basketball shoe business is up 250 percent since last year, and one report pegs Curry’s worth to Under Armour at $14 billion. While the stock is a bit pricey, especially relative to its main rivals, the investments it’s making into fitness technology and apps are positioning the company well for long-term growth.

**And don’t overlook Adidas , which has shown signs of taking off again after being plagued by weakening sales in recent years. Profits were up nearly 30 percent, according to its last earnings announcement, and given the company’s huge presence in international soccer (it has a sponsorship deal to outfit Real Madrid, the world’s most valuable sports franchise), along with a new CEO providing more strategic direction look for Adidas to resume its current growth path.

Of course, all of the above companies have been boosted by the so-called “athleisure” trend, as well as a broader awareness about the importance of eating healthy foods and living active lifestyles, which includes the wider adoption of technology-enabled fitness trackers made by Fitbit, Apple and Garmin .

Also working in these apparel makers’ favor is the fact that live sports remains one of the few bulwarks against ‘cord cutters’ and ‘cord shavers.’ In a world where an increasing number of viewers are shutting down or downsizing their cable or satellite subscriptions, this content is king. As long as that continues, these brands will receive outsized exposure.

Not surprisingly, naysayers dismiss all of this as passing “new age” fads. But despite what many analysts believe, there’s no reason to believe that such trends will subside any time soon. People ultimately want to look good and feel good, and emulate in fashion the habits of their heroes, especially when those heroes are professional athletes.

**Another major player is Under Armour. If the company is trying to replicate the success Nike had with Jordan and, to a lesser degree, Tiger Woods, it’s off to a good start. Under Armour has sponsorship deals in place with Stephen Curry, the NBA’s most electric star and reigning Most Valuable Player, and golf’s Jordan Spieth, who at 21 is a two-time major championship winner and one of the top-ranked players in the world.

Its basketball shoe business is up 250 percent since last year, and one report pegs Curry’s worth to Under Armour at $14 billion. While the stock is a bit pricey, especially relative to its main rivals, the investments it’s making into fitness technology and apps are positioning the company well for long-term growth.

**And don’t overlook Adidas , which has shown signs of taking off again after being plagued by weakening sales in recent years. Profits were up nearly 30 percent, according to its last earnings announcement, and given the company’s huge presence in international soccer (it has a sponsorship deal to outfit Real Madrid, the world’s most valuable sports franchise), along with a new CEO providing more strategic direction look for Adidas to resume its current growth path.

Of course, all of the above companies have been boosted by the so-called “athleisure” trend, as well as a broader awareness about the importance of eating healthy foods and living active lifestyles, which includes the wider adoption of technology-enabled fitness trackers made by Fitbit, Apple and Garmin .

Also working in these apparel makers’ favor is the fact that live sports remains one of the few bulwarks against ‘cord cutters’ and ‘cord shavers.’ In a world where an increasing number of viewers are shutting down or downsizing their cable or satellite subscriptions, this content is king. As long as that continues, these brands will receive outsized exposure.

Not surprisingly, naysayers dismiss all of this as passing “new age” fads. But despite what many analysts believe, there’s no reason to believe that such trends will subside any time soon. People ultimately want to look good and feel good, and emulate in fashion the habits of their heroes, especially when those heroes are professional athletes.


By Ross Gerber

Ross Gerber is CEO of Santa Monica, Calif.-based Gerber Kawasaki, an investment advisory with approximately $420 million in assets under advisement. Clients and employees own positions in Nike, Under Armour and Apple.

http://www.forbes.com/sites/greatspeculations/2016/04/05/how-to-get-in-on-the-big-money-in-sports/#5540a7ac3308

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss.

Gerber Kawasaki, 2716 Ocean Park Blvd. #2022 Santa Monica, CA 90405. Contact us at (310) 441-9393.