Nike keeps Durant with megadeal

ByDarren Rovell and Marc Stein ESPN logo
Sunday, August 31, 2014

At the 11th hour, Nike just simply couldn't let Kevin Durant walk away.

With Durant on the verge of a move to Under Armour, sources told ESPN on Sunday that Nike exercised its right to match any rival shoe company's offer to the Oklahoma City Thunder star. A source with knowledge of the deal later told ESPN that Durant has indeed signed with the Oregon-based company.

Nike countered Under Armour's offer of between $265 million and $285 million and believes it will keep Kevin Durant for the next 10 years, sources told ESPN. Nike, whose seven-year deal that guaranteed Durant $60 million is expiring, made an initial offer of about $20 million a year that was far from what Durant was looking for. Under Armour's huge play for Durant had many believing that Nike would even let him go at that price.

The overall value of Durant's deal with Nike could hit $300 million or more if his business continues to rise. That number is flexible as he will get a royalty on all sales in his line.

But on Saturday, Nike officials told Durant and his team at Jay Z's Roc Nation Sports that it would indeed step up enough to allow the world's largest shoe and apparel company to keep him in its robust stable of basketball endorsers that includes LeBron James and Kobe Bryant.

While the exact Nike offer for Durant isn't known, sources told ESPN that Durant should make more -- in base and royalties -- than the Thunder will pay him over the next two seasons ($41.2 million). That's why fans in Oklahoma City were nervous about a possible move to Under Armour, which could have steered him more to returning to his local roots to play for the Washington Wizards when he becomes a free agent after the 2015-16 season.

Analyst Omar Saad, senior managing director of ISI's luxury, apparel and footwear team, who covers all the major brands on Wall Street, said that, despite the negotiations coming down to the final hours, he always believed that Nike would win Durant's services.

"For Nike, this was nothing to them," Saad said. "They could easily build Durant's business enough, assuming normal margins, where they could generate a cash flow of $60 million a year. And Nike is really good at monetizing its marketing assets, way better than anyone else."

Saad said, for Nike, Durant satisfies a niche that makes him different from James, Bryant or the Jordan brand. Durant's signature "KD" shoes generated $175 million at retail this past year, according to SportsOneSource, a market retail tracking firm. Not only was the business on the rise, but one retailing source told ESPN that Nike left plenty of money on the table with Durant's shoe at $125 and relatively limited distribution to stores. Simply raising the price and opening up more channels could make the deal worth it, the source said.

It looks like Nike has offered enough to land Durant, though it could be argued as to whether its an exact match to the Under Armour deal. Under Armour's offer included 10 percent stock, which one could argue makes that offer worth more than its present day value.

Indications were strong that Durant would go to Under Armour, which was essentially willing to commit more than eight percent of its annual marketing budget solely to the basketball star -- and that doesn't even include the marketing the company would do to promote the relationship. The deal with Durant would have largely trumped Under Armour's largest sponsorship deal, surpassing the $16.5 million a year the brand pays soccer club Tottenham for its kit rights.

But Under Armour CEO Kevin Plank believed that landing Durant would be essential to competing, not only in the basketball shoe space, of which it only did roughly $30 million in business last year, but in building the brand internationally outside of North America. Under Armour was further motivated to put a huge deal on the table thanks to the fact that Durant was a native of Maryland, having grown up in Seat Pleasant -- less than 40 miles away from Under Armour's Baltimore headquarters.

Durant was a loyal Nike man, who took significantly less money to go with the company over Adidas when they both wooed him his rookie season. But considering the business that Durant became in the last two years, shoe business insiders were shocked that Nike didn't try to lock him up before he became a shoe free agent. Nike frequently signs its stars to new deals before their current ones are up so that they can't test the marketplace. That might have cost Nike more in this case, though it's still a drop in the bucket to the company, which expects to sell more than $27 billion in product in 2014, making it more than nine times Under Armour's size.

Although the money was big, sources close to Durant say the decision weighed on him. Going back to Nike comes with a sense of relief, those sources said, because Durant, who has turned into one of the league's most marketable stars, can still make significant money without being associated with the risks of Under Armour's fledgling shoe business.

For Nike, consumers can expect to see a seamless transition, as Nike had so much in the pipeline for Durant because it believed it would keep him long before Under Armour shocked the basketball world with the nature of its offer. Nike has used its "KD" logo since 2008, but was granted the trademark for it in January.

For Under Armour, it's back to the drawing board. Last year, they wooed Golden State Warriors guard Stephen Curry away from Nike, but have missed on Los Angeles Clippers forward Blake Griffin, who returned to the Jordan brand, and now Durant.

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