Maybe Nike won by chance – DW – 03/25/2024

Maybe Nike won by chance – DW – 03/25/2024

In the wake of the German Football Association (DFB)’s decision to part ways with long-time German partner Adidas, finance was clearly the dominant factor.

The decision caused a huge uproar in Germany, and even politicians commented on it. From an economic standpoint, the deal makes sense.

Not only was Nike willing to offer much more than Adidas for the deal, but the former company’s profits dwarf those of its German competitor. For 2023, Adidas reported a loss of 75 million euros ($82 million), while Nike’s profits were about 20 billion euros. The difference is undeniable, and even as Nike shares fell at the beginning of 2024, CEO John Donahue pointed to the recent deal with the German team as part of the company’s plan to “make the adjustments necessary to win,” adding that the company “cares deeply about the honor and privilege” of winning in Germany. .

Strategic bidding

However, Professor Henning Voebel, a mathematical economist at the Center for European Policy (CEP), a think tank specializing in European politics, believes there is more to consider.

“I think an important aspect is the fact that the market has turned into an oligopoly with specific incentives,” Voebel told DW. “Maybe Nike won by chance.”

Faubel argues that the reduced number of suppliers in the market changes things, as does the fact that the bidding process has led to strategic bidding.

“Nike probably suspected that Adidas wanted it just the same, for reasons of tradition and so on, and wanted to make them think a high bid would be made,” Voebel said. “Or Adidas anticipated that the German Football Association would choose them anyway due to political and public pressure, which led them to make an offer that was probably lower than what they could or would have made.”

Faubel believes this may be the reason behind the large divergence between the two offers. Nike has reportedly offered €100 million for the deal, double what Adidas has on the table.

“This is actually inexplicable,” Voebel said. “The fact that there was a clear difference that left (the German Football Association) almost no choice suggests that someone made a mistake in their calculations.”

Professor Henning Föbel is a mathematical economist at the Center for European PolicyPhoto: Flavor Team

Whether someone pays too much or too little, the impact on the DFB cannot be understated. Financially, the federation relies heavily on the success of the men’s team, and without it it has struggled. As public broadcaster ARD reported, during Germany’s three bad tournament years (2018, 2021 and 2022), the German Football Association received only 27 million euros in bonuses. Compare that to the successful years (2010, 2012 and 2014) where €61 million were earned and it’s clear how much is lost. Add to that the ongoing tax evasion scandal and a new central hub in Frankfurt that costs twice as much as expected, and the Nike deal goes from being a logical choice to an absolutely necessary one.

Global appeal

Beyond the financial appeal of choosing Nike lies the lure of the global Nike brand. The uniforms for the NBA and NFL are provided by Nike. Michael Jordan’s “Air Jordans” are owned by Nike, and Serena Williams has a Nike collection. Adidas has its own stars too, but Nike’s truly international reach is undeniable.

“The German Football Association is also looking for an internationalization strategy in marketing, and I can imagine that Nike could provide a bit of global wind; even the Nike ecosystem could be more interesting worldwide, across sports, than Adidas,” Faubel said. “. “I think it’s possible that such considerations will play a role.”

Overall, Nike appears to have seized the moment, recognizing Adidas’ current fragility and the German Football Association’s desperation, and struck a deal that sent ripples through the football industry and sport.

“They are making an offer that will certainly push their competitors out, perhaps in the only area where they can still become a worthy successor, so to speak,” Voebel said.

“Such strategic considerations could have played a role in justifying the decision to spend 30 million knowing that you would give your opponent the right to close, so to speak, in this economic situation. These are precisely the competitive incentives that arise under such towers because it is “This kind of emotional market.”

Edited by: Chuck Penfold

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