On a cross from Fabió Coentrão, Karim Benzema, with a single touch, puts the ball in the right place. It’s the only goal of the night, but it’s beautiful, and with it Real Madrid wins at its home stadium, the Santiago Bernabéu.
Benzema wears Adidas (ADS:GR) cleats. So does Coentrão. Real Madrid wears Adidas jerseys. So does Bayern Munich, the other team. The two clubs, among the best in the world, are playing in a semifinal match for the Champions League. Adidas sponsors the league, which gives it the right to supply the ball and put its name on the field. Team, team, field, ball, assist, goal: a good night for Adidas at the Bernabéu.
This is what Adidas has been doing for 66 years. The company helped invent the practice of paying athletes to wear its shoes, paying teams to wear its jerseys, and paying a league to use its ball. In the 1970s the company was so dominant that a man named Phil Knight, selling Japanese track shoes in Oregon, set Adidas as his target. It seemed absurd at the time.
Knight is now the chairman of the board at Nike (NKE). That one goal at the Bernabéu started with a Nike cleat on the right foot of Cristiano Ronaldo, who fed Coentrão with a threaded pass from midfield. I’m at the stadium because Nike offered me tickets. And I’m in Spain because after several requests to speak to executives in Oregon, Nike insisted I meet them here in Madrid.
Nike has rented out the 380-year-old Salón de Reinos, the slightly shabby remains of a palace built by Philip IV. For two days, Nike has parked generators outside and installed stage sets inside. In 2013, Ronaldo won the Ballon d’Or, the golden ball. This makes him the best player in the world. Nike invited 250 journalists from around the globe to Madrid because it wants us to see Ronaldo’s new shoes.
Nike is now the largest sportswear company in the world, with $25 billion in revenue and a 17 percent market share. The second-largest, Germany-based Adidas, has $20 billion in revenue and 12 percent of the market. These share numbers soar for soccer gear, where together the two comprise 70 percent of the market. According to FIFA, the organization that governs international soccer, 300 million people play the game and a billion watch it. The sport is expanding in Asia and is the rare product for which the U.S. is still a growing market. Smaller American sportswear providers such as Under Armour (UA) and Warrior Sports have begun sponsoring teams in the U.K.’s Barclays Premier League, recognizing that a company without a cleat on this turf cannot aspire to be global.
Nike says it brought in $1.9 billion in soccer revenue in 2013. Adidas declined to share its number, but according to Peter Rohlmann, a sports marketing consultant based in Rheine, last year the company had $2.4 billion in soccer revenue. That this is even a contest is a problem for Adidas. Nike didn’t do soccer until 1994, when the World Cup came to the U.S. And even when Adidas lost its advantage in other sports, it held on to it in soccer. Herbert Hainer, the company’s CEO, likes to say that the game is “part of our DNA.” Adidas relies more on the European market, where soccer is the only sport that matters. Nike wants soccer. Adidas needs it.
Since 1970, Adidas has sponsored FIFA. Last year it extended that agreement to 2030; according to Rohlmann, this costs the company almost $70 million for every four-year cycle. For slightly less than that, Adidas also sponsors UEFA, which runs international soccer in Europe. The sport makes up a larger part of overall revenue for Adidas than it does for Nike, and Adidas’s sales jump in “event years,” as in 2010, when the last FIFA World Cup was played in South Africa.
On June 12 in São Paulo, Brazil will play Croatia in the first game of this year’s World Cup. The corporate spend on team sponsorships alone, according to Ohlmann, will total almost $400 million. Nike will sponsor 10 national teams, more than it ever has before—and one more than Adidas. Nike has Brazil, Portugal, and Ronaldo. Adidas has Spain, Germany, and Lionel Messi, the Argentine who has won the Ballon d’Or four times. As in every World Cup since 1970, the ball on the field will be Adidas’s.
