Pay to Play

Nike has been the best performer on the Dow Jones Industrial Average by far in 2015. The stock has soared 27% since the turn of the year, and to put this into perspective, the 2nd highest gain has come from United Health(UNH) with a ‘mere’ 13% gain. Shares of Nike soared 9% upon releasing earnings that beat Wall Street forecasts as well as coupled with a healthy outlook for the future. However this is not the full extent as to just how well sport’s brands have been doing recently, Under Armour’s stock has surged a whopping 50% since January!

Sports brand’s performances have a large correlation with the sports ambassadors that they sponsor. Nike & Under Armour pour huge amounts of money into celebrity endorsers whom the company feel will take their brand to the next level, whilst many contracts have a clause that states the company can reap direct monetary benefits from the endorser’s winnings, as well as the rights to any merchandise linked with these players (read: exorbitantly expensive sneakers). In more, the company earns more. And Under Armour really hit gold this year with their start endorser, golf’s Jordan Spieth. Spieth won the Augusta Masters and the US Open, 2 of the 4 Majors on the PGA Tour! And it didn’t end here in terms of successful endorsers with Stephen Curry of the Golden State Warriors picking up a small trophy in the shape of the NBA Championships. The icing on the cake was that both Spieth and Curry beat Nike endorsers in Rory Mcilroy and LeBron James of the Cavaliers respectively to clinch their trophies. Sport’s brands devote lot of thought into deciding who to sponsor as it is indeed a significant marketing expense but if the endorser has a big year, the company can expect a great return on their investment.

However in my opinion, Nike is still a better (read: safer) stock to go into as its North American sales have increased year on year by 8%, whilst in China it has grown 30% with a lot of future scope to grow. In foreign markets, Nike still has a huge edge over its competitors, especially Under Armour which is a relatively new brand and typically sponsors American athletes in American dominated sports, thus having a presence largely restricted to Americans. Nike is also trading at 30x EBIT compared with UA’s 70x, which could be argued is overvalued for a relatively small company.

Rishi Ganguli

Minor in Math & Computer Science Tel: +1 301-332-0996