Last December the world’s largest athletic company made an unprecedented move by offering Lebron James a lifetime endorsement contract. It was Nike’s first lifetime contract and the largest, single-athlete guarantee in company’s history. While Nike nor James will disclose the specifics of the contract, it’s estimated that James will make somewhere between $500 million to $1 billion from the deal during his lifetime.
So why is Nike willing to bet so much on one person over a such a long time? What does this “lifetime contract” mean and how does it effect the future of marketing? Here’s a few thoughts:
Nike is Betting on Character
A lifetime deal is an investment not only in the athlete’s profession, but also in their personal life. To put it simply, Nike is betting that Lebron doesn’t end up in a scandal.
That might seem risky in light of Nike’s declining contract with Tiger Woods after his personal scandal in 2009. The once “Billion Dollar Man” has never recovered professionally and his endorsements continue to dwindle.
This also isn’t the first lifetime endorsement deal in the sports world. Reebok signed Allen Iverson to a “lifetime” deal in 2001 right before he was named MVP of the league and took the Sixers to the NBA Finals. After that, things fell apart. It’s estimated Reebok is still paying out as much as $800,000 a year to Iverson until his final lump sum of $35 million when he turns 55. While Reebok continues to make money on the deal with retro releases of Iverson inspired shoes, clearly it didn’t turn out as rosy as everyone intended.
So why is Nike taking the chance of partnering with another potentially risky athlete?
Because they’re betting on Lebron James as a person.
Nike was the first to take a chance on Lebron during the eve of the 2003 NBA Lottery when their first deal was announced for $90 million over seven years — the largest sports endorsement at the time. Ever since then, Lebron has been a beloved member of the Nike family.
I’m just grateful that Nike and [Nike founder] Phil Knight and everyone over there just believed in a skinny-old, skinny 18-year-old kid from Akron, Ohio, and I’m happy to be a part of such a great company.
Since 2003, Nike revenue has tripled and their stock is up over 1000%. The longer they work with Lebron the more they’re willing to continue making bets on the skinny 18-year-old kid from Akron.
Nike is Betting Long-Term
It’s been 17 years since Michael Jordan played for the Chicago Bulls and yet the Air Jordan brand is the biggest basketball shoe brand in the world. It collected $2.6 billion of the $4.2 billion total sales for 2015. The brand today not only sells basketball shoes but encompasses an entire lifestyle.
Nike is betting they can build something similar that continues to grow and expand long after James has left the basketball court.
Don’t forget about Lebron James Jr. either, who at 11 years old is already putting together quite the highlight reel. Ohio State’s head coach Thad Matta is watching closely and hopes to lock down a commitment from James Jr. in the near future. Think of the impact for Nike and the Lebron James brand if Lebron James Jr. should continue in his father’s footsteps.
Nike is Betting on a Platform
To the outsider this may just look like another high-dollar, athletic deal, but this is more than just trendy shoes. This is a brand platform.
In recent years, James has become a more intentional business man. He is an investor and spokesman for Blaze Pizza, a casual, Chipotle-style pizza restaurant which was just named the fastest growing restaurant chain in the country. He launched a new media project in 2015 called Uninterrupted - a social-media style site where athletes share videos from their phones. It generated $15.8 million in investments from Warner Bros. and Turner Sports. He’s also tried his hand at Hollywood, appearing in the Golden Globe-nominated Trainwreck. What’s more, he could easily follow Michael Jordan’s lead and become the owner of a professional basketball team down the road.
All the while Nike is betting on a “halo effect” — everything Lebron touches expands their brand in one way or another. Their partnership is more than basketall or even sports. They’re leveraging a diversified brand that will allow their investment to grow.
In the end, is this a good deal for Lebron? Yes.
Is it a good deal for Nike? Even better.
James could end up making an extra billion dollars over his lifetime. Nike could collect close to $1 trillion in total revenue when all is said and done. This deal easily pays for itself.