For most of the planet, the tournament will be a work-stopping big deal. Adidas, in particular, is counting on a huge summer. Last year was a disappointing year overall for the company, so Hainer has been emphasizing an old promise to produce €2 billion ($2.7 billion) in soccer revenue in 2014. In May, Adidas reported first-quarter soccer growth of 27 percent, and the company projects confidence that it will meet its target. But even if it does, it has another problem. The World Cup is no longer the only global tournament.
The sheer strength of the American consumer makes the U.S. Adidas’s largest single market for soccer
As recently as a decade ago, if you lived in Germany, you watched the Bundesliga and the World Cup. If you lived in the U.K., you watched the Premier League and the World Cup. All the world’s best players used to appear on the world’s TV screens only once every four years; paying to own international contests made sense. Soccer fans are “very precious about history,” says Andrew Walsh, a director at Repucom, a global sports marketing group. “Adidas has been a part of that, and that carries some weight.”
But the national leagues themselves have become international contests, too. Adidas has noticed increased interest in the Bundesliga, which it sponsors, in China. With several new broadcasting deals, global revenue for the Barclays Premier League rose 25 percent this season alone. On Saturday mornings, Americans can watch the league on NBC. And when they do, they see Nike’s ball on the field. Club teams like Real Madrid and Bayern Munich are more important now, says Walsh. In the past, “[Adidas] could just stick their name on the World Cup and that did it,” he says.
Even during cup years, Nike has become adept at running ads that imply a major global soccer event without uttering “FIFA World Cup.” Nike is so good at advertising and event promotion that it sometimes seems as if no other company is even playing the same game. Adidas maintains an overwhelming advantage at the only global tournament, and it still makes more money in the sport. But Nike is drawing its only real rival into an old and expensive game: Sponsor as many of the best teams and players as possible.
“The No. 1 football boot brand in the world, that’s what we are today,” says Trevor Edwards, sitting on the third floor of the Salón de Reinos, “including Germany.” Edwards, head of brand management for Nike, speaks with the vaguely trans-Atlantic accent of an Englishman who’s lived in Oregon for a long time. When he says “football boot,” he means soccer cleat. Nike does, in fact, sell more of those. And when Edwards says “Germany,” he means Adidas.
In a basement at an Adidas building in the southern German town of Herzogenaurach, mechanical feet never tire of kicking goals and stomping cleats. A sad robot named Newton walks and sweats in a climate-controlled enclosure in the corner. For visitors, Adidas has lined up its nine national team jerseys on mannequins. Newton roots for Germany. This is where Matthias Mecking and Antonio Zea, heads of soccer marketing and soccer innovation, respectively, come up with their cleat “silos.”
Silos are shoes dedicated not to players but to player styles. It’s how both Nike and Adidas approach soccer cleats. It’s risky to make shoes that are branded around a single player. Athletes can fade unexpectedly, have a catastrophic World Cup summer, or simply fail to live up to their talent. The companies pick their players, move them into a line of cleats, then move new players up the same line as they arrive. Messi, the greatest of what Adidas calls its “assets,” has his own color scheme at Adidas, his own stylized M logo. But there is no Messi cleat. He wears a version of the F50, a light shoe designed for fast players.
Zea grew up in New Jersey and played soccer for Rutgers University. He picks up the F50, Messi’s choice. “This F50 player,” he says, “we always thought, ‘Oh, the guy with the hair, and he’s got the car with rims on it.’ ” Zea and Mecking watch game tape, analyze movements, and talk to pros to identify silos. But they also talk to kids about the way they play and how they’d like to play. “As a little kid, you want to be the next [Zinedine] Zidane, the next Beckham, the next Messi,” says Zea. “How do you do that? Well, I align myself with their styles of play.”
Adidas is counting on Messi’s style of play this summer. The company has elevated him to something above all the rest of its players. (One executive resisted the word “god” but consented to “demigod.”) Messi has won the Ballon d’Or more than any other player. At 5-foot-7, he doesn’t do acrobatics, and he hasn’t patented any dribbling tricks. La Pulga—the flea—is just faster than everyone else. He puts the ball where they aren’t, and then he puts it in the goal. In the Adidas store at Nuremberg, near Herzogenaurach, you can buy German national team jerseys and Messi’s Argentina jersey. On the wall, there are two quotes: one from Messi and one from Adi Dassler.
