Nike’s Marketing Blindspot

What can we learn from Nike losing both Lionel Messi and Stephen Curry?

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Today, we will talk about the reason Nike lost both Lionel Messi and Steph Curry (PS. next week is my breakdown on Trader Joe’s).

Also this week:

• Is Tesla’s Solar Roof worth it?

• Tariff engineering, explained

• And them fire tweets (including Facebook Marketplace)

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In October 2022, the Wall Street Journal published an article titled “How Nike Lost Lionel Messi”.

This articled echoed a famous ESPN piece from 2016 titled “You Won’t Believe How Nike Lost Steph Curry to Under Armour”.

The wildest part is that both stories of losing a top-tier athlete involve stunning corporate incompetence (I’m an expert in this subject with years of experience).

So, how did Nike lose Messi to Adidas in 2006? Partly due to a few missing tracksuits:

…it was never obvious that Adidas would be able to pry Mr. Messi away from such a power competitor. How it happened came down to a combination of factors, all linked by the single thread of Jorge Messi [Lionel’s father] deciding that Nike wasn’t treating his son properly. In one telling, Adidas had stepped up its game with ever-increasing offers to the Messi camp, reaching $1 million a year, while former Nike executives remember the money men in Oregon declining to go to war over a teenager. 

Another person familiar with how Nike lost Mr. Messi remembers it coming down to something a little more trivial. Leo’s father had made a seemingly innocuous request for more athletic gear, only to find neither Nike Iberia nor Nike South America was getting back to him. That was enough to sour the relationship. Nike, this person said, let Mr. Messi get away for a few hundred bucks worth of tracksuits.

And how did Nike lose Curry to Under Armour in 2013? Partly because they mis-pronounced his first name and re-used a powerpoint deck meant for another athlete:

The pitch meeting, according to Steph's father Dell, who was present, kicked off with one Nike official accidentally addressing Stephen as "Steph-on," the moniker, of course, of Steve Urkel's alter ego in Family Matters. "I heard some people pronounce his name wrong before," says Dell Curry. "I wasn't surprised. I was surprised that I didn't get a correction."

It got worse from there. A PowerPoint slide featured Kevin Durant's name, presumably left on by accident, presumably residue from repurposed materials. "I stopped paying attention after that," Dell says. Though Dell resolved to "keep a poker face," throughout the entirety of the pitch, the decision to leave Nike was in the works. [...]

Dell's message for his son was succinct: "Don't be afraid to try something new." Steph Curry had thrived on proving people wrong for the entirety of his career. He had delighted in it, even. And Nike was giving him fuel.

Back in my very unexceptional corporate job days, I use to spend 15 minutes on an email to make sure “you’re” wasn’t misspelled “your”. I can’t imagine how ridiculous I would feel after the Curry/Durant gaffe (and spending 15 minutes on a single word in an email is also why I’ve left the corporate life for good).

The timing of the Messi and Curry whiffs turned out to be the opposite of great. By 2009, Messi was the best player in soccer (sorry my European readers) and has since carved out one of the most impressive soccer (sorry) resumes ever. By 2015, Curry was the NBA’s MVP and has since won 4 championships.

Both stories are eerily similar. In each case, an undersized — but ludicrously-skilled athlete — is not given sufficient respect by Nike reps. The athlete’s father notices the slight and nudges his son to another brand. Within a few years, the athlete is dominating the sport.

This all leads to one question: what the f—— was going on at Nike?

One consideration is that both players had suffered repeated injuries prior to the contract negotiations. And the concerns about their physical builds probably didn’t instill confidence in their ability to stay healthy.

A more philosophical explanation can be found in the aforementioned ESPN article written by Ethan Strauss. In it, he describes Nike’s approach for marketing NBA athletes (and, remember, marketing and branding is Nike’s raison d'être):

“Nike's highest-priced shoes are hawked by athletic wings. Michael Jordan was the prototype, Kobe was the heir, and LeBron carries on the tradition. To be the face of Nike means looking something beyond a regular person.”

During the rise of Messi and Curry, the top Nike athletes certainly looked “beyond a regular person”. They looked superhuman.

LeBron James and Kevin Durant fit that bill for basketball. And you know who has been Nike’s marquee soccer athlete over the past decade? The statue-esque Cristiano Ronaldo.

A study in contrasts.

In the context of Nike promoting “something beyond a regular person”, it totally makes sense that Curry and Messi would fall through the cracks.

