Nike’s big World Cup blitz is proving very expensive, but it appears to be paying off handsomely. Sales of its cleats are surging, and it has inched ahead of Adidas in the race to be the outfitter of the eventual champion, based on Las Vegas odds.
A relentless advertising attack and big sponsorship deals with stars like Brazil’s Neymar and Portugal’s Cristiano Ronaldo pushed the company’s marketing “demand creation” expense up 36 percent in the quarter ended in May, just before the tournament kicked off in Brazil. All told, about 12 percent of Nike’s sales dollars went to athlete endorsements and advertising.
That spending paid off. Sales in the period surged 11 percent, thanks in part to high demand for Nike (NKE) soccer shoes and apparel. What’s more, Nike was able to raise prices on its gear, pushing up its profit margin.
The company bragged yesterday that it’s setting “a new benchmark” for the industry in Brazil. “Having just returned from Rio, I have to say I have never seen energy like that before,” Trevor Edwards, president of the Nike brand, said on a conference call with analysts. “The enthusiasm we see in Brazil, coupled with our No. 1 footwear market share around the world, is living proof that our football business has never been stronger.”
Sales after the World Cup may prove even more lucrative, although Nike’s tournament ROI likely took a sizable hit yesterday when Portugal and Ronaldo, one of Nike’s premier athletes, failed to advance to the knockout rounds. Adidas (ADS:GR) suffered a major setback as well when Spain, the defending champion and one of the German company’s premier teams, failed to advance.
Meanwhile, the stage is set for a sponsorship showdown between some of the remaining favorites. On Nike’s side, the Netherlands and Brazil are poised for a run at the Cup, while Adidas still has Argentina and Germany in the hunt. In the dark-horse category, Nike’s France stormed through the first round as did Colombia, which is outfitted by Adidas.
Based on Vegas odds, Nike has a slightly better chance of having its apparel on the eventual champion, almost entirely because it has bought the jogo bonito of the host nation.