Rory McIlroy signs with Nike.. Rory and Tiger Film Commercial Together (Updates)

[Mr. Desmond]

Originally Posted by cliffj

Has any noticed which company sponsors his girlfriend? I wonder how much this played into the deal... A package deal?

Adidas - Nike

Not close friends.

Or do you mean Adidas with TM going after Rors? They go for a big stable and don't lay out the big bucks on one or two like Nike.

[mvmac]

Faldo's take on Rory's equipment change,

Quote:

"I call it dangerous," Nick Faldo said on Golf Channel's "Morning Drive" on Tuesday. "I've changed clubs and changed equipment, and every manufacturer will say, 'We can copy your clubs, we can tweak the golf ball so it fits you.' But there's feel and sound as well, and there's confidence. You can't put a real value on that. It's priceless."

McIlroy, 23 and No. 1 in the World Ranking, announced on Tuesday that he will not re-sign with the Acushnet Company, manufacturer of the Titleist equipment that he has used throughout his professional career.

"You have to be very, very careful," Faldo said. "You easily could go off and do this and it messes you up because it just doesn't quite feel the same."

The example often cited is the late Payne Stewart, who endured a season-long slump in 1994 after leaving Wilson and accepting a lucrative contract to play Spalding equipment. He fell from sixth on the money list in '93 to 123rd in '94.

Other stars, meanwhile, have had no particular problem with the transition to a new equipment company. Tiger Woods went from Mizuno irons as an amateur, to Titleist irons early in his professional career, and to Nike irons in late 2004 with no discernible effect.

Phil Mickelson has twice changed equipment companies, including his switch from Titleist to Callaway late in 2004. He won four times, including the PGA Championship, in 2005.

[Mr. Desmond]

Originally Posted by mvmac

Faldo's take on Rory's equipment change,

I always blame Spalding.

Payne, who recovered, and then

Look at what Spalding did to Kelly Kuehne... plays Adams, turns pro, signs deal, falls off face of earth.

[Clambake]

Originally Posted by RonTheSavage

Homerun for Nike

Is it?    Doing a little financial analysis, it looks like such a deal could not pay off and would hurt the financials of the business.

From Nike's 2012 Annual Report, the company did about $24.1B last year in revenue, and their gross margin was 43.2% and net margin was 9.1%.        Also, it shows that Nike Golf did $726M last year, and it says that most of that was in golf apparel.    Another tidbit about the golf segment was that they indicate revenues for the apparel part of Nike Golf increased by double-digit percentage and there was a single-digit percentage decline in the club business.

Putting these into context for a potential Rory deal, let's assume that the equipment part is 40% of Nike Golf (they indicate apparel is "most", so this is probably a reasonable approximation).     If so, that means the equipment business was about $290M.      Assuming the equipment business net margin is approximately the same as the apparel brands, this means they would have netted approximately $26M in net margin for Nike Golf Equipment.

Now let's look at the rumored Rory deal.    It is estimated that the deal would pay him approximately $250M over ten years, or $25M per year.       They could pay Rory $25M a year and take their net margin to almost zero, but that would be a stupid business move - Nike must certainly be doing this for sound business reasons, so it would be assumed that they want this deal to not dilute their current margins.         If Nike doubled their current equipment sales and those sales were at the same margin percentage, their net margin would be the exact same as it currently is after paying Rory:

New doubled sales:    $290M x 2 =  $580M

New net profit on $580M in sales at 9.1% net margin =  $52.8M

Subtract Rory's endorsement earnings:        $52.8M - $25M =  $27.8M

New net margin:     $27.8/580 = 4.7%

From this, it can be seen that if Rory's endorsement doubled their equipment sales, they would only earn less than $2M additional net profit than currently.    That would not be a good investment, as it would dilute their net margin to only slightly half of current.      Shareholders would not be happy.

It is probably a safe argument that without Tiger's deal with Nike, Nike Golf would not exist or at the most it would be a very tiny business, probably only apparel - he basically put Nike Golf on the map.     And the attention he brought the brand also probably had positive collateral effects on other parts of the Nike business, helping increase sales on non-golf apparel and footwear as well.      But can Rory have a similar impact?    The Nike Golf brand is already established, so if revenue did not increase one year's worth of Rory's endorsement fees would eat up all the current margin in the business.     His impact to make business sense would have to be a drastic increase in revenue.    It is not a high margin business that can easily absorb this impact, and the company's net profit would be essentially unchanged even if Rory doubled their sales.

I see this as being a questionable business decision, and certainly not a home run.    The only way this could make business sense would be if Rory's contract is replacing that of another of their highly compensated athletes, i.e. if they were to drop Tiger and replace with Rory.

[Datsyuk]

I wonder how many people switch equipment then improve slightly. People change clubs within the same brand every day and nobody raises an eyebrow. Who cares which clubs he uses is my point? He's streaky already so why expect anything different?

This may have been covered, but when does Tiger's deal expire? Was there any discussion of them as a package deal or Tiger would move on? BTW I was thinking about it and Sean Foley might be the second most famous Nike staffer right now - that dude really needs to wear a half size (or two) bigger though.

