June 23rd, 2017
By Steven Dudash
The NBA Finals began last night, with Stephen Curry’s Golden State Warriors taking Game 1 from LeBron James and the Cleveland Cavaliers 113-91 in Oakland. It’s the third consecutive time the teams have met on basketball’s grandest stage. The highly anticipated matchup caps an otherwise forgettable playoff season, which thus far has been marred by key injuries (San Antonio’s Kahwi Leonard and Boston’s Isaiah Thomas) and noncompetitive contests (nearly every game involving the Cavs and Warriors).
While last year’s memorable Game 7 set post-Michael Jordan television ratings records, should this series also go the distance, we’ll likely see similar numbers again, but in this hyper-commercialized world, it’s not just Cleveland and Golden State facing off, it’s also a battle of the brands, with James and Nike on one side, and Curry and Under Armour on the other.
On paper, this is a mismatch. Nike, with the help of its subsidiary Jordan Brand, not only dominates the basketball shoe segment but controls over 51% of the broader US athletic footwear market, according to NPD Group, a data analytics firm that studies consumer trends. Under Armour, by contrast, makes up only 2.5%. Still, it wasn’t too long ago when Under Armour seemed poised to narrow that gap, perhaps not enough to close it but enough to become a meaningful threat to the strength of Nike’s position.
What happened? Let’s go back to the beginning of 2016: Under Armour had endorsement deals in hand with Curry, the reigning NBA MVP, whose team was in the midst of a 73-win season, as well as Jordan Speith, who the year before flirted with golf’s grand slam, winning the Masters and U.S. Open before narrow misses at the British Open and PGA Championship. If the duo weren’t the two biggest sports stars in the country at the time, they were surely two of the hottest, pivotal in a world in which ‘trending’ is so important.
Then three things happened that blunted Under Armour’s momentum. In April, Speith, pursuing his second consecutive Masters title, coughed up a five-stroke lead on the back nine, punctuated by a quadruple bogey on Augusta National’s famed 12th hole. While still competitive, Speith just hasn’t been the same player since, and golf, desperate for a way to juice television ratings and fill the void left by the absence of Tiger Woods, has felt the collateral damage.
Roughly two months later, Golden State famously blew a 3-1 series lead in the Finals to James’ Cavaliers, something that no other team had ever done. The Warriors became an internet meme, and Curry, the subject of overwhelmingly positive press attention and unrelenting fan adulation for nearly two years, came under enormous criticism for being badly outplayed by Cleveland’s Kyrie Irving in the series.
During that same doomed trip to the Finals, Curry’s signature shoe, the Curry 2, was released to negative reviews, with the footwear widely panned as ‘chef’ shoes or – even worse for a brand that desperately needs young consumers – something dads, boring dads at that, might wear. Interestingly, the shoes sold well, but in hindsight that was likely due in part to the novelty factor, with many opening their wallet almost ironically, in much the same way that ugly Christmas sweaters become popular during the holiday season. The Curry 3s, released at the beginning of the 2016-2017 NBA season, were a commercial disaster for Under Armour, and it’s hard to believe that the ridicule foisted upon the previous version of the shoe didn’t play some role in this outcome.
Fast forward to today, and Under Armour’s stock has been the worst performer in the S&P 500 this year, down more than 30%, and the company’s run of 20 consecutive quarters of year-over-year revenue increases has come to an end. In fairness, the fact that Under Armour’s two biggest endorsers suffered humiliating, public meltdowns combined with the drab design of the shoes themselves aren’t the only factors weighing down the company.
The once-hot athleisure trend has fizzled, impacting all athletic apparel companies, including Nike, and there has been a spate of sporting goods retail bankruptcies, many involving close Under Armour partners, such as Sports Authority. But it’s hard not to think about what may have happened had Speith and the Warriors held on, and Curry’s shoe been more aesthetically pleasing.
Yes, the Warriors could win this series (they are significant favorites in Las Vegas) and another NBA title next year and another one the year after that, but even if this happens, it won’t change things substantively for Under Armour. The company’s window of opportunity was last year, when all the stars seemed aligned. Also, with Kevin Durant now with Golden State, Curry is no longer the single face of the franchise.
So what’s the key lesson for investors? Companies reliant on fashion trends and influencer endorsements can only control so much. In particular, how endorsers perform is not manageable by any company at the end of the day. When two high-profile, high-cost endorsers flame out spectacularly in the span of 70 days, it creates lastingly negative images, and it’s only natural that will adversely impact the bottom line.
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