To Sell or Not To Sell: Nike’s Conundrum

Rumor has it that sportswear giant NIKE Inc. (NYSE:NKE) is all set to finalize a deal to become the official team soccer uniforms’ provider of the English National soccer team.  Daily Mail reports that Umbro, the existing sponsor will be replaced by Nike next spring.

If true, this move will strengthen Nike’s position against its arch rival Adidas (FRA:ADS), which currently is the leader in the soccer field in terms of market share. These developments though have raised a few eyebrows over its substance.

Manchester-based Umbro was acquired by Nike in 2007 for $565m to ensure greater scale to the growing European soccer market driven by soccer jerseys & accessories. The decision was made following Umbro’s strong association with the national team and high profile clubs like Manchester City F.C.

However, after five years, Umbro hadn’t provided the expected returns. Umbro’s revenues at just $224m in CY11’ showed no signs of improving. The news of Nike replacing Umbro as the official kit sponsor of Manchester City F.C. was then followed by the management diktat to sell Umbro along with its casual footwear brand Cole Haan & focus on Nike’s core brands. At this stage, the only reason why anybody would be interested in buying Umbro would be its association with the English National Soccer team.

If there’s any truth to these rumors, potential buyers of Umbro won’t see a potent enough reason to spend their bucks buying a yesteryear sports giant with not even an iconic sponsorship of the team soccer uniforms of the English National Soccer Team.  Another important consideration would be that the moment Umbro loses out on the English Soccer team, the valuation will plummet in case of a sell. One may argue that loses on account of this possible sale would be easily made up for with gains from possible novel deals with the FA, but that doesn’t seem to be an easy nut.

Umbro’s relationship with English soccer is long & endearing. The company’s association is deeply ingrained in the minds of millions of English Soccer fans. Not least of the issues is the head-raising of nationalistic pride among soccer fans? The replacement of Umbro by Nike would surely raise a few heckles. This possibility was further fueled when another apparel retailer Ralph Lauren (NYRSE: RL) drew large-spread criticism in the US after the US Olympics athletes were wearing uniforms that were made in China.

Nike surely is walking a high wire and if it wants to sell its soccer jerseys, it could well be a choice between mind & heart.


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