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The athlete endorsement model is broken

Nearly two weeks after Nike revealed Colin Kaepernick as the face of its new “Just Do It” ad campaign, Nike shares hit an all-time high on Friday. Nike’s online sales also saw a bump in the wake of the Kaepernick ad. The controversial campaign has, by most metrics, been an objective success.

But Nike’s (NKE) Kaepernick endorsement is actually an exception to the norm, and bucks the trend: big sponsorships of a single athlete are going out of style—fast.

“The paid endorser model is simply broken,” NPD Group retail analyst Matt Powell wrote in a blog post in July. “Consumers have begun to realize how phony these pay-to-wear deals are. Celebrities have no loyalty to brands, or fans. They simply will endorse whatever they are paid to wear.”

NBA rookie Deandre Ayton proved Powell’s point in June. After he signed a lucrative endorsement deal with Puma, Ayton told Bleacher Report straight up the decision was about money: “Nike is Nike. Adidas is Adidas… but now it’s a business. You don’t want just product. You’re not a kid anymore. You’re really trying to get bank. That’s about it.”

As Ayton alluded to, the majority of sneaker endorsement deals these days are for a small fee and free product. Steph Curry didn’t get his big Under Armour (UA) contract until 2013, when he had been in the league for four seasons. Under Armour built its entire basketball sneaker line around Curry, and while it brought the brand buzz in the sport, it couldn’t save things from going south when basketball performance sneakers declined as a category industrywide.

In fact, Under Armour arguably has one of the strongest stables of athletes of any apparel company, with Curry, Tom Brady, Jordan Spieth, Michael Phelps, Lindsey Vonn, and Dwayne “The Rock” Johnson — and that still couldn’t prevent sales declines in North America.

Federer’s staggering Uniqlo deal

That’s why Powell was so baffled when Uniqlo signed Roger Federer to a new 10-year endorsement deal in July, reportedly worth $300 million. And Federer himself, sounding a lot like Deandre Ayton, told the New York Times this month, “We tried to work it out [with Nike] for a year… from my point of view, I thought I was being reasonable. But everybody sees it differently. And what you see as your value may be not what they see. I’m happy to be proven right, with this long-term deal with Uniqlo.”

The price tag is staggering—even more so considering that Federer is 37 years old. Underscoring the risk inherent in Uniqlo’s expensive signing, Federer lost in the quarterfinals of Wimbledon this summer, then lost early in the U.S. Open. Uniqlo may be biting its nails.

On the other hand, Uniqlo is likely betting on Federer’s lasting fame and appeal well beyond whenever he stops competing professionally. There is a select group of athletes who clearly have enough recognition and likability that they can appear in advertising long after they retire: Peyton Manning, Charles Barkley, and Shaquille O’Neal are examples. LeBron James, Serena Williams, and Tiger Woods will all surely be in that group after they retire. Will Federer?

Powell doesn’t think it’s a sure thing, and doesn’t think he makes sense for Uniqlo as a spokesperson. “Federer talks to wealthy boomers, and that’s not who Uniqlo needs to focus on,” Powell tells Yahoo Finance. “He’s not talking to the millennial. And I think his appeal right now is very much the presence that he has because he’s playing, not so much because of who he is. I don’t know that he’s ever established himself as a personality.”

Roger Federer during a U.S. Open men’s singles match against John Millman on Sept. 3, 2018. Federer lost the match. (Mohammed Elshamy/Anadolu Agency/Getty)
Roger Federer during a U.S. Open men’s singles match against John Millman on Sept. 3, 2018. Federer lost the match. (Mohammed Elshamy/Anadolu Agency/Getty)

The same goes for New York Yankees slugger Aaron Judge. Toward the end of his rookie season, which ended with Judge winning AL Rookie of the Year, Pepsi signed Judge to an endorsement deal. Nothing shocking there: only a few years ago, all the biggest pro athletes had a Coke or Pepsi deal. But Powell says, “I don’t think Judge sells product. If he did, he’d have a whole lot of product contracts already. At the end of the day, millennials and Gen-Z are the consumers who matter. And baseball as a sport doesn’t speak to Gen-Z.”

Apparel brands still need pros to wear their gear

Powell isn’t suggesting the big sports apparel brands will stop signing contracts with athletes. Nike, Adidas, and Under Armour need to have pro athletes wearing their products because it “creates credibility and authenticity,” he says. But the era in which brands would sign athletes to 10-year-long contracts (Under Armour and Spieth, Nike and Rory McIlroy, Adidas and Derrick Rose) is on its way out. My gut is we will see fewer of these marquee deals,” Powell says.

Instead, you could see more of the Kaepernick model, which is more about making a statement than forming a decade-long relationship with one athlete. The terms of Nike’s deal with Kaepernick have not been made public, but Powell suggests it is a short-term deal, and not necessarily a highly lucrative one.

“It’s probably your standard NFL deal, which is worse than your standard NBA deal,” Powell says. “I gotta believe it’s not a lot of money. I do not believe we will see a signature shoe or clothing line. I think here we are looking at a different phenomenon, which is Nike recognizing that consumers want brands to take stands on social issues.”

For now, that thinking is working wonders for Nike.

Daniel Roberts is the sports business writer at Yahoo Finance. He hosts the podcast Sportsbook and the video series Business + Coffee. Follow him on Twitter at @readDanwrite.

Read more:

Nike’s Colin Kaepernick sponsorship has more reward than risk

Uniqlo is spending big money on Roger Federer

All-star athlete endorsements haven’t helped Under Armour

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