The changing landscape of NBA shoe deals
This season, players are waiting for sneaker contracts that might never come
With this year’s NBA draft pushed back five months because of a global pandemic, the delay put the spotlight on an unprecedented marketplace for traditional sneaker endorsement deals in 2020.
When Puma signed LaMelo Ball to a long-term sneaker deal just before the draft in October, he was the player they’d been circling all along – one of the most marketable rookies to enter the league in the past decade. For Ball, who launched his own “MB1” signature sneaker with his family’s Big Baller Brand on his 16th birthday amid a basketball odyssey that has taken him all over the globe, the new Puma deal marked another bold step in his path. “I am someone who likes to be different and consider myself to be one of one,” Ball said in a statement announcing his Puma deal.
But that uniqueness doesn’t apply only to his on- and off-court potential. Ball is also the only rookie in the 2020 draft class to land a sneaker deal so far this year.
R.J. Hampton, an explosive guard taken with the 24th pick, signed his multimillion-dollar, five-year deal with Li-Ning in 2019 off the strength of his raw potential, even before playing in Australia’s National Basketball League last season.
For the rest of the class, they’ll begin the season sans shoe deals. It’s an unthinkable scenario in the NBA.
The CURRENT CLIMATE
Typically, most NBA rookies land a deal during the week of the draft after several weeks of ongoing negotiations. But even this year’s No. 1 overall pick, the Minnesota Timberwolves’ Anthony Edwards, will begin his rookie season without a footwear endorsement deal. He’s played in Adidas’ Harden and Nike’s Kobe sneakers during the preseason, with potential offers only just now beginning to trickle in.
How and why the marketplace and landscape of NBA sneaker deals is suddenly shifting can be attributed to a variety of factors, most notably the global pandemic and ongoing closure of retail stores for several brands, causing a financial strain that has led to frozen sports marketing budgets this fall.
Throughout conversations with several player agents, most brands have relayed that they can begin discussing new deals after Jan. 1, when a new quarterly fiscal budget begins. But some brands have even prepared players and agents to wait as far as July 1 before new contracts can be officially offered, signed and paid.
The financial impact of the coronavirus continuing on into the year, however, has only added to the downward trend that the hoops sneaker market has faced recently. Each of the last five years, basketball footwear sales have been dwindling, as the buying public has opted instead to purchase more lifestyle and retro sneakers.
After peaking this decade at $1.3 billion in 2015, sales of non-retro basketball sneakers generated only around $800 million in 2019, according to the NPD Group, a market research company. In 2020, as retail stores experienced nationwide closures and buyers were forced to almost entirely shop online, sales were down yet another 20% from last year’s tally, to around $640 million.
That’s caused some brands to reevaluate the tens of millions they had set aside for their annual NBA player budgets, as the retail climate still faces uncertainty into the next calendar year.
According to Matt Powell, vice president and senior industry advisor for the NPD Group, non-retro performance basketball shoes represented only about 3% of the overall U.S. sneaker market this year.
“We think overall sneaker sales will grow in 2021, but not achieve 2019 levels until 2022,” said Powell.
The 3 types of shoe deals
Over the past two decades, nearly every player among the league’s 450 pros has had a sneaker deal of some level. Shoe deals can typically be framed into three simple categories: the signature shoe deal, the cash deal and a “merch” deal. Each deal brings with it differing levels of guaranteed money, involvement, commitment and marketing activation.
Signature shoe deal
Only 18 current players will begin the season in their own signature sneaker, with the headlining faces of brands such as LeBron James, Stephen Curry, Kyrie Irving, Kevin Durant and James Harden all earning well north of $10 million annually.
For each player with his own namesake sneaker, he also earns a standard 5% royalty on the sales of every shoe and branded apparel item in the U.S. Some players actually have an even higher royalty percentage to be earned on sales in China, ranging anywhere from a 6%-8% royalty on sales in the accelerating region. Several brands project that China will outgrow the U.S. non-retro basketball marketplace in sales by 2025.
Start in the All-Star Game or make First Team All-NBA? There’s another $500,000 or more. Advancing to the playoffs, the conference finals or even the NBA Finals can add between $150,000 and another $750,000 in incentive bonuses met, according to one signature athlete’s contract reviewed. Winning league MVP can earn an additional bonus of either $1 million or $2 million, depending on what’s been negotiated.
All in all, signature sneaker deals can sometimes contain as many as 15 line items in a contract for a variety of five- and six-figure bonuses. Players can also allot as much as $400,000 in some instances to sponsor a range of summer AAU programs in their name, or provide all of the latest brand gear to their high school program. Brands may also designate a six-figure donation amount to a player’s foundation. Some players even have friends and associates bundled into their shoe deal, labeled as five-figure brand consultants.
