| Too Much Too Soon |
26 May 2003
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Nike Throws $90 Million at High School Kid
There may already be a winner in the dumbest business move of 2003. Nike has given high school basketball phenomenon LeBron James a $90 million endorsement deal. Good for the kid, who may be able to pay for a college education someday with the funds. Or at very least, hire a business manager who's smarter that the people at Nike -- there is a large pool of those.
Forget for a moment, Mr. James has shown his skill off against high school students. Forget that the men in the NBA will have similar or greater skills plus the advantage of experience at the highest level of the sport. Forget even that 4 years of college is experience that Mr. James lacks. The math on this deal doesn't add up.
An endorsement is a marketing tool whereby a celebrity transfers his or her fame and the public's affection to a product. The idea is that if one likes Mr. X, one will like his cereal, shoes, car, cell phone plan, etc. The producer of the product gives Mr. X a sum that is less than the value of the goods that the endorsement will sell. Or put another way, the firm expects money to come in that it would not otherwise get because of the endorsement.
In the case of Mr. James, Nike is betting that more than $90 million in shoe sales will go to them, rather than Adidas, Puma, Keds, or No-Name Shooz, because Mr. James says he likes Nikes. Presuming his shoes sell for $200 a pair (and only Michael Jordan's have made that price point stick), Nike is expecting more than 450,000 pair of shoes to be sold on the strength of this endorsement.
It is true that the athletic shoe has become a disposable item among young consumers -- one pair is not enough. However, the youthful shoe buyer has become discriminating. The James brand won't sell if the shoe is the wrong color (it has to match the hot warm-up set), doesn't have some distinguishing design (why buy an endorsed shoe if no one knows it is endorsed), or has quality control problems. Never mind if he turns out to be not a "has been", but a "never was" -- if he sells 450,000 pair of shoes, basktball isn't the game for him to be in. He should be in the shoe business.