Why Air Jordans Are Still Relevant Today

Nike’s annual report for 1990 was unlike anything the American sporting goods company had done before. On its cover was a close-up photo of Michael Jordan, the legendary basketball player with his eyes squinting, and a wide smile. Inside, the letter to shareholders began: “Usually, when Michael Jordan steps into a phone booth he comes out as Superman. This time he found himself in a photo booth. His surprise is on the front page of this annual report.” is reflected.” (see picture above)

That image was symbolic of a past and a presentation of the future. The past was when Nike reset itself as a business riding on Jordan’s sporting prowess and personality — a story told with some creative stretch in the recently released movie Air. The future was one where the sporting-goods industry, led by Nike, was getting progressively cooler, edgier, trendier, bigger and riskier. It was a period that would shape three distinct changes in the sporting-goods industry.

players as stars

The first innings belonged to the player as the star. In 1984, Jordan was spotted by Nike as he was about to drop out of college and enter the major American basketball league. This earned Jordan a five-year, $2.5 million contract and built a shoe line around it called “Air Jordans”.

Neither was Jordan the first athlete to endorse a sporting-goods company, nor was Air Jordan the first athlete-based shoe line. But what that contract delivered was unique. Nike set a three-year sales target of $3 million for the Air Jordan shoes. It did $126 million in sales in its first year. Nike was fond of projecting the athlete as a brand. Same with tennis player Andre Agassi in the late 1980s. Progressively, the ads got bigger, the sales got more creative, and the sales increased. It became the blueprint for all companies. The model created value, evidenced by the 12-18% annualized shareholder returns that Nike, Adidas, and Puma have averaged since 2000 (see graphic).

Over time, it became the symbol of this company-athlete relationship – a ‘lifetime contract’. For Michael Jordan and Nike in 1997, which took shape the Jordan Brand, a shining piece in the Nike portfolio that releases retro models of shoes, and also creates new designs. In 2022, Jordan Brand is set to record $5.1 billion in revenue, of which 5% reportedly goes to Michael Jordan. The imperative for sporting goods companies to have credible athletes in their fold has multiplied. This has seen Nike handing out similar contracts to LeBron James and Adidas to Lionel Messi. Even Under Armour, which has sprung up over the past decade, has reportedly struck a similar deal with basketball player Stephen Curry.

market or perish

As players increasingly became their main market face, sporting-goods companies stopped spending as much on them. As a result, their sales and marketing expenses have soared, even as their sales and profit growth have been consistent but far from super-normal (see graphic).

Of the three major sporting-goods companies, Nike is the only one for which data extends back to the early 1980s and which clearly demarcates sales and marketing expenses. In 1983, the year before Jordan changed sports, Nike’s selling and administrative expenses, of which advertising is a part, accounted for 14% of its net sales. This progressively increased to 20% in 1990, 29% in 2000 and 33% in 2010.

Even in 2022, the figure for Nike stood at 32%. By comparison, FMCG (fast-moving consumer goods) major Procter & Gamble reported selling, general and administrative expenses at 25% of net sales. For Apple, it was just 6%.

Footwear and beyond domestic markets

The best way to recoup the high marketing costs was simply to sell more, but the high prices of the products sold by sporting-goods companies hindered growth. But at the same time, it was a great time to be in that position. The 1990s and 2000s was a time when the world was opening up, with trade agreements among countries to reduce trade barriers. The advent of cable television and then the Internet also meant that sport was traveling further.

Due to which new markets opened. In 1983, only 11% of Nike’s revenue came from outside the US. In 2022, 59% of its revenue will come from outside North America. Even its two European rivals, Adidas and Puma, now source similar percentages from outside their home continent. China is a big market, especially for Nike. As is Asia Pacific and Latin America. On the product front, Adidas and Puma, in fact, show greater diversification than Nike, deriving a greater percentage of their revenue from non-shoe sales. Compared to Nike, Adidas is about half the size and Puma about a fifth. These are all top brands, but the battle to maintain their position is huge. Getting the products right is important.

Having the means to sell those products — marketable players, edgy advertising campaigns, logos on top sports teams’ jerseys, and so on — is just as important. A few decades ago, Air Jordan showed how it could be done. And still continues.

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