Herzogenaurach is where Adolf “Adi” Dassler—adi das—started making sports shoes in the 1920s. Adidas is still based there. Employees often call the town “Herzo” to save time. Adidas’s company mythology is built around Adi: the cobbler, talking to athletes and making cleats, just like Zea and Mecking do today.
It was Adi’s son Horst, though, who had the falling-apple moment in sports marketing when he realized in 1956 that he could get Olympians to wear Adidas shoes if he just gave them away. For the next three decades, Horst ran around the world, refining what is now an accepted part of sports: bidding to pay athletes to wear his clothing. Horst also was the first to understand that not just the athletes but the event itself could be for sale. He created Adidas’s enduring relationship with FIFA and ensured that other multinationals like Coca-Cola (KO) could do the same.
When you see the three stripes of Adidas on the boards around the soccer fields in Brazil this summer, that’s Horst, not Adi. The ball, this time called the “brazuca,” after a Portuguese slang term for Brazilians—Horst. There are two 10-foot-diameter brazucas displayed like sculptures at Adidas. Horst died in 1987. But there’s no statue like the one of his dad.
“Soccer is rooted within the company,” says Markus Baumann, sitting on the wooden bleachers of Adi-Dassler Stadium. When Baumann was a kid, his hero was Sepp Maier, the goalkeeper for Bayern Munich who won a World Cup with the German national team in 1974. In his twenties, Baumann was a goalie at the semi-pro level in Germany. He used to have Maier’s jersey and Maier’s gloves, all made by Adidas. “At that time,” Baumann says, “almost everything was sponsored by Adidas.” Baumann, now 48 and still trim enough to play keeper, is the company’s head of soccer. He sells heroes.
What does success look like for Adidas in 2014? “Germany winning the World Cup,” he says. This is both an emotional and professional answer. The company has sponsored the German national team since it won in Adidas cleats at the 1954 Switzerland World Cup, an event Germans refer to as the “Miracle of Bern.” The year before every World Cup, Adidas and Nike hold a ritual weigh-in, announcing whose chests will be wearing their logos. This is not a simple competition for the highest number of teams. A company wants to back a winner—“three stripes lifting the trophy,” Baumann says—and wants a winner whose citizens have disposable income.
Germany, with three World Cup wins in seven finals appearances, would be an obvious choice even without Adi’s role in the Swiss miracle. Spain as well; it’s a smaller market, but La Roja won it all in 2010. In 2011, Adidas signed Colombia and last year extended the country’s contract until 2022. FIFA now ranks Colombia’s team fifth in the world. Just as important, it has a growing middle class. Both Nike and Adidas started selling their national team gear in November of last year, in time for Christmas. Baumann says that ever since, Colombia has been Adidas’s best-selling jersey in Latin America.
Buying the rights to a country’s jersey, however, doesn’t buy the entire country. According to Repucom, Adidas’s soccer page has 400,000 Facebook likes in Colombia. Nike’s has a million. Adidas sponsors Mexico and has 900,000 likes in the country. Nike has 3.9 million. It’s a consistent pattern, worldwide. But it’s not yet clear in soccer what impact social media has on revenue. Apparel sales are like politics. What happens online doesn’t matter unless it drives transactions.
A year and a half ago, Adidas started talking to retailers in Colombia, gauging demand city by city based on past sales of national team gear. Adidas also has its own multiplier, weighting demand for these jerseys based on bookies’ odds of the Colombian team’s chances in Brazil this summer. Adidas has generic jerseys stashed in Colombia, and if a particular player is having a good summer, it can add his name at the last minute. And the presence of international players in the European leagues means that the jersey of Adrián Ramos, a Colombian forward, will sell in Berlin, where he played this year, and possibly even in Dortmund, where he will play in the fall.
