The All-German World Cup: How to Tell If Adidas Won, Tooby
Even before Germany defeated Argentina to claim victory in the 2014 FIFA World Cup, Adidas had claimed victory over Nike in the monthlong competition for consumer attention. Sure, the final game’s lone goal scorer, Mario Götze, might have been a Nike man, but Adidas had the match surrounded, given its jersey deals with the German and Argentinian national teams, shoe endorsements by star players Lionel Messi and Thomas Müller and most of the rest of the German squad, and a partnership with FIFA that grants the right to make and sell the official Adidas Brazuca game ball.
The bragging rights did not come cheap. In May, Adidas Chief Executive Officer Herbert Hainer told reporters that the company was investing a ”double-digit-million sum” in World Cup advertising. According to sports marketing consultant Peter Rohlmann in Bloomberg Businessweek’s recent cover story on Nike and Adidas, the FIFA partnership costs $70 million per four-year cycle. Glowing headlines are nice, but Adidas spends this money to generate sales. Given that the shoes and clothes perform well beyond the needs of most buyers, the basic function of an apparel brand is to persuade people to pay a premium for logos.
Adidas’s marketing costs have averaged 10.2 percent of revenue over the last five years. The company says it’s on pace this year to meet its goal of $2.7 billion in soccer-related revenue, up from $2.4 billion last year, according to an estimate from Rohlmann. That suggests a soccer marketing budget in the neighborhood of $275 million. If soccer’s gain comes at the expense of some other division, however, then it’s no victory for Adidas. The best measure will be total revenue against the total marketing budget.
Four years ago, Adidas increased its marketing budget 25 percent, from $1.4 billion in 2009 to $1.75 billion in 2010. The increase, the company said then, was primarily ”to leverage its presence as official sponsor at the 2010 FIFA World Cup.” Sales growth of 15.5 percent covered most of the splurge. The marketing budget as a percent of sales grew from 9.9 percent to 10.7 percent, a manageable and temporary increase.
This year, Adidas has a more modest target of 7 percent to 8 percent revenue growth. That means it will need to keep a tighter budget to get a similar bang for its buck.
If we take the roughly $21.2 billion revenue target for 2014 as a peg, then a marketing budget of $2.14 billion would keep the spending ratio at last year’s 10.1 percent—and represent a World Cup win. A $2.3 billion budget would be in line with the proportional increase in spending for the last World Cup, good for at least a draw. If the marketing budget jumps by a quarter, as it did in 2010, it would be almost $2.5 billion and 11.7 percent of sales. For Adidas, those figures would be tantamount to a loss.
In the first quarter of this year, Adidas spent $604 million on marketing, or 12.6 percent of sales. The quarterly numbers tend to be bumpy. A little belt tightening is probably in order for the remainder of the year, which could be part of why top NBA draft pick Andrew Wiggins didn’t get a very big deal with Adidas. Then again, the company just bid very big to secure a jersey sponsorship with the English Premier League club Manchester United. That money won’t be due right away. And Adidas and Nike are never so aggressive as when they’re in direct competition for a prize asset.