Tuesday, September 18, 2007

Profitable Fantasy

A friend in college named Andy Higgins had a fantasy of a hot blond and a bottle of Wesson (alcohol might make the ideas more appealing the blond but well this is purely fantasy). The slightly more realistic fantasy of this bolg was to see the numbers behind one of these apparel deals. Below via a tip from a loyal reader of the BCF--the numbers behind the Nike contract with the Buckeyes. The margins that Nike commands in the shoe business is well known as they make the shoes in Asia for $3 and sell the fantasy of being ___filling in the blank____ in the games for a mere C noteand a half. Looking at how they are throwing money at the Ohio State University there is plenty of margin in the whole product line. The display of the Nike logo is of paramount importance so we see it in the close ups of the players, coaches, and waterboys. Looked at the deals from how often we get to see the Nike logo on the TV screen, which if there were truth in advertising would be changed to a dollars sign, this is probably a great spend.

A couple of notes about the deal:

  • The dollars are inflated by the fact the Nike buys at the factory and accounts for the donations in retail dollars
  • 12.5% royalty means that on a jersey the someone buys at $60 which the store bought for $30 OSU gets $3.75
  • Maybe the trainers tape can be purchased with Nike logos printed on it
  • Those that cry about the exploited college football player might want to consider the conditions in an Asian sweatshop

Ohio State Football reaches new deal with Nike
Thursday, September 13, 2007
Doug Lesmerises
Plain Dealer Reporter

Columbus -- Ohio State football trainers beware -- too many wrong tape jobs and you could cost the athletic department nearly $12,000 per messed up football cleat.

On Wednesday, Ohio State announced it had reached a new seven-year, $26 million deal for Nike to provide athletic equipment to Buckeye sports teams and make and sell OSU football jerseys that will kick in at least another $200,000 per year to the athletic department in royalties.

The new contract, which went into effect on Aug. 1 though it was just made public Wednesday, was signed despite the fact that a previous OSU-Nike deal was just entering the second year of a seven-year contract. That one was worth only $16.3 million. Perhaps the eight-year, $60 million deal Michigan signed with adidas in July, after formerly wearing Nike, had something to do with the renegotiation.

"As a completely self-supporting unit of the university, we are constantly seeking ways to generate new dollars to support our program," Ohio State Athletic Director Gene Smith said in a statement released by the university. "This agreement with Nike guarantees our student-athletes of the very best product in the industry and allows us to direct the money we would have spent on footwear and apparel to other areas."

The agreement includes payments to Ohio State of $1.188 million per year over the next seven years and $2.34 million per year in free shoes and apparel for all of its sports teams. It also includes $150,000 per year of Nike apparel that can be ordered by athletic department coaches and staff for personal use and bonuses for the publicity that comes with success -- including $10,000 for a national championship in football and $25,000 for a national championship in men's basketball.

The royalty agreement on exclusive apparel is 12.5 percent of net sales and 11 percent of net sales on non-exclusive products.

All in all, a healthy deal -- but oh, the tape jobs.

According to a copy of the contract, if more than five football players tape over or otherwise block out the Nike logo on their shoes, Nike can take back $11,880 for each shoe, up to a maximum of $59,400. And if it happens another time, the penalty is $23,760 per shoe.

In a somewhat related story ConAgra Foods recently announced that, "Wesson Oil has re-hired Florence Henderson as spokeswoman."

Hey she's blond, has access to plentiful supplies of Wesson, Mr. Brady is out of the picture, the kids are all grown and most importantly she has a certain Wessonality.

BCF will refer to the Nike logo but refuses to type the word swo....

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