Colombians live in the U.S., too. Adidas knows where, and is prepared to sell to them. Ernesto Bruce, head of soccer for Adidas in the U.S., says the company sponsors Mexico’s jersey to get to the team’s American fans. “The Mexican national team in the U.S. is tremendous,” he says. “They sell out stadiums. They have a rabid fan base.” Mexico’s jersey is Adidas’s top seller in the U.S., and all of the company’s soccer products sell best in California, Texas, and Arizona.
The sheer strength of the American consumer makes the country, surprisingly, Adidas’s largest single market for soccer, 15 percent of global soccer revenue. In May, Adidas’s Hainer reported “double-digit” soccer growth in the U.S., conceding that Nike’s growth was even higher. There’s a Nike swoosh on the U.S. national team jersey. But Adidas is the sole sponsor for the uniforms of Major League Soccer and in 2005 took over Nike’s youth development camp in the U.S., retitling it “Generation Adidas.” The only individual name that matters in the U.S., however, is a foreigner: Lionel Messi.
Bruce points out that the Argentine is the seventh-most-followed athlete in the U.S., the first soccer player to crack the top 10. He sees kids in America looking for icons. “We have the world’s biggest sports icon,” he says. Bruce talks quite a bit about La Pulga. For Adidas, Messi is a kind of superstar mortar, filling in the cracks between the world’s allegiances and holding them all together.
Walking through the Adidas campus with Baumann, I bring up a specific part of his own history. For two years in the early 2000s, Baumann worked for Nike, selling its cleats to Germans. He struggles to find a diplomatic way to compare the two companies and says that Nike is “more American.” When asked what he means, he says, “Yeah, probably more …” then thinks for a second. “More marketing-driven, I would say.” He reminds me that Adi Dassler was a cobbler.
Frescoes on the ceiling of the third floor of the Salón de Reinos list outposts of an empire that has disappeared: Navarra, Galicia, Sicilia, Flanders, Mexico. Below them, Nike has clad 21 mannequin torsos in its World Cup team uniforms—10 teams, each with a home and away kit, and one extra for Brazil. They’re arranged in order of relative importance, Brazil at the front, Australia’s poor Socceroos at the end. Each torso is lit from below and raised to suggest a 7-foot-tall player.
Nike is so good at advertising and event promotion that it sometimes seems as if no other company is even playing the same game
In other rooms, Nike has installed frames that look like locker rooms for several countries and hung them with matching jerseys, leggings, swim trunks, flip-flops. Real live national team players stand in front of their lockers and answer questions—Pepe for Portugal, Luiz Gustavo for Brazil. There is no locker for Croatia, and so Luka Modrić, a precise passer in the midfield for Real Madrid and Croatia’s national team, stands under a 7-foot-tall torso wearing Croatia’s away jersey.
His favorite player when he was a kid was Zvonimir Boban, captain of the Croatian 11 that had a sweetheart run to a bronze in the 1998 World Cup. His first cleat as a child was a Nike. “Today I am more demanding, not when I was a kid,” he says. “At that time you are not caring, you just want to have some nice colorful boots.” Nike increased market share in the early 2000s in part with a line of bright cleats. Modrić will wear Nike’s Mercurials this summer. Behind him, 157 cleats in lime and orange hang from the ceiling like crystals in a chandelier.
Phil McCartney is in front of the locker room for the Netherlands. McCartney manages all of sports footwear for Nike. A runner by training, he grew up in Newcastle and is tactful when I poke at England’s regular disappointment at the World Cup. McCartney describes the exact same process of silo-creation as Mecking and Zea at Adidas: Look at stats, watch an ungodly amount of soccer, talk to pros, talk to kids.
Behind him is a pair of Air Jordans with a Dutch orange swoosh. I ask whether there will ever be a Michael Jordan of soccer—not just a transcendent talent but one who creates a brand that remains when the player has left the field. “The game is defined by key moments,” he says, “and I think when we can link product innovation to key athletes, to key moments, that’s when the magic happens.” In other words, no.
