A much-rumored deal has finally turned into reality with the
German sporting goods retailer
) announcing a 10-year sponsorship deal with
Manchester United plc
). Adidas landed the agreement after the world's leading sporting
) announced the end of its 13-year relationship with the English
football club. (Read:
Nike Bids Adieu to Manchester United
As per the deal, Adidas will pay a sum of up to £750 million
(nearly $ 1.3 billion) over 10 years or £75 million (nearly $130
million) per season starting from 2015-16, leaving behind the
record breaking deal between Puma and Arsenal, which starts next
We believe that the recent agreement with Manchester United is a
prudent move taken by Adidas toward marketing its products, as the
company has been lagging behind of late with its arch rival Nike
adopting aggressive promotional strategies.
Although, in the recently concluded 2014 FIFA World Cup both
finalists, Germany and Argentina, were sponsored by Adidas, the
company loses ground to Nike on basis of the number of teams
sponsored and boots used by the players.
This was the first time in the mega soccer event's history when
a company has sponsored more teams than Adidas. In the soccer World
Cup 2014, Nike sponsored 10 out of 32 teams while Adidas and Puma
sponsored 9 and 8 teams, respectively.
Moreover, during the FIFA World Cup, Nike made a smart
advertising tactic by signing contracts with most of the World Cup
playing nations to endorse its brands by displaying its "Swoosh"
logo on the jerseys and making 53% of the players wear its boots.
Nike believes that its marketing strategy will boost the sales of
its soccer products in fiscal 2015.
Nike has now become world's leading sporting goods company after
it first entered the 1982 World Cup sponsorship race. Since then
Nike has been gradually eating Adidas' market share and now retains
a global market share of 17%, leaving Adidas way behind with a 12%
As 2014 FIFA World Cup ended last Sunday, companies are now
looking for other opportunities to push their brands. Therefore, we
realize why Adidas entered this sponsorship deal with the 20-time
English Premier League (EPL) champion at such a hefty price.
The company has also been aggressively focusing on marketing
strategies. In the World Cup alone, the company launched various
new ads featuring Lionel Messi of Argentina, Bastian Schweinsteiger
of Germany, Luis Suarez of Uruguay and Dani Alves of Brazil. These
marketing strategies have boosted Adidas' sales during the soccer
mega event and are expect to be beneficial throughout the year.
Adidas targets revenue of about 2 billion Euros ($2.7 billion)
from its soccer division in 2014. This is ahead of Nike's revenue
of over $2 billion from soccer sales in 2013. Nike also projects
that it will register a double-digit sales growth in the ongoing
Based on its revenue size, Nike is the largest sports gear
company across the world with about $25.3 billion revenue for 2013
while Adidas ranks only second with $16.3 billion annual
Despite all these factors, the question remains that whether
these marketing efforts will help fetch expanded sales for
Well, commenting precisely on this is difficult. However, we see
these marketing tactics and money spent for the sponsorship as a
long term investment for the brand. Even if it does not pay off
with an immediate rise in sales, results will start to show in the
long term as the brand continue to grow in popularity among the
Meanwhile, the battle between sporting retailers over soccer has
benefited Manchester United in getting such a huge sponsorship
amount. The share price of this English club gained
approximately 4.8% during yesterday's trading session.
Other Stocks to Consider
Currently, Adidas and Nike both carry a Zacks Rank #3 (Hold). A
better-ranked stock in the shoe/apparel retail industry is
Brown Shoe Co. Inc.
) which holds a Zacks Rank #2 (Buy).
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