Under Armour has had four very bad quarters in a row, and on Tuesday the company slashed its outlook for 2017 and its shares fell to a four-year low.
This is despite having an incredible, star-studded lineup of sponsored athletes: Steph Curry, Tom Brady, Jordan Spieth, Michael Phelps, Cam Newton, Lindsey Vonn, Bryce Harper, Clayton Kershaw, and Misty Copeland are all Under Armour athletes.
But it hasn’t much moved the needle for the company: sales in North America fell 12% in the third quarter to $1.07 billion. With big displays in stores showing off Under Armour’s stars, you might think it would draw kids over to the Under Armour section.
Star endorsers don’t usually boost sales
If you ask Adidas U.S. CEO Mark King, “Most of the athletes at Under Armour are kind of milquetoast.”
King made that provocative comment to Yahoo Finance during an interview last year. He was basing his argument on personality and creativity, not on-the-field ability. “Spieth, Brady, hey, they are great athletes,” King said, “but when you talk about Carlos Correa and James Harden and some of these guys that have personality and really stand for being an individual, that’s unique positioning for us.” (Adidas’s current marketing campaign with its sponsored athletes is all about “creators.”)
Still, it’s hard to see fault with Under Armour’s roster. The company boasts the best quarterback in the NFL in Brady (or second-best, if you ask Green Bay Packers fans or Adidas, which sponsors Aaron Rodgers), the No. 2 golfer in the world in Jordan Spieth (Adidas has the world’s No. 1, Dustin Johnson), two of the biggest baseball stars in Bryce Harper and Clayton Kershaw, and the highest-paid movie star on the planet, Dwayne “The Rock” Johnson. (Johnson, a former college football player and pro wrester, arguably counts as an athlete as well; Under Armour released his gym sneaker this year.)
But Under Armour is flailing in America, star athlete roster or not. It has not seen big basketball market gains, despite its Curry signature shoe line. The Curry 3 shoe, which came out last year, was not a hit. Under Armour CEO Kevin Plank said on the company’s third-quarter earnings call, “We’ve applied the lessons from Curry 1, 2, and 3, and we put them in the Curry 4.”
It isn’t just Under Armour that shows endorsements aren’t always a boon to a brand. Adidas is on a hot streak in the U.S., but it’s unlikely that it has much to do with its athletes, a list that includes soccer stud Lionel Messi, basketball players James Harden and Joel Embiid, baseball sluggers Carlos Correa and Kris Bryant, marketable NFL players Aaron Rodgers and Von Miller, tennis star Caroline Wozniacki, and WNBA queen Candace Parker.
Adidas arguably places more of an emphasis on its celebrity endorsers like Pharrell Williams or Kanye West. But NPD Group analyst Matt Powell says neither type of endorser makes much of a difference.
Endorsements “rarely move the needle” for a sports apparel brand financially, Powell says. Yes, a big name brings buzz at the time of the announcement and when a new ad comes out, but the association does not typically directly create a boost in sales.
Product is what matters, Powell emphasizes. And Adidas has put out a strong product pipeline in sneakers over the past few years, with new lines UltraBoost, Flux, and NMDs, and the relaunch of classic lines like Superstar and Stan Smith.
Of course, Kanye West provides an interesting and unique case study. In the sneaker world, many collectors insist that Adidas’s impressive comeback in the U.S. is directly thanks to the rapper’s involvement with the brand (he has a long-term deal to design sneakers and apparel, and he wears Adidas product in public). Alan Vinogradov, who co-founded the popular sneaker expo SneakerCon, says, “What Kanye has done for them is make people pay attention to what is coming out. His endorsements, when it comes to fashion, are very limited — he has limited himself to Adidas. So [Adidas’s recent success] all falls under the hype the Yeezy line has generated.”
Powell disagrees: he sees West having zero impact on Adidas sneaker sales. “They paid [West] $10 million for nothing,” he tweeted in December. As Adidas keeps regaining sneaker market share, the debate over the “Kanye effect” rages on.
There are exceptions to the rule
Even though Powell denies the influence of West, he acknowledges an exception when it comes to sports brands and music artists: Puma and Rihanna. “Their business turned around literally overnight” after signing a deal with her, Powell says.
Indeed, in Puma’s impressive earnings report this week, Puma CEO Bjorn Gulden directly credited Rihanna with making the brand “hot again with young consumers.”
And in any discussion of athlete endorsement deals, Michael Jordan must enter the conversation. Nike and Jordan is easily the most successful brand-athlete partnership of all time; Jordan Brand dominates the U.S. basketball footwear market, with more than 90% share, and the Jumpman logo is instantly recognizable around the world, even 14 years after his final NBA season.
Nike also has prominent signature shoe deals with LeBron James, Kevin Durant, and Kyrie Irving, but it is Jordan Brand that owns nearly 60% of the U.S. basketball shoe market, and thus Jordan, a long-retired star, who has kept Nike atop the basketball sneaker market for so long. It’s uncertain if James, after retirement, will have that level of permanent name influence.
Among the 10 top-selling sneakers of 2016, only one was associated with a current athlete: No. 10, the Nike Kyrie 2. Two of the top 10 were Jordans, and No. 1 was the Adidas Superstar, a retro classic not associated with any one athlete or celebrity endorser.
Perhaps brands ought to deemphasize big athlete endorsement contracts, especially in an age when a personal scandal or offensive comment can cause PR headaches for companies associated with a star. But sports brands can’t quit such deals entirely. They’re necessary, even if just for image purposes: how can you purport to be one of the world’s best sports brands without having some of the world’s best athletes wearing your gear?
Daniel Roberts is the sports business writer at Yahoo Finance. Follow him on Twitter at @readDanwrite.