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Why the NBA-China controversy won't affect Nike: analyst

The backlash from the Chinese government over a tweet sent by sent by Houston Rockets GM Daryl Morey in support of democracy protesters in Hong Kong was swift. Chinese state-run television and conglomerate Tencent (TCEHY) refused to air the L.A. Lakers vs. Brooklyn Nets preseason game emanating from Shanghai. And many Chinese businesses have cut ties or distanced themselves with the offending Rockets, including sportswear company Li-Ning.

Could the controversy affect major associated brands like Nike?

“We think it’s much ado about nothing,” says Susquehanna equity analyst Sam Poser, who specializes in footwear and apparel.

Poser was a guest on Yahoo Finance’s “The Ticker.” He noted that Nike’s 30-year history in China is one of the reasons why the NBA drama is not likely to affect the company.

“The Chinese consumer thinks of Nike as a global brand and doesn’t think of it as a U.S. brand,” he said. Nike views itself in similar terms. During the company’s Q1 earnings call CEO Mark G. Parker said: “NIKE is the brand of China for China.”

In Q1, the company saw a 27% revenue growth on a currency-neutral basis in the region. The swoosh brand has also maintained double-digit growth in China every quarter for more than 5 years.

Poser says that even if Nike did see some spillover from the NBA political drama, the damage would be minimal, as basketball only accounts for about 12% of the company’s total sales.

Basketball - NBA China Games - Los Angeles Lakers v Brooklyn Nets - Shenzhen, China - October 12, 2019. Fans are seen wearing LeBron James jerseys with an NBA logo covered by a Chinese national flag stickers during the game. REUTERS/Tyrone Siu

“If you’re a 15-year-old kid who loves sneakers and basketball, I don’t know if it’s much different in China than it is here. You want what you want, and if you can’t have it, you might want it more … And that’s probably why you saw how quickly they get this game on. Maybe the son of the premier said, look, dad, I want to watch basketball.”

Poser is referring to the fact that Chinese company Tencent, which initially pulled NBA games, resumed streaming two NBA games on Monday. The analyst also reminds Yahoo Finance that Nike manufactures a significant amount of products in the country.

When asked how does a company like Nike navigate the potentially treacherous waters of operating in China, Poser said the company should “Just keep doing what [it’s] doing.”

“Nike is just gaining a ton of momentum and we haven’t heard anything from them. I think if we hear something from them, then a lot of these questions become more germane, but they’re not there yet.”

Reggie Wade is a writer for Yahoo Finance. Follow him on Twitter at @ReggieWade.

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