The Power of Endorsement Deals: Is Equity the New Compensation?
Professional athletes are becoming brands; walking, talking brands. Their success on the playing field adds value to their brand. Ultimately, companies want to use the athlete’s brand to sell their product; this gives birth to an endorsement contract. Companies pay huge sums of money for athletes to promote their products. The more powerful an athlete’s brand is, the more money a company is willing to pay to get their products in that athlete’s hands. Athletes earning potential in the endorsement arena is limitless; simply the marketplace controls it. As a result, endorsement deals often dwarf the salary a player makes which is often limited by the various leagues’ salary caps. And to be clear, these salaries are extremely lucrative on their own. This discrepancy just demonstrates how powerful these endorsement deals are.
In 1984, Nike made an unprecedented deal with Michael Jordan for $500,000 per year for five years. Fast forward to the present. Nike has become a global power in business and their Air Jordan brand has a cult-like following. Michael Jordan still has a deal with Nike and, per Darren Rovell, his Air Jordan brand netted him an estimated $100 million in the last year. In Jordan’s entire playing career he earned about $93 million. Other current players have followed Jordan’s blueprint. LeBron James’ Nike deal is worth an estimated $300 million over ten years. Kevin Durant’s Nike deal is worth $285 million over ten years. The list goes on and on.
The structure of the deals has not changed much since Jordan’s deal. Nike and Adidas have dominated the shoe endorsement market. They give a contract for a fixed amount of money over a fixed amount of years. However, that formula may be changing. Up and comer Under Armour recently signed a deal with Stephen Curry. The terms of the deal were not disclosed, but the company did say that the deal includes an equity stake in the company. By taking equity, in effect, Curry has gambled on himself. The more shoes he helps sell the more the equity will be worth. The more the equity is worth the more money Curry will make.
We will stay tuned to see how his deal plays out. Perhaps we have witnessed the future of endorsement deals.