Athletic Endorsements: A Risk Always Worth Taking

Jordan Spieth hates his new nickname, “Golden Child,” but in the eyes of his main sponsor, Under Armour, it is certainly appropriate. After a tremendous PGA Tour win at the Masters, Jordan Spieth is redefining what companies seeking endorsements look for in an athlete. Spieth is young, just like golfing legend Tiger Woods and mid-2000s tennis superstar, Maria Sharapova, once were. Spieth’s age and potential set him apart from other athletes today: “Being so young (and American) is another major benefit for Spieth and he will have sponsors queuing up to secure his services.” And, as expected, sponsors have done just that, especially his main sponsor, Under Armour (UA). During the days following his first major win in the PGA Tour at the Masters, UA noted a $33 million dollar increase in merchandise revenue.

Jordan Spieth.
Jordan Spieth.

For Under Armour, valued at around $4.1 billion, Spieth’s success is pushing it forward, though the company, however, is far from matching and surpassing major corporations like Nike, valued at over $19 billion. Spieth’s most recent Masters win has increased UA’s market value and Under Armour founder and chief executive, Kevin Plank, even stated that, “Thanks to Jordan, our company grew up today.” Nike’s revenue sky-rocketed under Michael Jordan—UA might have a Jordan of their own.

Remember the Tiger Woods fallout? A marriage scandal gone horribly wrong transformed the pro golfer–for the worse. Woods, the athlete who was once a glorified icon, was brought to shambles in less than a week. This fiasco cost Woods’ sponsors–Gatorade, AT&T, Nike, to name a few–several billions in losses. Woods’ failure to uphold his image as a model athlete undermined both his earnings and the image of his sponsors. Shareholders of Nike, Gatorade, and the rest of Woods’ sponsors lost around $12 billion. But this type of flop does not stand alone. Plenty of other athletes like the youth sensation and soccer prodigy Freddie Adu turned out to be a bust in the mid 2000s, which hurt his sponsor, Nike. Adu was sponsored at the ripe age of 13–probably too young an age to deal with the pressure of an endorsement.

Maria Sharapova, on the other hand, presents a different type of risk: injury. After winning the 2006 U.S. Open, Sharapova signed a deal with Gatorade. When the sponsorship began, Gatorade’s market value was just over 300 million. When she won the Acura Classic in August 2007, however, Gatorade’s market value leapt to 1 billion, and after her Australian Open win in February 2008, her sales once again returned to this level later that summer. The periodic deficits correspond, however, with Sharapova’s injuries. Though her injuries did not dissuade consumers from purchasing Gatorade products, her injuries swept her away from fame for months at a time. This, in turn, resulted in less coverage, and therefore less marketing for Gatorade.

sharapova

Spieth is quickly gaining traction in the sports world and UA’s revenue is rising significantly, but we must take a closer look at this endorsement. For now, it seems as though UA picked the right athlete for two reasons: Spieth is consistent and he’s winning. But what make’s him different than Woods and Sharapova? Sports marketing expert, Bob Dorfman, commented in an interview with Bloomberg’s Michael Buteau that, “[h]e’s very hard not to like, and certainly more approachable and accommodating than Tiger.” As much as we’d like to think that Spieth’s charming personality is transforming the market into into one focused less on skill and more toward off-the-field reputation, this is not the case.

Though risk is prevalent, companies use athletes as endorsers because it is worth taking this risk. Companies desperately need athletic endorsements because, as CNN reporter, Anita Elberse, explains, sales for brands jump about 4 percent, on average, in the six months following the start of endorsement deals, and in many cases jump as much as 20 percent. The revenue in the U.S. from sport sponsorships is predicted to reach $45 billion by 2015, and in an industry that will always grow because of the inseparable connection between fan and athletes, investing in a top athlete is undoubtedly the right decision.

Spieth’s success has undoubtedly pushed UA in the right direction, but his performance and media attention are nothing new. Spieth is another great athlete sparking growth for another company in today’s market. In a world in which Woods cost Nike shareholders billions but was resigned by Nike only five years after his fallout, it is clear that endorsements are worth the risk, and athletes are part of a larger game at the market level. Fans forget about the past. They move with the present and they want to use the products used by athletic legends. Like fans of basketball great Michael Jordan in the 1990s who wanted to “wear Nike to ‘be like Mike,’” the fans of today have not and will not change.