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Sports are supposed to bring people together. But with President Trump's administration, the old rules don't necessarily apply. Nike Inc (NYSE: NKE ) learned this lesson the hard way. Ahead of the World Cup tournament, Nike refused to supply cleats for the Iranian national team. Obviously, this didn't go over well with the Iranian soccer association, and uncertainty hangs over Nike stock.
The reason management provided for the snub is Trump's reversal on the 2015 nuclear deal between the U.S. and Iran . Not only did the administration back out, it announced several sanctions on the Middle Eastern nation. Politically, the issue wasn't at all unexpected.
Trump routinely criticized former President Barack Obama regarding the Iran nuclear deal. What was surprising was that Nike decided to play along.
As the National Iranian American Council told CNBC , Nike strongly opposed Trump's Muslim ban, which had targeted Iranian citizens. However, the organization states that now, "Nike is dragging politics back into the picture and souring what should be a global celebration."
Also surprising is that management's decision could negatively impact Nike stock. Several sports-apparel makers, including Nike rival Adidas AG/S ADR (OTCMKTS: ADDYY ), compete furiously for sponsorship rights of top teams. While Iran isn't exactly what you call a soccer powerhouse, it is ranked 37th in the world and is the top Asian team behind Australia.
To be both blunt and fair, Europeans dominate Australia's demographics. In neither ethnicity nor location is Australia Asian. Thus, I can raise a legitimate argument that Iran is the strongest Asian team. And in a World Cup, you never want to miss a sponsorship opportunity, especially with teams that have chances to progress in the tournament.
But will NKE stock really suffer for this political oversight?
Business as Usual for Nike
Unfortunately, the iconic sporting company is mired in an extremely awkward situation. While we've seen a slight dip in unfavorable opinions that Americans have towards Iran, the sentiment is still strongly negative. Thus, Nike had no choice but to side with President Trump.
I also don't see a significant negative impact towards Nike stock because the U.S. national team failed spectacularly to make the World Cup. Thus, playing nice with the Iranians is not on the company's playbook. Indeed, because we're a no-show in Russia where the tournament is held, Nike made the only palatable choice.
Ordinarily, I'd worry that Nike is losing business and marketing opportunities by engaging in geopolitics. Earlier this year, Samsung initially refused to provide commemorative phones to Iranian and North Korean athletes at the Winter Olympics. They eventually recanted and apologized for the decision. That incident was embarrassing for the consumer-tech giant.
But this year's World Cup might experience a ratings decrease from prior editions. While the U.S. isn't a soccer country, we're the world's lone superpower. And that means the majority share of 330 million people will sit out much of the competition.
While the American absence is a negative for Nike stock, it's not an isolated headwind. In other words, Adidas isn't happy about American fans tuning out, either.
Additionally, Nike sponsors some of the biggest international teams, including Brazil, always a World Cup favorite. An Iranian controversy simply won't dent jersey sales for Brazil or other teams.
Not only that, Nigeria's soccer association reported that their Nike-sponsored jersey received three million pre-orders . So while the company would rather sponsor the U.S. team, they're making the most out of a tough situation.
Nike Stock Shows No Damage
If this issue is supposed to blow up into something bigger, we don't see any evidence of it. On a year-to-date basis, Nike stock is up over 19%. When the cleats-ban news broke, shares dipped only 0.4%.
More importantly, the sports apparel industry presently enjoys robust bullishness. Adidas shares have gained 17.6% since its January opener. Upstart competitor Under Armour Inc (NYSE: UAA ) skyrocketed to a 65% lead.
Finally, NKE stock has a market capitalization over $120 billion. This dwarfs Adidas, which has a $47.5 billion, and Under Armour at $10.3 billion. While the cleats issue is distracting, the extent of the damage ends there.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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