With some signature businesses earning anywhere from $100 million-$300 million across footwear and apparel annually, the variety of bonuses and the 5% royalty structure can escalate a player’s annual earnings dramatically to more than $20 million per year in some cases, making the signature shoe deal the holy grail for all players.
Last season, 70% of all players leaguewide wore a signature-branded shoe. Many Nike players wear Kyrie-branded sneakers, shoes from LeBron’s line or PG & KD models. Lots of Adidas guys wear Hardens & Dame shoes and almost all of the Under Armour guys wear Curry shoes.
The success of these signature shoe lines impacts the overall landscape.
“Only a finite number of athletes sell enough product to cover a brand’s investment in them,” said Brian Berger, host and founder of Sports Business Radio. “Michael Jordan, Tiger Woods, Allen Iverson, etc. The branding exposure [for athletes not generating enough revenue] has value, but not enough to justify the endorsement money in most cases.”
Around 225 players across the league fall under the “cash deal” silo, earning anywhere from $50,000 in cash annually to upward of $4 million, even without a signature shoe. Players such as Anthony Davis, Jayson Tatum and Kristaps Porzingis have each been featured with their respective Nike, Jordan and Adidas deals.
Players in this group will often provide input on design of unique colorways of their own player exclusive sneakers, like Devin Booker, PJ Tucker and DeMar DeRozan enjoy with retro editions of Kobe Bryant’s sneaker line.
Guards playing for what is deemed a “priority team,” which is either a contending franchise or a priority market such as Los Angeles or Houston, can earn between $200,000-$300,000 annually, even though they may not be a starter. (“We’re not building an NBA starting five,” one industry exec joked years back, when discussing why brands prioritize playmakers for shoe deals that can drive footwear interest.)
In recent years, with more competition coming from Under Armour, Puma and New Balance, the overall value of both veteran and rookie shoe deals had crept up. Players weren’t just deciding between a Nike or Adidas deal, as they were at the turn of 2010.
Much like in horse racing or even the startup investment world, brands had looked to cast a wide net of bets during the NBA draft when signing rookies. The expectation was that a handful of the players signed might not pan out, says one company decision maker, but if one or two became an All-Star level player, such as Donovan Mitchell’s emergence among the 2017 draft class, then the investment was worthwhile, so the thinking went.
For several brands, that strategy may be distinctly changing.
In the last handful of drafts, several top 10 picks underwhelmed with disappointing starts to their careers. Those players were earning between $1 million and $2 million on shoe deals that became “painful” to begin to justify.
“I think brands will take a wait-and-see approach,” said a brand source.
A key factor in waiting into the season before signing rookies is simply the uncertainty about the structure of games, with fans not expected to be attending games in person in all but six markets this season. There’s also a limited ability for brands to conduct in-store events, activations or experiences with players. And the annual overseas marketing tours that several high-profile players have become accustomed to have been put on hold as well.
Lastly, there’s the “merch deal” group, which, along with the lower ranks of the “cash deal” crop, is expected to be hit the hardest this season. In merch deals – short for comped merchandise in industry phrasing – players are often centers or end-of-bench players in lesser markets or on losing teams that simply provide visibility for a brand. Oftentimes their deals will be for just two years, or even year to year, provided the player is still on a team roster.
Usual compensation can include between $15,000-$25,000 in merchandise value on a brand’s webstore. With no rollover credit for a merch deal, there’s often a spending spree in late summer before the product allotment expires.
Longtime NBA writer Ric Bucher reported on his podcast that around 150 players have a paid Nike shoe deal of some level. Of that group, he said, nearly 70 are expiring right now and won’t be renewed. For veterans on existing expiring deals, which typically expire on Oct. 1, they’ve been prepared to either not receive a renewal offer at all come January, or to expect a reduced offer below the value of their prior deal.
Several around the industry expect for as many as 100-175 players to play this season without a shoe deal. Already, some are shuffling between Nike, Adidas, Puma and Under Armour pairs game by game. Chinese brand Anta plans to send pairs of its new Klay Thompson shoe to a variety of sneaker free agents around the league as well.
Last season, nearly 70% of the league wore Nike sneakers. Another 8% wore Jordan Brand, while Nike’s other subsidiary, Converse, is undergoing a revamp with a starting foundation of Kelly Oubre Jr., Draymond Green and Shai Gilgeous-Alexander. Adidas accounted for nearly 11% of the league, while Puma and Under Armour each were worn by more than a dozen players.