[bplewis24]

Originally Posted by Clambake

From this, it can be seen that if Rory's endorsement doubled their equipment sales, they would only earn less than $2M additional net profit than currently.    That would not be a good investment, as it would dilute their net margin to only slightly half of current.      Shareholders would not be happy.

While your analysis is sound and very plausible, I do believe there is a Future Earnings/Revenue aspect to this deal as well.  Perhaps there is an unquantifiable loss of revenue that they are expecting down the road when Tiger's popularity inevitably decreases.  They could very well see Rory as the guy to maintain the current revenue numbers at some unknown point in the future, even if it is assumed that the positive impact on equipment sales isn't drastic.

[Clambake]

I agree completely.   The brand-building power of a star athlete has a shelf life, reducing the value of their endorsement over time.   In fact, Nike indicated that they had a single-digit decline in Nike Golf equipment revenue from last year, and it could be that some of this is because of Tiger's declining value.

[newtogolf]

My guess is Nike or TM isn't going to hand him $25M, more likely they will give some guarantee and offer him profit sharing on the gross or increased sales.  If the entire world didn't switch to Nike clubs when Tiger was dominating they aren't going to because Rory is part of the Nike team.  Rory helps offset the loss of revenue that is likely occuring on the club side due to Tigers inability to win a Major the last few years.

[Beachcomber]

Originally Posted by Clambake

Is it?    Doing a little financial analysis, it looks like such a deal could not pay off and would hurt the financials of the business.

From Nike's 2012 Annual Report, the company did about $24.1B last year in revenue, and their gross margin was 43.2% and net margin was 9.1%.        Also, it shows that Nike Golf did $726M last year, and it says that most of that was in golf apparel.    Another tidbit about the golf segment was that they indicate revenues for the apparel part of Nike Golf increased by double-digit percentage and there was a single-digit percentage decline in the club business.

Putting these into context for a potential Rory deal, let's assume that the equipment part is 40% of Nike Golf (they indicate apparel is "most", so this is probably a reasonable approximation).     If so, that means the equipment business was about $290M.      Assuming the equipment business net margin is approximately the same as the apparel brands, this means they would have netted approximately $26M in net margin for Nike Golf Equipment.

Now let's look at the rumored Rory deal.    It is estimated that the deal would pay him approximately $250M over ten years, or $25M per year.       They could pay Rory $25M a year and take their net margin to almost zero, but that would be a stupid business move - Nike must certainly be doing this for sound business reasons, so it would be assumed that they want this deal to not dilute their current margins.         If Nike doubled their current equipment sales and those sales were at the same margin percentage, their net margin would be the exact same as it currently is after paying Rory:

New doubled sales:    $290M x 2 =  $580M

New net profit on $580M in sales at 9.1% net margin =  $52.8M

Subtract Rory's endorsement earnings:        $52.8M - $25M =  $27.8M

New net margin:     $27.8/580 = 4.7%

From this, it can be seen that if Rory's endorsement doubled their equipment sales, they would only earn less than $2M additional net profit than currently.    That would not be a good investment, as it would dilute their net margin to only slightly half of current.      Shareholders would not be happy.

It is probably a safe argument that without Tiger's deal with Nike, Nike Golf would not exist or at the most it would be a very tiny business, probably only apparel - he basically put Nike Golf on the map.     And the attention he brought the brand also probably had positive collateral effects on other parts of the Nike business, helping increase sales on non-golf apparel and footwear as well.      But can Rory have a similar impact?    The Nike Golf brand is already established, so if revenue did not increase one year's worth of Rory's endorsement fees would eat up all the current margin in the business.     His impact to make business sense would have to be a drastic increase in revenue.    It is not a high margin business that can easily absorb this impact, and the company's net profit would be essentially unchanged even if Rory doubled their sales.

I see this as being a questionable business decision, and certainly not a home run.    The only way this could make business sense would be if Rory's contract is replacing that of another of their highly compensated athletes, i.e. if they were to drop Tiger and replace with Rory.

While I appreciate the time you put into your numbers and thought process to create them... They are totally guesstimates.  And believe they miss on a few important elements...

1.) You failed to factor in the amount Rory helped grow Oakley's golf apparel business (quite well??) - as well as the growth Titleist experienced in both ball and club sales during Rory's tenure (harder to measure considering the number of players using their product).  Therefore, you have to consider the opportunity cost that Nike is adding Rory to help take market share away from both Oakley and Titleist.

Refreshing the brand - making it appealing to a younger crowd... And spark new interest within the line is a critical element to the deal being successful.

2.) Also, looking at Nike Golf's revenues alone is very misleading.  We need to see an Income Statement to really grasp their SG&A; expenditures.  Things like R&D; amortizations, etc. to truly understand the impact.  Unfortunately, your post can't be a finite answer because we don't have enough detail on Nike Golf's financials and performance metrics.

[Beachcomber]

Originally Posted by Clambake

I agree completely.   The brand-building power of a star athlete has a shelf life, reducing the value of their endorsement over time.   In fact, Nike indicated that they had a single-digit decline in Nike Golf equipment revenue from last year, and it could be that some of this is because of Tiger's declining value.

