Michale Jordan is a billionaire but doesn’t own the Jordan brand, which is part of Nike. Yet, he gets 5% royalties on the sales of Jordan. For instance, as of May 31, 2022, Nike had endorsement contract obligations of $7.6 billion, of which over $250 million were to be paid out to Michael Jordan as royalties on the sales of Jordan in 2022 (the company made over 5$ billion in sales in that year). We estimated that between 2018-2022 alone, Nike paid (or is paying) Michael Jordan almost one billion dollars in royalties for Jordan’s brand sales.
How is Jordan driving Nike’s sales?
In 1984, Michael Jordan was an emergent athlete about to play for the NBA.
Nike was, instead, trying to become a prominent brand in the sports industry, which Adidas dominated.
Back then, when Nike closed the deal with Jordan, the company expected to sell, but a few million pairs turned into a multi-billion dollar empire by 2022.
Indeed, Jordan is a crucial brand within Nike.
Which, by 2022, generated more than $5 billion in revenue.
If that’s not enough, the Jordan brand also drives up the popularity of overall Nike’s empire.
Thus enabling Nike to spur sales of all its related shoe brands beyond apparel and clothing!
History of the deal between Nike and Michael Jordan
The partnership between Nike and Michael Jordan is one of the most successful and enduring in the history of sports marketing.
The deal, struck in 1984, came when Jordan was an NBA rookie, and Nike was a minor player in the athletic footwear market.
Below, weโll explain how this deal played out and some of the events before and since.
Rookie season
Jordan was on the lookout for an endorsement deal after he left college to enter the NBA draft in 1984.
At the time, his manager ProServ encouraged shoe companies to develop a signature line of shoes in which Jordan could possess equity.
Jordan was ultimately drafted by the Chicago Bulls and was keen to partner with Adidas. This seemed like an obvious choice since Adidas was an established company and had enjoyed success in basketball with its Superstar and Pro Model shoes.
Also in favor of the German brand was that Jordan already wore a pair of its shoes.
However, Jordanโs mother Deloris encouraged him to meet with other suitors and at least hear them out. One of these suitors was Nike.
Nike enters the fray
Nike entered the fray as a young and emerging company that was mostly associated with long-distance running. In Jordan, it saw an opportunity to break into the basketball market and the company was willing to pay up to achieve this objective.
The negotiations between Jordan’s agent, David Falk, and the interested parties were intense and extremely competitive.
Adidas did not meet Falkโs financial demands, while Converse, another suitor, felt the proposal would not work with NBA stars Magic Johnson, Julius Erving, and Larry Bird already contracted.
Nike emerges victorious
True to its brand, Nike emerged victorious with then-director Rob Strasser determined to land Jordan with a deal no other company could match.
The initial offer was $250,000 per year for five years plus royalties on every pair of shoes sold. This was a significant amount of money in 1984 โ especially for a rookie who had yet to prove himself in the NBA.
Eventually, Jordan and Nike settled on a record-breaking $2.5 million over five years. Included in the deal were a $500,000 bonus and a 50/50 split of the profits from future shoe sales.
Jordan wears Nikes in the NBA
The Nike Air Jordans made their debut on November 17, 1984, and were immediately controversial. Nike designed the shoes to reflect the red and black colors of the Chicago Bulls, but NBA rules stipulated that match shoes could only be white.
Jordan was fined $5,000 every time he wore them but continued to do so in any case.
Nikeโs gamble on Jordan ultimately paid off in the first year after he was voted as a member of the Eastern Conference All-Star team and All-NBA Second Team. He also won rookie of the year.
The Air Jordan 1 was released to consumers in the spring of 1985.
Nike hoped to sell at least $3 million worth over the first four years, but the company surpassed that in under twelve months.
Reflecting on the deal
In the popular 2020 TV miniseries The Last Dance, Falk reflected on the deal:
โThe irony of the Air Jordan deal, itโs probably the best deal Iโve ever made and itโs probably the worst deal Iโve ever made because no one had a clue โ including Nike โ that you could sell $100 million worth of shoes for a rookie in his first year.โ
The deal remains a lucrative one for both Nike and Jordan today.
The Jordan Brand made the company $5.1 billion in 2022 alone, with Jordanโs 5% cut worth $256.1 million.
Has anyone managed to replicate Jordan’s success?
Over the years, many others have tried to replicate Jordan’s success. Among these attempts, the closest was Kanye West’s Yeezy!
The collaboration started in 2015 when Kanye West and Adidas got together to create Yeezy’s line.
Over the years, Yeezy has become an iconic brand over the years, yet the collaboration ended abruptly in 2022.
Like Jordan’s contribution to Nike, Yeezy was generating about 10% of Adidas’ revenue by 2022 (about $240 million).
Yet, the break between Adidas and Kanye West shows how difficult it is to replicate a partnership like the Jordan-Nike, not only from a product standpoint but also from a business/interests standpoint.
Key takeaways
- The partnership between Nike and Michael Jordan is one of the most successful and enduring in the history of sports marketing. But it is easy to overlook the fact that at the time, Jordan was a rookie and Nike a largely unproven company.
- In 1984, Sports management company ProServ encouraged shoe companies to develop a signature line of shoes in which Jordan could possess equity. The younger and smaller Nike beat out suitors such as Adidas and Converse with a deal they could not match.
- Nikeโs gamble in Jordan ultimately paid off in the first year after he was voted as a member of the Eastern Conference All-Star team and All-NBA Second Team. He also won rookie of the year. Sales of the Air Jordan 1s also surpassed the companyโs expectations.
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