Under Armour's rookie strategy for endorsement deals

Marketing executives at sports apparel company Under Armour had a lot to cheer about this month as the American women's soccer team made a run at the World Cup.

The team ultimately lost to Japan, but the international visibility the players received was priceless for Baltimore-based Under Armour, which has endorsement deals with three of them: Heather Mitts, Lauren Cheney and Becky Sauerbrunn.

Under Armour, which has built itself from a basement startup to a billion-dollar enterprise, wasn't always able to afford the big endorsement deals of its more established competitors like Nike and Reebok.

The company instead turned to athletes like the soccer players to push its brand. The athletes were well-respected in their sports — some of them rookies with the potential to become stars — but not necessarily known to a broader audience.

"We have positioned ourselves as a brand for the next generation of athletes," said Matt Mirchin, Under Armour's senior vice president of sports marketing.

Athletic endorsements mean big money for sports apparel companies.

The first endorsement deal was thought to have been made in 1905 when Honus Wagner signed a deal with Hillerich & Bradsby Co., which put his name on bats, according to the Sporting Goods Manufacturers Association.

But it was Nike that proved the practice could be lucrative for companies, signing greats such as Michael Jordan in the 1980s and Tiger Woods in the 1990s.

Most companies, including Under Armour, don't disclose how much they pay for endorsement deals, but the largest contracts can be in the tens of millions of dollars.

"The good athletes are walking, talking, breathing billboards for companies," said Mike May of the Sporting Goods Manufacturers Association. "They become a great showcase for the brand."

A study by a Harvard University professor and an analyst from investment banking firm Barclay's Capital found that endorsement deals on average generate a 4 percent increase in company sales.

Endorsements can also increase a company's stock return by 0.25 percent, according to the study.

And the economic rewards just get better over time. If an athlete wins a major championship, stock returns and sales increase even more, researchers found.

"It's hard to imagine building a blockbuster sports brand and not having any major athletes connected to it," said Anita Elberse, the Harvard professor who conducted the study. "It suggests that if you're good enough for the athlete, you must be good enough for the masses."

In the beginning, Under Armour used a grass-roots approach to getting its brand recognized, putting its product in the hands of little-known — but hardcore — athletes.

Under Armour's first endorsement deal was struck more than a decade ago with Eric Ogbogu, a football teammate of Under Armour founder Kevin Plank at the University of Maryland.

Ogbogu wasn't a star in the NFL — he played for the Dallas Cowboys — but he became known for his role in Under Armour commercials. Known as "Big E," he made famous the company's now-ubiquitous slogan: "We must protect this house."

The company has since signed a variety of athletes, including last year's Heisman Trophy winner, Cam Newton, and fellow NFL players Miles Austin and Anquan Boldin.

The company is using a small group of up-and-coming players to help build its basketball line. Under Armour recently signed Brandon Jennings of the NBA's Milwaukee Bucks and NBA rookie Kemba Walker.

The newest member of the Under Armour endorsement team is Derrick Williams, the second-overall pick in the NBA draft who will play for the Minnesota Timberwolves.

Williams said in a telephone interview that he got a call from Under Armour the day after the NBA draft. He also talked to Nike, he said, but felt he might receive better exposure with Under Armour. He also said he liked the fact that Under Armour had signed a number of younger players to build its basketball line.

"One of my big goals is to get my own shoe, and I can see that happening with Under Armour," Williams said.

As it has become more profitable, the company has been able to target a few better-known athletes.

Hometown hero Michael Phelps signed with Under Armour last year — the Olympic swimming champion agreed to wear the company's products outside the pool.

"For Michael, this was really all about finding a way to work with a brand he loves," said his agent Peter Carlisle. "Michael and Under Armour both hail from Baltimore, which makes it a natural fit; but what really drives it is his affinity for Under Armour, its brand, products and people."

The company also signed last year what it called its highest-profile athlete ever, NFL quarterback Tom Brady. The agreement gave the New England Patriots player equity in the company to help seal the deal.

"They've been aggressive for guys with smaller checkbooks than their peers," said Michael Binetti, an analyst with UBS Investment Bank.

The endorsement issue came up during a recent event for investors at Under Armour's Tide Point headquarters. Plank said endorsements are important but said the company picked them strategically.

"We don't believe we have to pay a ransom for it," he said at the time.

CEO Plank often calls athletes personally to persuade them to join the company. He also looks for athletes who want to grow along with the firm.

"Other companies have so many athletes that they sit around for years with hopes of being marketed," Mirchin said. "If they want to pick up a check and not build a brand, that is not the person we are looking for."

Newton, who will play for the Carolina Panthers this season, said at a recent Under Armour shareholders meeting that he chose Under Armour over Reebok and others because he likes the direction it's taking.

"Y'all have seen just the appetizer of where this company is going to go," Newton said.

Under Armour's strategy of generally hiring less-than-megastar athletes is not without risks. Rookie players don't always live up to their potential. Younger players may not be as mature as older players and more likely to get into trouble off the field, sports marketing experts say.

"They could identify people who never make it," said Amna Kirmani, professor of marketing at the Robert H. Smith School of Business at the University of Maryland. "There are plenty of rising stars who don't make it as professional athletes."

Mirchin said the company is aware of the risks but said it chooses athletes carefully. Under Armour has a team that follows young athletes throughout their college careers.

"Every athlete doesn't have to succeed," Kirmani said. "If they get one or two [who] really make it, that will benefit the company."



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