Don't forget that Nike just terminated a major athlete from their brand.  Freeing up extensive marketing and sponsorship funds which can be share shifted over to the Nike Golf business unit.

Also, Golf is largely founded as an apparel business... One where Nike can realize substantial gross profit as they already have the global supply chains in place to have shirts, pants and shoes made in low cost countries.  It really does make a ton of sense.  And thus why I think your calculations are null and void.

[Beachcomber]

Originally Posted by newtogolf

My guess is Nike or TM isn't going to hand him $25M, more likely they will give some guarantee and offer him profit sharing on the gross or increased sales.  If the entire world didn't switch to Nike clubs when Tiger was dominating they aren't going to because Rory is part of the Nike team.  Rory helps offset the loss of revenue that is likely occuring on the club side due to Tigers inability to win a Major the last few years.

To be honest, I'd be willing to bet Nike doesn't give too much attention to the club sales piece of the operation.  It is an expensive proposition to continue to push R&D; expenditures and come out with new clubs every 12mo cycle.  One that has a low ROI.

Whereas the apparrel side is lucrative, and they are masters of that domain.  The key item for Nike is to keep the apparrel business moving forward.  And stunting growth from emerging golf brands like Oakley, Under Armour, Travis Mathew, etc.

[Wisguy]

Originally Posted by GaijinGolfer

Who cares?  Are the Titleist fans really so arrogant that they cant imagine Rory would want to play anything else?

If this whole discussion bothers you so much and you consider it to be such a waste of time, why are you continuing to participate in it?

[Wisguy]

Originally Posted by foulmouthedleon

These guys are so good, it really doesn't matter what they play.  !

Not necessarily true - see. e.g. Steve Stricker after his initial bout of success.

[Wisguy]

Originally Posted by mvmac

Playing devil's advocate... Is it a home run for Nike?  Does Tiger playing Nike clubs create a demand for the product?

170 yard average for a Nike Slingshot 7-iron on the indoor simulator at Dick's Sporting Goods, 5-12 yards longer than any club from Adams, Calloway or Taylormade and significantly straighter, too, is what caused me to develop an interest in, and then a demand for, Nike clubs.  Funny, now that I've had them nearly a year, I don't seem to be a better golfer.  Must be that I still need to get better clubs....

[bplewis24]

Originally Posted by Beachcomber

Whereas the apparrel side is lucrative, and they are masters of that domain.  The key item for Nike is to keep the apparrel business moving forward.  And stunting growth from emerging golf brands like Oakley, Under Armour, Travis Mathew, etc.

Indeed they are heavy players in apparel.  I am fond of Mizuno irons, Ping woods, Callaway golf balls, but the only apparel I will buy is Nike.  And the good stuff is so overpriced I try and limit myself to one new shirt per season.

[newtogolf]

I agree, it's got to be hard to make a profit when you're product life cycles are so short and the competition is extensive.  I like some of their clothes but prefer Under Armor golf and running gear over Nike, mainly because their pricing is more consistent and they offer different fits based on your preference.

What I find most annoying about Nike shirts is they will sell two shirts that are just about identical, but one sells for $59, the other for $79.  They both say golf, both are DriFit, both same size so what do i get for the extra $20 or what's missing in the cheaper version?

Quote:

To be honest, I'd be willing to bet Nike doesn't give too much attention to the club sales piece of the operation.  It is an expensive proposition to continue to push R&D; expenditures and come out with new clubs every 12mo cycle.  One that has a low ROI.

Whereas the apparrel side is lucrative, and they are masters of that domain.  The key item for Nike is to keep the apparrel business moving forward.  And stunting growth from emerging golf brands like Oakley, Under Armour, Travis Mathew, etc.

[Beachcomber]

Originally Posted by newtogolf

I agree, it's got to be hard to make a profit when you're product life cycles are so short and the competition is extensive.  I like some of their clothes but prefer Under Armor golf and running gear over Nike, mainly because their pricing is more consistent and they offer different fits based on your preference.

What I find most annoying about Nike shirts is they will sell two shirts that are just about identical, but one sells for $59, the other for $79.  They both say golf, both are DriFit, both same size so what do i get for the extra $20 or what's missing in the cheaper version?

Quote:

I agree 110%.  I used to buy a lot of Nike product, but then over the last few years have branched out to other brands.  Now my go to line is Travis Mathew for shirts, hats and belts.  They are expensive, but just like the material and look.

It is strange... I don't even see where you can buy the shirts Tiger wears.  Like this one... I thought was really cool looking.  But I've never seen it in the box retail or pro shops.

They have a lot of room for improvement.

[Beachcomber]

Kind of a rant... But on the social media side... They should be using Twitter and Facebook - having pictures of Tiger, Rory - etc... And showing their shirts, pants, etc... And linking those directly to their online store.  I have no idea why they wouldn't do this.  It would make it easier for golf fans to buy the same clothes the pros are wearing.

I know Oakley had a section like this at one point on their website... But that was before they lost Keegan.  I don't see it on their site any longer.