Mark King, president of Adidas Group North America, made the rounds this week to explain how the apparel company plans to regain market share in the U.S. In his interview with Bloomberg Businessweek, he started by admitting the obvious: "The business really had stalled," he said of the period preceding his elevation to president in June. Over the last five years, Adidas has been losing ground to both the market leader, Nike, and a much smaller upstart, Under Armour.
To deal with its "America problem," Adidas is embarking on a three-year spending spree. The target? Hundreds of players from the National Football League and Major League Baseball. By 2017, Adidas hopes to have 250 football players under contract and the same number in baseball, a huge increase in leagues where the company now counts just three dozen stars on its current roster. "We need athletes," King says.
To make sure fans watching at home take notice, Adidas struck deals with both the NFL and MLB in September to allow players to wear its cleats and gloves without covering up the brand name and logo. Before those arrangements, Adidas endorsers such as New Orleans Saints tight end Jimmy Graham had been blacking out the iconic three stripes on their gear. The new MLB deal includes the right to provide players with compression sleeves, the skintight layer some batters and pitchers wear on their arms.
Of course, these are trivial compared with Nike's five-year, $1.1 billion jersey deal with the NFL or the decade-long uniform deal between MLB and Majestic. At the moment, however, King wants any relationship that Adidas can get. The compression sleeve, he says, was "the only thing available right now" in baseball. The new on-field licensing agreements also give Adidas the right to use NFL and MLB logos and uniforms in its advertising.
"Conceptually, this is exactly the right thing to do," says Matt Powell, sports industry analyst for NPD Group. "You want to have your brand exposed on the field of play on television so that it will lend an athletic credibility to what you are doing." Adidas is already a major player in the NBA, where it is the official uniform supplier and has shoe deals with roughly 70 players, including former MVP Derrick Rose and 14-time All-Star Tim Duncan.
The push into football and baseball comes as welcome news to players and agents in those sports, who now have visions of bidding wars between three eager apparel brands. "They are going to compete. I like it," says Jamie Fritz, president of Fritz Martin Management, which represents Richard Sherman of the Seattle Seahawks and five other NFL players for marketing deals.
While 500 is a lot of players—there are 1,700 total in the NFL and 1,200 in MLB—the cost to Adidas should be a fraction of, say, Nike's $300 million deal with Kevin Durant last year. Seven-figure apparel deals are rare in the NFL and MLB, since the market for cleats is a tiny fraction of the sneaker market. "It’s about the brand," explains King, "so you can sell training gear and running shoes."
The top players coming into the NFL in a given year, according to Fritz, might get $500,000. The majority, he says, are no-cash deals "where they throw you anywhere from $7,500 to $20,000 in product." An aggressive Adidas could make for marginally higher prices, but Fritz doesn't anticipate bidding wars for NFL rookies. "Nike is the 3,000-pound gorilla," he says. "They are not going to go into a fistfight because at the end of the day, you can sign with Adidas, you are still going to wear a Nike jersey. It is going to be more of a play between Under Armour and Adidas."
King's pitch to athletes and schools is that Adidas combines the best qualities of its two main competitors. It is smaller, hungrier, and more personal than Nike: "If you want to go to a marketing company and get lost with the millions of athletes, go to Nike—believe me, it’s not a bad choice." But, he says, Adidas also boasts more resources and experience than Under Armour: "We dwarf them."
Adidas will also be a more aggressive bidder in the market for big-time college sports. In the last two months, the brand has signed long-term marketing deals with Arizona State University and the University of Miami. Both schools are currently with Nike and both were pursued by Under Armour. The two schools bring Adidas's tally to 14 major programs. The plan is to get to 20 in the next three years. "We are going to enjoy this fight with Under Armour," says King. "I know [Under Armour Chief Executive] Kevin Plank and I think he’s fantastic, but I sent him a note through a mutual friend, 'Hey, you are 0-for-2 against me. I have Arizona State and Miami.'"
Adidas plans to tout its growing roster of athletes and schools with a dramatic increase in advertising. Globally, the brand has been spending more of its income on marketing in recent years, much of it driven by last summer's FIFA World Cup. That spending will continue, King says, but shift toward the U.S. "We always keep a chest of money that we could use, but it’s gone to emerging markets, or it’s gone to Russia, or it’s gone to China, and now it’s going to come here to the U.S." Adidas, he says, has a commitment from the board to spend "a tremendous amount of money" on national ad campaigns every quarter for the next three years. He doesn't know or especially care which other sports have their Adidas budgets slashed, although he mentions tennis and lacrosse as possible victims. (In December, Adidas let tennis star Andy Murray go to Under Armour.)
No army of endorsers and no barrage of advertising can make consumers buy products they don't like. "If you’ve got great marketing and the product isn’t there, it’s a problem," says Powell. Adidas has not kept up with trends in the U.S. market, where customers are more sensitive to fashion. "The reason you would buy our stuff is technology and performance, not necessarily style," King acknowledges. "That seems to work everywhere in the world except the U.S." To remedy the problem, the company is opening a design center in Brooklyn and has moved many of its designers from Germany to the U.S., including global creative director Paul Gaudio. It has also poached some top talent from Nike. Those designers are being given the freedom to depart from the company's traditionally conservative approach. "We are saying, screw the process," says King, "we need to get new designs."
The U.S. apparel market, however, is broad and fractured. And no single product can conquer it. "It will take some time," warns Powell. "They have made some of the right moves."
