Under the agreement announced yesterday, Under Armour becomes one of just three companies that pay the National Football League to be an authorized supplier of shoes players wear during games. Players can wear any brand of footwear they want, but must cover the logos of other companies.
It is the Baltimore company's most significant marketing deal yet. The company has relied mostly on cutting-edge television commercials, college team endorsements and a grass-roots following of fans to promote its products.
Exposure on the NFL field is likely to bring tremendous marketing benefits to Under Armour, which makes products that wick sweat away from the body, experts say. About 120 million people watch games on an average weekend during football season. Under Armour can also use the NFL logo to promote its footwear and has advertising and marketing commitments with NFL Network, NFL.com and the networks that air its games.
"The affiliation with an entity like the NFL gives exponential credibility to a brand that's on the rise," said Mike May, a spokesman for the Sporting Goods Manufacturing Association. "It's like a stamp of approval."
Under Armour also granted the NFL the option to purchase up to 480,000 shares of its stock for $36.99, the cost of the stock on the day the deal was signed Aug. 2. The NFL has 12 years to act on the option. Shares of Under Armour, which went public in November at $13, closed at $36.51 yesterday, down 78 cents.
Wall Street has shown some skepticism toward Under Armour's expansion into cleats because of their lower profit margin - the market is limited because they can't be worn off the field.
But sales of the cleat have exceeded projections since hitting the market June 3. Footwear sales, primarily of the cleats, were $15.6 million as of June 30, well above the $8 million to $10 million projected.
The company acknowledges that cleat margins are lower, but Chief Executive Officer Kevin Plank said yesterday that the company is laying the groundwork for a larger shoe business. There are plans to launch a baseball cleat later this year.
"We're creating a platform," said Plank, a former University of Maryland special teams captain who founded Under Armour in his grandmother's basement in 1996. "From the authenticity and credibility we gain on the field with the football cleats, it will give us the credibility to launch into other types of cleats."
Under Armour has had other deals with the NFL, though none as visible as its latest. The company was the official supplier of the NFL Europe league from 1998 to 2000. It also provides non-branded gear worn mostly under the uniform to 20 to 25 teams each year, Plank said. Reebok holds the exclusive apparel contract for the league. "This will be the first time our logo actually appears on the field," Plank said.
The NFL also has become increasingly selective. A decade ago the league had 450 licenses, but has whittled that down to about 100. Unlike in other sports such as baseball, which has ads scattered throughout the field, in football only a few names can be seen on the field: Gatorade on the water jugs, Motorola on the coach's headsets, Wilson on the football and Reebok on the players uniforms.
"The NFL provides the most valuable real estate in sports and programming," said NFL spokesman Brian McCarthy. "Fans watch the best athletes wearing the brand on Sunday and then go out and purchase it Monday. Companies pay significant money to the NFL for that kind of exposure."
McCarthy also said the league likes to buy equity in companies it believes have strong potential for growth. It has invested in both Reebok and Sirius satellite radio.
Although Under Armour is significantly smaller than its competitors, sports marketers said the NFL contract raises its standing in the market.
"This official partnership now puts them in the company of the Nikes and Reeboks of the world," said Shawn McBride, vice president of sports marketing at Ketchum, a marketing communications agency. "They're making a very strong statement with this one move that they're a very significant player in this space."