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All upside for NFL from ‘win-win’ Nike-Fanatics deal

The NFL will get a healthy increase in combined sponsorship and licensed merchandise revenue from its three-way agreement with sporting goods brand Nike and the online sports retailer Fanatics, industry experts have told Sports Sponsorship Insider.

The three-way deal changes the business model for the licensed sports industry from one where the technical apparel partner, in this case Nike, acquires the exclusive licensed merchandise rights to one where the apparel partner outfits the players and Fanatics outfits the fans.

Nike’s eight-year renewal, from 2020 to 2028, signed in March, will continue to give the brand on-field apparel rights, meaning the swoosh will remain on all 32 NFL team jerseys. Nike also gets rights to put branded footwear and gloves on Nike-endorsed players, as before.

Manufacturing and distribution rights to all Nike-branded NFL fan merchandise however will be ceded to Fanatics under a 10-year licensing deal, from 2020 to 2030, signed in May.

Sports Sponsorship Insider understands licensed sports merchandise is a tiny fraction of Nike’s NFL business, which is geared towards selling more shoes and Nike products, rather than selling more licensed tee-shirts.

Details of the deal have been closely guarded but it is thought that Nike will have been ‘made whole’ from any loss of earnings either by paying less for its sponsorship rights fee or by taking a cut of Fanatic’s royalties.

It is thought that Jonathan Banks, Nike vice-president, sports marketing North America and John Slusher, Nike executive vice-president, global sports marketing worked on the three-way deal with Gary Gertzog, executive vice-president, business affairs, at Fanatics. Gertzog joined Fanatics in 2013 after spending nearly 20 years at the NFL working in senior roles across the league’s commercial operations.

Nike has partnered the NFL since 2012, when it took over took over as the league’s official uniform provider from adidas-owned brand Reebok, initially paying $1.1bn (€0.95bn) over five years, from 2012 to 2016. That deal was extended without an auction from 2017 to 2019, reportedly with no significant changes in the contract, but with payments frontloaded.

League making more

It is understood that the NFL will make more money on the licensing side of the deal because Nike fan merchandise, which was typically sold wholesale to retailers, will be now be sold direct-to-consumer on the Fanatics online platform.

Fanatics will still pay a royalty based on the wholesale price where relevant, but also on the retail price, which is typically twice as much as the wholesale price. Crucially, Fanatics will generate greater revenue and sell more products by responding with greater speed and flexibility to consumer demand thanks to its control of every stage in the manufacturing and distribution value chain.

As Steve Davis, president, Fanatics International told Sports Sponsorship Insider: “Fanatics has invested heavily in an agile, vertical manufacturing model that serves the new generation of mobile-friendly consumers, who now expect an on-demand market that’s available to them 24/7 from anywhere and on any device, and faster replenishment for retailers surrounding products for hot teams and players.”

steve_davis_president_fanatics_international.jpg
Steve Davis/Fanatics International

It should also be noted that the NFL, as well as the NFL Players Association and Major League Baseball have all purchased equity stakes in Fanatics. In March 2017, the NFL bought a three per cent equity stake in Fanatics for $95m.

Why Nike agreed

The NFL agreement with Nike and Fanatics has been described by experts as “complementary, not competitive” and one that lets both companies do what they do best. For Nike, this means focusing on marketing, performance and innovation.

David Arbrutyn, partner with Bruin Sports Capital told Sports Sponsorship Insider: “The NFL wins because they have a distribution and manufacturing partner in Fanatics that’s capable of instantaneously meeting consumer demand and consumer needs and because it’s got a terrific partner in Nike that puts a tremendous amount of marketing muscle and support behind their relationship.

“Nike wins, given the importance to them of an on-field presence and being in the business of the NFL. And Fanatics wins because they can meet the seemingly insatiable consumer demand for licensed products and being able to do that in real time.”

Click here for full interview with David Arbrutyn

The model is also consistent with Nike’s strategy in other sports of focusing on the performance apparel rights, but not other merchandising rights. At the 2016 Rio Olympic Games, for example, Nike opted to outfit the Brazilian Olympic team but not the volunteers. With the United States Olympic Committee, Nike makes the performance apparel, but not the fan merchandise, which was taken up by licensed good company Outer Stuff. Fanatics is the USOC’s e-commerce partner.

The entry of Fanatics into the value chain however could be double-edged for sports brands, according to a source from the wider sports investment sector. “Fanatics taking over Nike’s exclusive category on all NFL merchandise outside of the on-field gear is the very definition of becoming a competitor regardless of the size that business may have been,” the source said.

“It’s developed a vertical direct-to-consumer business that none of the big players like Nike and adidas were able to do. In my opinion, they just didn’t see it and are now faced with the consequences. It’s not as devastating a miss as Kodak had foreseeing the digital picture revolution, but nevertheless a miss.”

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