Clashing sports apparel titans Nike and Under Armour have a new battleground, and the University of Texas is poised to reap the spoils. Nike’s exclusive period to negotiate a new apparel licensing deal with the UT Longhorns ends Thursday, opening the door for a bidding war that could allow one of the nation's most profitable athletic programs to secure the richest college sports apparel deal in history.
The fight to secure apparel rights at major American universities has grown increasingly competitive as Nike and Under Armour, amid record revenue, seek new ways to expand business. The terms of Under Armour’s January 2014 deal with the University of Notre Dame were never disclosed, but the 10-year contract, which gave Notre Dame an equity stake in the company, was reportedly the richest ever signed. Nike signed the University of Michigan to an 11-year, $169 million apparel deal last July that included nearly $77 million in cash – the richest contract for a public university in college sports history. The University of Texas could receive an annual $15 million under their next apparel deal, Bloomberg reported.
The victorious company will provide gear for Texas Longhorns football, the most profitable program in the country. The brand will receive massive exposure when Longhorns players become walking billboards for millions of television viewers during the school’s dozen or so nationally televised games each year. The successful suitor also will gain access to a large, loyal base of potential apparel buyers--Longhorns fans and alumni sprinkled throughout the country.
“With an apparel deal, it’s that exposure and impact, but it’s even more, because now you’re actually making the uniforms, the clothing, that the teams and the coaches and the students and the alumni are going to wear,” said Jeff Nelson, vice president of client strategy at Navigate Research, a sports marketing firm. “It’s almost a two-for-one.”
There’s an undeniable upward trend in sports sponsorship deals, but for companies as large as Nike and Under Armour, they’re paid for with pocket change. Nike reported more than $30 billion in revenue for its 2014 fiscal year and still controls the vast majority of the world’s sports apparel market, but Under Armour is making bold moves to close the gap. Led by CEO Kevin Plank, it’s now the No. 2 brand in the world, with $3 billion in revenue last year and plans to approach $8 billion in revenue by 2018.
For both companies, the University of Texas is an incredibly attractive target. In college sports’ multibillion-dollar apparel industry, the Longhorns are a dominant force, regularly placing among the top 10 universities in the country and leading all universities from 2006 to 2013, according to Collegiate Licensing Co., its former apparel licensor.
The University of Texas’ large, devoted fan base, which includes some 40,000 undergraduate students and hundreds of thousands of alumni, has a ravenous appetite for school apparel. But for companies, jersey and T-shirt sales are just a small part of the appeal. Investing in a college sports program, especially at a major school like Texas, is a low-risk, high-reward play. An exclusive deal can deliver all the marketing benefits of a partnership with a top-flight athlete like NFL star Tom Brady or NBA star James Harden, without the risk of injury or image-damaging incidents away from the field.
For Nike, Under Armour or any other sports apparel brand, a deal’s true value lies in leveraging the national exposure a school like the University of Texas affords, and those benefits aren’t just drawn from Texas’ football players wearing branded uniforms. Every student and alum who buys a Nike T-shirt or an Under Armour jersey becomes a de facto ambassador for the company. In that sense, experts agree the apparel deals pay for themselves.
“The way a lot of companies look at it, the quantifiable component is not really about if I’m going to get a dollar-for-dollar return on the investment in terms of sales-to-expense for the relationship,” said Auburn Bell, an adjunct marketing professor at Loyola University in Maryland. “It’s more about what that value’s going to be in terms of exposure for the brand.”
And while the college sports apparel deals are growing larger by the year, the actual cost to the companies may be far less than the numbers suggest. The value of gear companies provide to the universities is usually expressed in retail terms rather than manufacturing costs, said Jonathan Jensen, a sports marketing consultant and assistant professor at Merrimack College in Massachusetts.
“How much does it cost Nike to make a jersey for a football player?” Jensen said. “It might count in the contract as a $150 jersey, but did it really cost them that much to make?”
Regardless of which brand wins the bidding war, the benefits to the University of Texas are clear. Texas’ athletic program earned $161.3 million for the 2013-14 school year, more than any other university in the country except the University of Oregon. The Longhorns’ football program was particularly successful, earning a $74.1 million profit over the same period.
Those numbers will only increase when the new deal is signed. Texas can expect to receive anywhere from 5 percent to 20 percent of apparel sales revenue as part of the deal, but that won’t be the deal’s biggest benefit.
“For universities, the real win is when they can get more of that in actual cash, in addition to the product,” Nelson said.
The upcoming bidding war comes with a few caveats. First, while Nike is choosing not to renew its deal with the University of Texas before its exclusive negotiating window expires, the company can still sign a new deal after the fact. The current contract grants Nike the “first right of refusal,” which means the school must allow Nike to match any competing offer it receives from a brand like Under Armour or Adidas.
Even after the window expires, Texas officials have to notify Nike of competing offers within 15 days, said Jensen, who examined the contract. From that point, Nike has 15 days to issue an offer to match.
“I would be shocked if Nike let the University of Texas walk away from a deal like this,” Jensen said.