Adidas' Big Money Defense Against NikeBy
A few months after the 2006 World Cup finals in Germany, Adidas Chief Executive Officer Herbert Hainer was visiting the Kennedy Space Center in Florida when he received an urgent call on his cell phone. Horst Schmidt, then general secretary of Germany's national soccer federation, told Hainer that Nike (NKE) was trying to sign the German national team—an Adidas team since 1954—to an exclusive sponsorship.
Hainer, determined to retain Adidas' role as the world's largest soccer brand, thwarted Nike's angle of attack by doubling sponsorship of the team to 20 million euros ($25.7 million) per year. He didn't stop there. At the World Cup tournament that kicks off on June 11 in South Africa, Adidas will sponsor the entire event and a third of the teams. Explains Hainer: "We have protected our ground fairly well."
It's hallowed ground for global sporting goods makers like Adidas. Soccer, or football for purists outside North America, is the most popular sport on the planet. Sales of soccer products, which hit $10.8 billion in 2008, are expected to surpass that mark this year, notes Renaud Vaschalde, a Paris-based sport industry analyst at market researcher NPD Group.
Adidas spends $125 million a year on sponsorship deals with the FIFA global league and its six top teams, according to German sports marketing consultant SPORT+MARKT. Nike spends $75 million per year for the right to sell the game-related gear of five leading teams. The company, sponsor of 10 teams, hopes to expand the Nike brand's $1.7 billion soccer business. Adidas had soccer sales of about $1.8 billion in 2008 and has to spend big on the World Cup to counter its rival's lead in basketball and running gear, says Christopher Svezia, a sporting goods analyst at Susquehanna Financial Group. "They will fight tooth and nail" to stay tops in soccer, he says.
A run by Germany to the finals could double sales of Adidas match shirts (that go for $88) to 1 million. A strong showing by Nike-sponsored Portugal would help the other guys. "There's certainly a risk, that's the beauty of sport," says Nike brand President Charles D. Denson.
And that's why Adidas signed on as sponsor of the entire tournament—as a hedge. Hainer is defending a heritage that goes back to 1954 when company founder Adi Dassler supplied the first screw-in-stud soccer shoes to the German national team, which went on to win that year's World Cup. "Football is, of course, the heart and soul of our company," Hainer says.
The bottom line: The heated competition between Adidas and Nike in sales of soccer gear will be played out during the upcoming World Cup championship.