What This NBA Pact Means to Nike

By Chris Lange Published Jun 11, 9:30AM EDT

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

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.

ALSO READ: A Good Opportunity for Lululemon Athletica

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.

ALSO READ: 9 Analyst Stocks Under $10 With Huge Upside

About the Author Chris Lange →

Chris Lange is a writer for 24/7 Wall St., based in Houston. He has covered financial markets over the past decade with an emphasis on healthcare, tech, and IPOs. During this time, he has published thousands of articles with insightful analysis across these complex fields. Currently, Lange's focus is on military and geopolitical topics.

Lange's work has been quoted or mentioned in Forbes, The New York Times, Business Insider, USA Today, MSN, Yahoo, The Verge, Vice, The Intelligencer, Quartz, Nasdaq, The Motley Fool, Fox Business, International Business Times, The Street, Seeking Alpha, Barron’s, Benzinga, and many other major publications.

A graduate of Southwestern University in Georgetown, Texas, Lange majored in business with a particular focus on investments. He has previous experience in the banking industry and startups.