“We are not anti-sports, we are pro-profitability”.
This is what Ted Sarandos, Netflix co-CEO, answered about why the streaming platform doesn’t invest in big sports events live streaming.
The same statement could have been made by the President of the German FA (DFB) after ending a 77-year partnership with Adidas.
A seven-decades-long relationship.
Nike’s significantly bigger financial offer and commitment to develop women’s, amateur and grassroots sports were the main reasons.
Starting in football with a strong commitment in the 1990s with Brazil, Nike is the clear market leader.
Global scenario
When comparing the American and German sports apparel and footwear companies, Nike dominates at the business, brand and football levels.
At a federation level, in recent years, Nike has secured the top national teams in Europe with England, Portugal, France, Netherlands and, now, Germany.
Adidas regained the contract with Italy and continued with top teams Argentina and Spain, besides their long relationship with FIFA for longer than 50 years.
According to the German tabloid Bild, the current contract between Adidas and DFB is valued at 50 million euros annually.
Structure
Every club or federation president wants the best contract in the market.
“The best” can be understood through different lenses, but it is usually seen from a financial view.
As sports apparel sponsorships tend to be the most lucrative for sports properties, if activation doesn’t match the investment effort, a valuable opportunity for both is missed.
Differently from clubs’ constant season sales, national team jersey sales take place mainly in World Cup years, with only a few months to monetise jersey production.
It’s not just about fees, different elements are part of negotiations:
- Sponsorship Fee: fixed investment for the rights’ acquisition
- Royalties (%): variable remuneration per sale, usually with minimum guarantees
- Value-in-Kind (VIK): supply of sports apparel
- Licensing: right to commercialise licensed products based on categories
- Performance-based bonus: additional payments for sports results
- Duration: contracts are usually built on World Cup cycles
Conclusion
It’s important to understand the relevance of sports apparel and footwear companies compared to sports properties.
While Nike’s business generates an annual 42 billion euros in revenue, the highest-generating club is Real Madrid at 831 million euros.
50x more.
Scale is one of the strongest contributions from partners like Nike or Adidas, helping sports properties to sell anytime, anywhere.
However, passion is what makes football different.
Only a few privileged companies reach the level of emotional engagement clubs have.
While Nike Football has 46 million followers on Instagram, Real Madrid has 154 million.
The next FIFA World Cup will take place at Nike’s home, a golden opportunity for the American firm to expand its leadership over Adidas.
With the German FA contract, Nike wins another battle over Adidas.
There is no loyalty, but rational business decisions.