#38. Air Jordan - Behind The Rise of Nike
How the deal revolutionized sports marketing
Welcome to the blog post #38! Click here to read more from previous posts.
Nike, a globally renowned brand of sports footwear and apparel, founded in 1964 and currently valued at $144 billion, has a storied history of collaborating with influential sports athletes like Mia Hamm, Roger Federer, Serena Williams, Tiger Woods, LeBron James, and Cristiano Ronaldo. However, it was the partnership with Michael Jordan that catapulted Nike to the pinnacle of the sportswear industry and reshaped the world of sports marketing.
How did it happen?
Nike's Early Struggles in the 1980s
Let's rewind to the early 1980s when Nike was a respected but relatively small athletic footwear company with annual revenues in the range of hundreds of millions of dollars. While the company was known for its innovative running shoes, it had yet to establish dominance in the global athletic footwear market. Nike's business faced steep competition and was in dire straits in 1984, with a 29% decline in earnings—the first drop in a decade. The first two quarters of 1985 saw Nike reporting its first-ever losses.
Amid these challenges, a pivotal moment arrived when Sonny Vaccaro, a Nike sports marketing executive, proposed a daring idea to Nike's CEO, Phil Knight: sign an endorsement deal with NBA rookie Michael Jordan. This proposition was bold and risky, given Nike's circumstances.
At the time, Michael Jordan was already a rising star in the NBA. Drafted by the Chicago Bulls in 1984, Jordan was renowned for his extraordinary athleticism, scoring prowess, and competitive spirit, though he had not yet reached the global icon status he enjoys today. Adding to the intrigue, both Adidas and Converse were pursuing Michael Jordan for partnership deals. Jordan himself was a fan of Adidas and initially showed no interest in Nike.
However, Sonny Vaccaro, a savvy negotiator, recognized a unique opportunity. He knew that Michael Jordan's mother played a pivotal role in family decisions and engaged with Jordan's parents to persuade them. Eventually, Michael Jordan reluctantly agreed to meet with Nike.
The Differentiated Deal
The deal between Nike and Michael Jordan was more than just a standard endorsement contract. Nike, aware of its need to boost brand recognition among influential athletes, took significant risks by going all-in to secure the partnership.
Nike offered Jordan a five-year contract worth $500,000 per year, totaling $2.5 million—an unprecedented and over-the-top sum at the time. The key differentiator was Nike's commitment to building a new product line specifically for Michael Jordan. In contrast, joining other companies like Adidas or Converse would have made him just another sports star in their ambassador list without unique treatment. This proposition resonated with Jordan.
Nike undoubtedly had high expectations given all the privileges extended to Michael Jordan, and these expectations were reflected in the contract conditions. Nike requested Michael Jordan to make three performance pledges in addition to the typical standards for a sports ambassador, including:
Win Rookie of the Year
Average 20 points per game
Become an All-Star
The contract also featured an unusual clause: If Jordan failed to achieve one of these three goals within his first three years, Nike could terminate the deal two years early. Deloris Jordan, his mother, introduced a groundbreaking counterproposal: Michael Jordan should receive a share of the sales revenue from the product line bearing his name. This demand, unprecedented at the time, marked a revolutionary shift in the cost model of sports influencing. Nike, in its quest to secure the deal, finally accepted this innovative term. On October 26, 1984, the partnership contract was signed, setting the stage for one of the most successful and enduring collaborations in nearly four decades.
This visionary partnership was a pivotal move for both Nike and Michael Jordan. The outcome of this negotiation included these key terms:
Creative Control: Nike granted Jordan creative control over his signature line, allowing him to influence the design and style of the sneakers. This gave the products a very unique and authentic touch tied with Jordan’s own signatures. It resulted to the birth of Air Jordan, a combination of innovative tech, bold design and striking colorways which set it apart from other sneakers in the market.
Royalties: Jordan received a 5% royalty on each pair of Air Jordans sold, providing him with a financial incentive linked to the success of the brand. This revolutionary royalty structure not only reshaped the cost model for influencer marketing but also played a pivotal role in Michael Jordan's historic achievement as the first sports billionaire in 2014.
Global Marketing: Nike committed to extensive global marketing campaigns aimed at promoting the Air Jordan line, leveraging Jordan's global appeal to its maximum potential. This strategic approach ensured that the brand resonated with audiences worldwide, contributing to its unprecedented success.
A Lifetime Opportunity: The NBA Fine
During that era, the NBA enforced strict uniform policies, allowing shoes to have no more than two colors that matched the team's colors. However, the first Air Jordans featured three colors (red, black, and white), leading to their banishment. The NBA informed Nike that Michael Jordan would be fined $5,000 for each game he wore Air Jordans.
Nike's response to the NBA's fines was ingenious. The company urged Michael Jordan to continue wearing Air Jordans, pledging to cover all fines. Nike leveraged this crisis into a marketing campaign, epitomized by the iconic 1985 commercial:
"On September 15th, Nike created a revolutionary new basketball shoe. On October 18th, the NBA threw them out of the game. Fortunately, the NBA can't stop you from wearing them — Air Jordans from Nike."
This unconventional approach generated significant buzz, and the crisis turned out to be a catalyst for Nike's effective spread of Air Jordans. Within just two months of the sneaker's release, $70 million worth of Air Jordans were sold.
Transforming Nike's Business
The partnership with Michael Jordan played a pivotal role in revitalizing Nike's struggling business and transforming it into a global brand.
Revolutionizing the Sneaker Industry: The Air Jordan 1, designed by creative director Peter Moore, retailed for $65 and generated over $100 million in sales by year-end, shifting the marketing focus from teams to individual athletes.
Boosting Sales: Nike had initially expected $3 million in Air Jordan sales over the first four years of the deal, but they sold $126 million in the first year alone. Annual revenues skyrocketed from hundreds of millions to billions of dollars, rescuing Nike's declining business and diversifying its product portfolio. Nike became the dominant player in the athletic footwear industry, with market share and profitability soaring.
Transforming Nike into a Global Brand: This game-changing partnership turned Nike into the world's largest athletic apparel company, and made Jordan a global and cultural phenomenon. The Jordan Brand extended far beyond basketball into sports, entertainment, streetwear culture, fashion, and lifestyle. Today, the deal generates billions for Nike annually, with Jordan also earning hundreds of millions each year.
The Air Jordan partnership also pioneered the concept of influencer marketing. It demonstrated the immense power of aligning a brand with a cultural icon and leveraging their authenticity and influence. This approach has since become a cornerstone of modern marketing. In addition, the success of Air Jordan made Nike shift its marketing approach from focusing solely on product features to crafting narratives around the athletes and brand, which created a deep emotional connection with consumers, inspiring them to aspire to greatness.
People now realize that the Air Jordan brand represents more than just athletic footware; it's a symbol of aspiration and the pursuit of excellence. The Air Jordan partnership was not just a business deal; it was a transformative moment that propelled Nike to unprecedented levels of success and brought Michael Jordan to become a global icon. Its legacy includes reshaping the athletic footwear industry and setting the new standard for influencer-driven marketing.
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That’s all for today. I hope you enjoy it.
Till next week!
Cheers,
Do Thi Dieu Thuong