Why Nike is paying Jason Day lots of money even though golf is in decline

September/14/2016

Golf is dying. Millennials don’t play. Ratings are on the wane. Several stars skipped the Olympics. The Tiger era is over, and Nike just exited the golf equipment business.

So why did the Swoosh from Beaverton, Ore., just pay a reported $10 million to the top-ranked golfer in the world, Australian Jason Day?

“We don’t comment on rumor or speculation,” Greg Rossiter, Nike’s head of global communications, said of the ESPN report. “We’re committed to being the undisputed leader in golf footwear and apparel.”

There’s a little more to it than that. One reason for the Day signing, according to Matt Powell, a sports industry analyst with the NPD Group,  is that Nike wants to preserve its $500 million stake in the “soft goods” side of the golf market, think golf shoes and shirts. The company recently exited the golf equipment business, which is mostly golf balls and golf clubs.

Secondly, with Tiger Woods, who has been the face of Nike golf,  no longer the story every week, Nike’s golf business lost its biggest star and a lot of luster. The point is to get the inimitable Swoosh as much television time on Sunday afternoons, when television ratings tend to spike because that’s when tournaments play their final round. Day offers insurance that Nike will be front and center on Sundays.

“Nike has gone 0-8 in the last eight Majors, and isn’t accustomed to, or excited about watching its competitors’ endorsers, particularly Under Armour’s athletes, hoisting trophies – regardless of the sport,” said Jim Tanner, president of Tandem Sports & Entertainment in Arlington, Va., in an e-mail.

Tanner said Woods and other elites like Rory McIlroy (Nike) and Jordan Spieth (Under Armour), are all believed to have shoe-and-shirt endorsement deals “in excess of $20 million” per year.

Sounds like a lot, but when you consider Nike sells $30 billion worth of sports stuff a year and has a marketing budget estimated to be more than $2 billion, the $10 million it just paid Day is a rounding error.

Besides, Day has been more consistent than McIlroy and Woods, finishing in the top 10 of six of the past eight major tournaments. He also won last year’s PGA Championship.

“Getting the world’s number one  golfer for half that may prove to be a great deal for both Nike and Day,” Tanner said.

There’s also the fact that selling golf clubs isn’t a great business any more. Nike’s total golf revenue from sales of equipment, shoes and shirts peaked at $792 million in 2013 and has been falling ever since.

John Horan of Sports Marketing Intelligence said rules changes by golf authorities like the U.S. Golf Association limiting golf club design, particularly for drivers  – “which gives the ball its boing” – cramped innovation, and, in turn, stifled sales.

“Once you sort of limit the amount of innovation you can do, your market is limited to a replacement market,” Horan said. “It used to be pretty easy for [golf club maker] Calloway to go down to the metallurgists and the engineers and say, ‘We need more boing.’ ”

Horan said the money is now in the soft goods side.

“That’s where the battle is going to be,” he said.

Under Armour, the David to Nike’s Goliath, continues to nip at the heels of its rival. This week, Under Armour this week is rolling out a new line of high-end clothing called Under Armour Sportswear that is very unlike the company’s traditional utilitarian, performance-based clothing.

Baltimore-based Under Armor Sportswear is selling a $349 transparent parka, a $449 sports coat, women’s leggings for $179, and a $1,400 trench coat.

But speaking of golf, UA founder and chief executive  Kevin Plank last weekend was out on the course himself, playing 18 holes in UA shirts and golf shoes at Caves Valley Golf Club in Baltimore County.

His guest? President Obama – and a pack of Secret Service agents.

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