Edwards, the guy who runs all of branding for the company, also meets me in front of the Dutch Air Jordans. He is 50, just old enough to have been a Pelé guy when he was a kid. Edwards talks a lot about “stories” and “connecting with the consumer.” I think he is being evasive, and then I realize he’s completely straightforward.
Adidas sponsors athletes and teams, supplies them with innovative shoes, and hopes they win. Nike does all that, too, but relies less on reality. In 2008, Guy Ritchie, the English auteur, directed a Nike commercial from the point of view of a young player, called up from a Dutch regional league to play for Arsenal. You never see the player, just Cristiano Ronaldo and Manchester United’s Wayne Rooney as they rush by and trash talk. The player trains until he vomits, gets better, gets the girl, gets another girl, earns the approval of his teammates, and in the end the player walks on the field for the Dutch national team on the world’s biggest stage.
Nike has realized that while what actually happens on the pitch matters, it can also use its players to tell elegant fiction. What you, the consumer, remember matters just as much as what actually happened.
The next day, the horde of journalists walks up to the second floor of the palace and through an alley lined with old Nike cleats in glass cases and black-and-white footage of soccer fans. Past the alley, Nike has built seating that looks like a small stadium. It has been painted to resemble seatless concrete terraces, a construction style that’s gone out of fashion at most first-league soccer stadiums since the Hillsborough disaster of 1989, when 96 fans were crushed in a panic at a stadium in England.
Headphones are laid out for simultaneous translation into English, Spanish, Portuguese, Chinese, Japanese, and Korean. A video shows the company’s ad campaign for this summer: Kids play soccer, and one by one they become pros—Ronaldo, Rooney—playing international soccer in some kind of tournament of global significance, perhaps the FIFA World Cup, which is never mentioned. The ad owes something to a successful Adidas campaign from 2006, when two kids on a dirt field began to pick teams and pros trotted out as their names were called—Beckham, Zidane.
But Nike’s new ad also shows what the company has always done best. It hints at an event, owning it without ever having to pay for it. It did this with a campaign in the summer of 2012, “Find your greatness,” coincidentally a summer in which Adidas paid $200 million to sponsor the London Olympics. And it did this in 1984. When Converse sponsored the Los Angeles Olympics, Nike featured its own athletes in a TV ad as Randy Newman in a convertible sang I Love L.A. Now Nike owns Converse.
In the faux stadium in Madrid, a video shows Ronaldo hustling through the palace. There is a flash of white light, the screen lifts, and there is the actual Cristiano Ronaldo. He’s wearing his Portugal uniform and his new superlight cleats, essentially a pair of red socks with a heel cup and studs. He walks down a turf catwalk, briefly juggles a ball, and then returns to the stage for an interview. He has excellent hair. “The players from Nike have a lot of entertainment character,” says Rohlmann, the marketing consultant. “Cristiano Ronaldo, he’s much more a star in a broader sense than a football kicker. … Lionel Messi, sponsored by Adidas, he’s more a football kicker.” Adidas backs athletes. Nike backs athletic celebrities.
On the floor above the stage set, Nike has installed distressed wooden cabinets in a small room. There are two leather chairs and a chest, and the cabinets hold gear from a fictional entity called “Nike FC.” This is the Nike Football Club. It’s a brand of lifestyle gear to be worn off the field. The players of Nike FC are shot in black and white. Nike’s made soccer gear for 20 years now, but like the painted concrete terrace on the floor above it, the room is designed to evoke nostalgia for a time before it got in the game.
One cabinet features photos of another Ronaldo, the single-named Brazilian. He scored twice in a 2002 World Cup finals win over Germany. Below the photos rest his Nike Mercurial cleats from the game, and a signed, aged Nike soccer ball. It’s as if he won with that ball, too, but in 2002 the actual ball on the field was the “fevernova,” made by Adidas. No reason to pay for the World Cup when in a dozen years you can simply pretend you did.