Nike Air Jordan: It’s Gotta Be the Shoes

In 1984, Nike signed Michael Jordan to a five-yar, $2.5 million contract. Terms of the agreement specified that Jordan would be given his own shoe, with Nike reserving rights to terminate the deal, if less than $4 million dollars of shoes were sold by the third year.

The skinny rookie out of North Carolina, of course, went on to sell $70 million in Air Jordan shoes through his first two months in the league. Now, after three decades, it is Michael Jordan that is all but unanimously hailed as the greatest basketball player of all time. It has got to be the shoes.

The G.O.A.T.

Ironically, it was Nike and Michael Jordan that were once the young upstarts staring down the likes of Larry Bird, Magic Johnson and Converse as the established veterans lording over the hardwood.

Now, Nike and its Jordan brand control a staggering 93% share of the basketball shoe market. Nike Air Jordan shoes typically retail for $150, with limited edition releases often times fetching more than $1,000 on the secondary market. In August 2020, Christies auctioned off a pair of game-worn Air Jordan shoes for a record $615,000 price tag.

For fiscal 2020, Nike racked up $3.6 billion in sales through its Jordan Brand, while Michael’s cut of the deal has driven his own net worth above $2 billion.

Year-over-year Jordan Brand sales increased by 15%, on the heels of the wildly popular Last Dance documentary, which chronicled MJs sixth and final championship. For maximum effect, this time capsule was released during the depths of COVID-19 lockdowns to a captive audience fully immersed into the LeBron James vs. Michael Jordan debate.

King James himself, of course, is signed to a lifetime Nike deal at more than $30 million per year. In business parlance, Nike is the epitome of focused differentiation, by hitching its wagon to once-in-a-generation talents and developing quality product for aspirational athletes.

The Bottom Line

For many, the Air Jordan brand is the most visible gateway into Nike. To broaden its appeal, Nike does sell footwear and apparel to all athletes, who the company defines as anybody with a body. We do expect Nike sales to grow alongside the work-from-home and athleisure trends. For athleisure, it is Lululemon that has emerged as a top competitor to Nike, by also retailing high-end product to a cosmopolitan base.

Still, Nike serves its shareholders best through differentiation. Nike stock closed out the June 15 trading session at $130.29 per share and $205 billion in market capitalization, for an otherworldly 86,760% change in value from the time of the Michael Jordan endorsement deal. Interestingly, it has been 18 years since Jordan last played professional basketball. Nike will sustain its competitive advantage through quality footwear, digital sales, and long-lasting partnerships with global icons.

Onyx Investments has owned shares of Nike stock for more than two decades. We will continue to buy and hold shares and we do fully support Nike management.

Just Do It.