LeBron James, Nike's $90 million man.

Commentary about business and finance.
May 22 2003 5:18 PM

Heir Jordan

Will Nike's $90 million gamble pay off?

LeBron James
Baby needs new shoes: Nike's big gamble

Kobe Bryant has got to be just a little pissed off today. Already down after his Los Angeles Lakers got booted from the playoffs, he wakes up to see this: ESPN reports that high-school basketball star LeBron James has signed a seven-year Nike endorsement contract worth more than $90 million.

Seth Stevenson Seth Stevenson

Seth Stevenson is a frequent contributor to Slate. He is the author of Grounded: A Down to Earth Journey Around the World.

Kobe, since breaking off his Adidas deal last year, has been shopping himself around to the big sneaker companies. Word is his asking price was outrageous—and he allegedly demanded his wife have a hand in designing his signature shoe—but nevertheless it must be galling to see LeBron get that kind of money. Kobe is a three-time world champion, easily one of the top five players in the league. LeBron hasn't played a single NBA game, or even a college game. Yet this deal likely means Nike has decided that LeBron is the new Michael Jordan and will put all its legendary marketing and design genius behind him to make it so.

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Why would Nike put so much on the line for a kid who hasn't proved he can play like the pros, never mind sell shoes like them? Two reasons: 1) fear; 2) because it's worked before.

The "marquee" basketball category—hoops shoes that sell for more than $100 at retail—is home to perhaps the sexiest battle in all of footwear. It brings massive margins, approaching 50 percent, as these cheaply made shoes fetch prices up to $140. (Nike tried to get $200 for a recent Air Jordan model, but kids balked at forking out that much.) Nike has traditionally owned this category, due in large part to the phenomenal sales of Air Jordans, but with MJ retiring this year there seems to be a chink in the armor.

So competitors have lined up young guns. Reebok has Allen Iverson; Adidas has Tracy McGrady (and, until last year, Kobe). And Nike has tried to turn Toronto Raptors guard Vince Carter into its new Michael Jordan. Carter at first seemed the real deal, but he's lost luster over the years as he has been felled by numerous injuries, and it doesn't help that he plays up in Canada. Right now, Iverson, McGrady, and Jordan are the only guys who really move product, and Jordan's on the way out. In short, Nike's desperately searching for a new Michael.

Is LeBron James the one? That's up to the market, but Nike clearly thinks that LeBron is its cup of tea. Marquee shoes are aimed at black, inner-city kids who are willing to spend huge amounts of money every time the new, hot shoe hits shelves. An Adidas exec once told me that "the day after payday" is the biggest sales day in this category (the way he said it, you could tell that exploitation was not really an issue for him). To ring these kids' consumer bells, endorsers need to be just a little bit flashy and a little bit dangerous. Iverson fits the bill, with his tats and his slightly sketchy past; Kobe does not, with his squeaky clean demeanor (he speaks fluent Italian, for goodness' sake). McGrady's athletic, street-ball moves on the court do the trick; Shaq's oafish approach to the game, though perhaps the most dominant in the NBA, doesn't sell shoes. What about LeBron? Already put under investigation for receiving "throwback jerseys" (stylish, vintage team wear) and a Hummer SUV while still an amateur, he has the controversy angle sewn up, and anyone who's seen him dunk knows he's got all the moves.

Seeing another potential Iverson, Reebok apparently put the hard sell on LeBron, and this may be what pushed Nike over the edge. According to John Horan, of Sporting Goods Intelligence, the signing was a "defensive" move for Nike and partly just about "keeping LeBron out of Reebok's hands." Why so scared? Nike has had a huge falling out with Foot Locker recently, resulting in Nike's announcement that it would withhold future big-launch products from Foot Locker shelves. If LeBron were to go to Reebok, Foot Locker—the pre-eminent marquee shoe outlet—would be filled to the gills with LeBron wear, while whatever new shoes Nike came up with would be kept out of the store. With LeBron under contract, Nike now assumes kids will seek out his shoes wherever they can be found.

It's a huge risk, this massive contract for an untested rookie. But it's got a nice precedent. In 1984, Nike signed a rookie named Michael Jordan to a five-year contract worth $2.5 million (plus, thankfully for MJ, royalties). Fortune magazine ridiculed the deal at the time, coming as it did at a time when Nike's business seemed vulnerable. Though Adidas was Jordan's first and heartfelt choice, it had offered far less money and no signature shoe.

If LeBron James can jump-start Nike's basketball line, and indeed the whole company, the way Jordan did in 1984 (perhaps "Shox LeBrons" will be the new "Air Jordans"?), the deal will be worth every penny.

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