During the second half of the 20th century, the popular saying in corporate America was that “nobody got fired for buying IBM.” If you were an IT person who had to set up the office, IBM was the safest option.

Being a Nike exec and — all things equal — defaulting to the more athletic-looking archetype is the equivalent of “buying from IBM”. Also, I’m sure Nike has dropped many “regular person” looking players that didn’t turn into a GOAT.

That heuristic doesn’t excuse disrespecting an athlete by not responding to a simple request or knowing how to pronounce their first name.

However, it is clear that Nike prioritizes a certain aesthetic and there seems to be a parallel between managing athletic sponsorships and managing a portfolio of stocks. A brand focussed on superhuman aesthetics has every right to pass on “regular person” looks. Similarly, an energy hedge fund has every right to pass on tech stocks.

The loss of Messi is particularly noticeable right now after he just won the World Cup and America watches him go bonkers in Major League Soccer for Inter Miami. Adidas — which signed Messi to a lifetime deal in 2017 — has had a major influence on the hype. Firstly, the German apparel giant pays MLS over $100 million a year to make the kit for every team in the league. Secondly, Adidas is supplementing Messi's salary of more than $50 million with a revenue share from jersey sales (a third part of the deal is Apple+ giving the Argentinian star a percentage of revenue from new subscribers to MLS Season Pass).

Messi rocking Nike at Barcelona and — most recently — Adidas at Inter Miami.

Even so, Nike remains the biggest apparel brand — by far — despite losing these two generational talents:

• Since losing Messi in 2006, Nike’s market cap has gone from $15B to $166B (11x) while Adidas has gone from $10B to $40B (4x)

• Since losing Steph in 2013, Nike’s market cap has gone from $50B to $166B (3.5x) while Under Armour has gone from $6B to $3B (0.5x)

During the 2022 World Cup, 49% of the players wore Nike cleats compared to 35% wearing Adidas. Meanwhile, 70% of NBA players wear Nike or Jordan Brand shoes.

While the market cap figures quoted above are impressive, there is a bit of nuance to consider on a closer look.

In 2019, Nike replaced CEO Mark Parker with tech veteran Jon Donahoe. Donahoe’s background running eBay and ServiceNow is particularly valuable as Nike pushes hard into its online and direct-to-consumer businesses (and away from retailers). The company also needed a change after Parker was involved in a string of controversies: systemic underpayment of female employees, an athlete doping scandal and how to manage culture wars.

Ethan Strauss — who wrote the ESPN article on Nike losing Curry — penned another article in 2021 titled “Nike’s End of Men”, which details a battle within Nike’s executive ranks on how to market the brand in the face of social justice issues. A big move was to restructure the company away from sports-specific divisions (basketball, soccer, tennis) into generic categories (men’s, women’s, kids’).

Strauss says the change “[emphasizes] gender over sport”. One way this change manifests itself is in how Nike ads are created. For decades, the most memorable ones involved apex athletic prowess (think alpha alpha dog Michael Jordan) and highlighted masculine athletic excellence. Comparatively, Strauss shows how modern Nike ads — much lighter on “alpha dog” but heavier on inclusion and social commentary — are very forgettable.

This development show the balancing act involved in managing such a storied brand.

In hindsight, it is totally understandable that Nike execs dropped the ball on Messi in 2006 and Curry in 2013. Neither of them fit the Nike archetype and — if we’re being honest — the Swoosh was probably a bit complacent after so much success.

The Messi/Curry snafus are the exact opposite of what happened to Nike in the mid-1980s (as recently fictionalized in the Ben Affleck and Matt Damon film Air). The shoemaker’s running business was in a slump and it was desperate to gain market share in basketball by signing Michael Jordan. However, Jordan wanted to sign with Adidas, which was way cooler at the time. It feels insane to write this but Adidas had no interest in Jordan because they thought he was “too short” (they wanted to sponsor 7-foot centres). It was Jordan’s mother — similar to Curry’s and Messi’s fathers pushing their sons decades later — who convinced him to sign with Nike.

