Nike Inc. (NYSE: NKE) has long been a leading name in the sports apparel business, but now it is getting even bigger. Through merchandising and marketing partnerships, Nike has effectively grown its brand and become a household name.
The NBA and Nike announced an eight-year global merchandising and marketing partnership that will make Nike the official on-court apparel provider beginning with the 2017-18 season. This deal will make Nike the first apparel partner to have its logo appear on all on-court uniforms.
This marks the second major sports uniform deal for Nike in the past few of years. The company previously took over the uniform rights for the NFL at the start of the 2012 season. As for the NBA deal, it is reported to be worth over $1 billion.
Basically Nike will replace Adidas as apparel provider of the NBA in two years. At that point, the company will have its logo on the uniforms and it will have the global rights to design and manufacture authentic Swingman jerseys, as well as warm-ups and shooting shirts. Both Nike and the NBA do have a history together as Nike has been a global marketing partner of the NBA since 1992.
Nike will also be able to leverage events such as the NBA All-Star Game, NBA Global Games, NBA Draft and NBA Summer League. As a WNBA partner since 1997, the company will now have an expanded presence at WNBA All-Star and other events during the season. Also, for the first time, Nike will become a marketing partner for NBA D-League.
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According to Janney:
This does not come as a surprise as Nike was the leading candidate (followed by Under Armour, Inc. (NYSE: UA)) to ink a deal with the NBA, as adidas stated earlier in the year it wouldn’t renew its contract with the NBA which it has held since 2006. The deal with the NBA, combined with sponsorship’s of numerous NBA superstars (LeBron James, Kevin Durant), should help bolster Nike and Jordan brands’ already dominant position on the bball market (~94% bball fw mkt share, according to SportScan). We are interested to see how Nike will innovate and push the envelope when it comes to NBA jersey design; will they take the Oregon Duck approach or keep designs relatively intact like they have done with the NFL?
Overall, the firm is maintaining its constructive stance on Nike, but it does believe that the risk-reward is starting to neutralize. Janney gave its fair value estimate for Nike at $110, based on shares trading at 25 times the firm’s 2017 fiscal year EPS.
Shares of Nike closed Wednesday up 2%, at $103.34 in a 52-week trading range of $73.14 to $105.50. In premarket trading Thursday shares were up an additional 1.4% at $104.73. The stock has a consensus analyst price target of $109.31.
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