“I still expect Nike to have more NBA players wearing their shoes than any other brand,” said Berger. “The difference will be not as many players will be paid to wear Nike shoes.”
what’s next for shoe deals?
Among the U.S.-based basketball brands, there have been different approaches.
Jordan Brand has been most aggressive in actually striking new deals. Last year, Nike Inc. placed a priority on refreshing and revamping the Jordan Brand roster, as eventual Hall of Fame players and longtime brand headliners Carmelo Anthony and Chris Paul enter the final chapter of their careers.
The brand responded by adding Zion Williamson, Luka Doncic, Jayson Tatum and Rui Hachimura last year. Just last week, Jordan agreed to new deals with Washington Wizards scoring guard Bradley Beal and Brooklyn Nets rising wing Caris LeVert, rounding out one of the most complete rosters across the industry in just 16 months.
Trae Young discusses his upcoming Adidas signature shoe on The Jump with @Rachel__Nichols.
— Nick DePaula (@NickDePaula) December 9, 2020
Adidas struck a new multimillion-dollar extension with Atlanta Hawks All-Star Trae Young last month that will see him launch his own signature sneaker during fall 2021.
Under Armour, rather than sign new players, reset its approach with two-time MVP Stephen Curry, launching the Curry Brand this month with a new design and cushioning innovation, along with a mission-based focus on providing young athletes with access to sports and resources.
In China, where stores have been back operating for months and companies are experiencing a bounce back at retail, Li-Ning has also been particularly aggressive in adding to its roster of NBA players. The brand recently signed both Jimmy Butler, a bubble standout fresh off of a Finals run, and Fred VanVleet, the “bet on yourself” underdog, to long-term deals.
But outside of that handful of players, and Ball’s addition at Puma, the shoe deal market has been largely flat for six months.
“It is my opinion, based on conversations that I have had with those in the industry, that only the elite athletes will have paid shoe deals going forward,” said Berger. “I could see bonuses being paid out to NBA players who achieve certain targets, like All-Star team, All-NBA, etc., but those payouts will come only if they hit those targets. … There will be far fewer paid shoe deals for NBA players going forward.”
That newfound reality has made for tough conversations between many players and agents as they prepare for the new landscape of endorsement deals ahead.
According to several industry executives, the 2020 class overall was also made up of a less compelling crop than other recent drafts. Playmakers such as Killian Hayes, Tyrese Haliburton and Kira Lewis Jr. have been closely followed throughout the preseason, but it’s the 2021 draft that sneaker executives have their eyes on.
Many believe potential top picks Cade Cunningham and Jalen Suggs have superstar potential, while Arizona State freshman Josh Christopher represents everything a brand looks for both on- and off the court, with his relentless style of play and made-for-LeagueFits fashion taste. Projected top-5 pick Jalen Green is also eligible to land a shoe deal right now, as he continues to impress with the G League Ignite and recently shifted to new agency representation.
As the 2020 class begins their NBA careers this week, several lottery picks are planning to play out their rookie year, hoping to land a six-figure deal next summer under the impression that the NBA game experience for fans and financial climate for the league will be “back to normal.”
Even then, many expect the bottom half of the league’s 450 to possibly enter an upcoming decade in which a sneaker deal for every NBA player is no longer a given.
Many expect companies to instead continue to partner with massive musicians and global stars such as Drake, J Balvin and Travis Scott on their own sneaker and apparel capsules instead.
“We’re offering them a lottery pick-type deal,” said a brand source.
Fashion designers such as Virgil Abloh and Jerry Lorenzo have also shown they can be more impactful than several NBA All-Stars, through stylized takes on both retro and modernized basketball sneakers that have become far more coveted than several signature basketball sneaker lines.
On Tuesday, Adidas announced a long-term partnership with Lorenzo, the Fear Of God company founder and designer, fresh off a successful series of Nike collaborations. In the new unique structure, Lorenzo “will drive the creative and business strategy for Adidas Basketball globally,” according to the brand.
Social media influencers, a murky market of its own, continue to also play a role in the industry. Adidas signed gaming star Ninja a year ago to a long-term sneaker deal, marking yet another new frontier for endorsements.
As the media climate continually shifts away from viewers watching a two-hour basketball game in its entirety to consuming bits and pieces of games in quick highlights across social media, the value of players toward the end of rosters can perhaps be even more scrutinized by sneaker brands.
Going forward, the construct of sneaker deals as we know it for all but the game’s greatest stars and brightest personalities may be shifting.
“I think brands are no longer seeing the return on big endorsement contracts,” said Powell, “and will avoid making those commitments in the future.”