In his book Skin In The Game, Nassim Nicholas Taleb has a great chapter titled “Surgeons Should Not Look Like Surgeons” in which he asks the reader to imagine two surgeons:

The first is highly refined in appearance; he wears silver-rimmed glasses, has a thin build, delicate hands, measured speech, and elegant gestures. His hair is silver and well combed. He is the person you would put in a movie if you needed to impersonate a surgeon. His office prominently boasts Ivy League diplomas, both for his undergraduate and medical schools. […]

The second one looks like a butcher; he is overweight, with large hands, uncouth speech, and an unkempt appearance. His shirt is dangling from the back. No known tailor on the East Coast of the U.S. is capable of making his shirt button at the neck…The absence of diplomas on the wall hints at the lack of pride in his education: he perhaps went to some local college

Now, which one would you pick? Taleb says he would take the butcher and explains:

“Why? Simply the one who doesn’t look the part, conditional on having made a (sort of) successful career in his profession, had to have much to overcome in terms of perception.”

Even though I said it was consistent with Nike’s brand to lose Messi in 2006 and Curry in 2013, there’s clearly a lesson here.

Messi had to take growth hormones in his teen years in order to continue playing. Curry was wafer thin in high school and lightly recruited for college. Neither of them “looked the part”, but both were still able to get into the upper echelon of their respective sports.

They both had “much to overcome in terms of perception”. And the way they did it was through extraordinary skills (Messi’s otherworldly vision and Curry’s “greatest jump shot ever”) and unshakeable wills (both players were roughed up early in their careers before dedicating to strength and fitness regimes that made them durable).

While Messi and Curry may not fit the exterior look of “something beyond a regular person”, their extraordinary skills and unshakeable wills sound like attributes worth marketing and not to be “lost”.

Or maybe I’m overthinking it: just send the tracksuits and proofread the deck.

Game recognize game: Curry sends Messi a signed Golden State Warriors jersey in 2015. They flexed the fresh gear on their respective Instagram accounts (Source: Instagram / NBA.com)

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Links and Memes

Tesla Solar Roof Review: Was it Worth It? Massive YouTuber Marque Brownlee spent $90k to fully equip his home with a Tesla Solar Roof and battery system. After a year of using the system, he explains in this 30-minute video how long he was able to power his home “off the grid”.

He ended up saving $9k on electricity, which equals a 10-year payback period (ballpark for solar panels is 6-10 years). There are interesting details throughout including what uses the most electricity (charging his EV, running air con) and unexpected outcomes (during winter, snow slides off the roof in giant sheets because the solar panels uniformly melt the snow).

Tariff Engineering: Since we’re talking about Nike today, let me introduce you to the wild world of tariff engineering (the practice of tweaking a product to be classified in a lower duty bracket). This is a very common practice in the toy and manufacturing industries.

Here is a famous example: Converse Shoes have a fuzzy fabric that covers large sections of the sole, but this is not for fashion reasons.The placement of the fuzzy material classifies the shoe as a slipper, which has a much lower import duty (<5%) than for shoes with a wholly rubber sole (30-40%).

What was the first tariff engineered product in the US? Sugar imports during the 1880s. White sugar had a higher import duty than dark sugar. So, some producers coloured white sugar with molasses to get a lower rate. US customs said the sugar importers were attempting to evade duties.

The case went to the Supreme Court, which ruled that manufacturers were allowed to do as they wished with a product as long as “no deception was practiced”. In the case of the sugar, the importers were not actually lying about the quality of the sugar. They wanted the lower duty and may have even cost themselves sales on the market, which assigned a higher value to white sugar.

PS. Marketplace has a deep dive into tariff engineering, specifically on Columbia Sportswear jackets (which have a random extra pocket to get a lower duty).

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And some other baller links:

• "A few ideas that changed my life" is a must-listen 15-minute podcast from author Morgan Housel (one idea: mental liquidity, the ability to not be stuck to a single world view).

• Is the self-driving car moment here? Alex Kantrowitz writes about the rise in autonomous ride-hailing in LA and SF (spearheaded by Cruise). 

• Paul McCartney: In 2016, Paul McCartney was denied access to the VIP section of a Grammy’s party. Why? Because he wasn’t wearing a wristband. Marinate on that for a second. Just comes to show how much power bouncers have. The video is absurd to watch but legendary Beatle was a good sport, joking that he has to “make another hit”.

• Taco Bell sued for false advertising: The lawsuit includes hysterical side-by-side photos of Taco Bell ads compared to the actual product (some lawyers actually had to buy and photograph these items, which is incredible to think about). You know what else is incredible? I’m more than happy to pay full thing on the right and smash.

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Links and Memes

…and here them fire tweets.