In today’s Finshots, we dive into Adidas’ leap of faith in the cricketing world. But before that, a quick update on what happened yesterday. So there was a little issue with our backend systems and we couldn't send the newsletter. But the fact that so many people wrote back to us with concern also showed us the kind of love this newsletter receives on a daily basis. It really is heartwarming. We had people text us on Ditto (our insurance platform) asking if everything was okay.
Everything is okay :) It was a small technical issue. That's all.
Also if you still want to read yesterday's issue, you can do so here. It's about beedis. And with that, let's get on with today's story shall we?
If you’re a sports apparel company, there are probably two things at the top of your list.
- You want your logo to be on the one piece of prime real estate in sports — the jersey of a major sports team.
- You want an iconic athlete to be your brand ambassador and sport your stuff.
Sure, you can splash ads about your products on TV too. But it’s simply not the same as being directly associated with the sport. And the simple reason is that sports fans can be quite fanatical about their teams and their favourite players. This loyalty then translates into better monetisation potential because fans tend to shell out a lot of money to get their hands on their favourite merchandise. Ka-ching!
For instance, in 2018, when Cristiano Ronaldo signed with the Italian football club Juventus, it was a huge boost for Adidas who sponsored the kit. Within 24 hours, fans bought over 500,000 jerseys with the Ronaldo name. And that alone led to €60 million in sales for Adidas.
Then there’s the legendary Nike and Michael Jordan partnership forged in 1984. The American sporting company snapped up Jordan even before he’d ever played a game in the NBA. They even gave him his own line of sneakers. And boy did it pay out. The signature Air Jordan brought home $100 million in just the first year of launch. And today, the sub brand makes Nike a whopping $5 billion each year!
Which brings us to India. Now if you’re an international sports apparel company set to launch in the country, the sport you’d pick was a no-brainer. It’s cricket, of course.
So when the German sporting giant Adidas launched in India in 1995, it was basically a toss up between getting their three-stripes logo on the jersey of the Indian cricket team or associating with a player who was bigger than the sport itself. Needless to say, they went after Sachin Tendulkar. A decade later, they even got Sachin to ditch his iconic MRF bat in favour of an Adidas one.
But now, after nearly 2 decades of dealing with individual cricketers, Adidas is taking the next logical step. They’re going after the full Indian team!
Yup, they’ve snapped up the kit sponsorship rights for the next 5 years. The rumour is that it’s worth ₹250 crores. And a key component of this will be a fee of ₹75 lakhs per match.
So, the big question is — will this deal make any money for Adidas?
Well, the company certainly thinks so. That’s why they’ve signed the dotted line, no? But, here’s the thing. While cricket might be to India what football is to England and basketball is to the US — it may not be very easy for Adidas to make much money.
Just look at Nike’s experience.
When the American sports company entered India in 2004, they decided to do what Adidas hadn’t done thus far. Instead of trying to bag an iconic player (at that time, the Michael Jordan-esque bet in Indian cricket would’ve been MS Dhoni), they went after the whole team. When the Board of Control for Cricket in India (BCCI) invited bids for the kit sponsorship, Nike splashed nearly ₹200 crores for the rights to get the swoosh on the Indian jersey for the first 5 years. Nike’s bid was actually 60% higher than Adidas’ bid back then. They renewed the contract in 2011 for another ₹270 crores. And then again in 2016 for ₹370 crores.
For 14 years, it was Nike all the way.
They were there on the jersey when India won the inaugural T20 World Cup. The swoosh was prominent on the sleeves when India won the ODI World Cup in 2011 too. Nike simply couldn’t have timed their association with the team any better. It should’ve been a merchandise sales bonanza.
But…In 2020, Nike backed away. They didn’t want to sign another contract even though they could’ve got it for cheaper. While Nike paid ₹80 lakhs per match in the previous contract, it would now be available for ₹65 lakhs. It didn’t sway Nike.
Now the only plausible explanation is that the association with the Indian cricket team actually hadn’t moved Nike’s topline needle all that much in those 14 years.
But why? In a cricket crazy country like India, wouldn’t merchandise sales have skyrocketed during this period?
Well, think about how affordable Nike products really are. Apparently, Nike’s Indian team jersey launched at a ₹3,000 price point and by the time the contract ended, the price had jumped to ₹5,000. There simply wasn’t a big enough audience who’d shell out that much money for a jersey.
I mean, if you’ve ever been to a cricket match in India, you’ll know what we’re talking about. Most people turn up at the stadium and simply pick a knock-off jersey that’s sold by people outside. You won’t find too many people donning an authentic, branded jersey and walking around.
Most people don’t buy the apparel for Nike or Adidas. They buy it because of their love for the Indian cricket team. Just to show support.
And not to forget that, apart from the fees being paid to the BCCI, there was a whole host of other costs too. Here’s what The Playbook wrote a couple of months ago.
“The math just doesn’t make sense. You have to spend ₹50 crore-₹70 crore a year on the sponsorship and another ₹20 crore-₹30 crore to market it. You also have to provide the kits to the players and staff for free — new kits after every three matches. You have to customise the sizes according to each player’s demands. If they’re going to a cold country, you have to change the kit and give them all full-sleeved jerseys, sweaters, jackets… it turns out to be as expensive as the actual sponsorship cost. And you also have to manage all the logistics on top of it. You’ll need to hire a separate team for it.”
So for Nike, it seems like being the Indian cricket team’s kit sponsor simply wasn’t very profitable. And it seems like it’s going to be an uphill climb for Adidas too.
PS: While this story is about kit sponsorships, we’ve written about shirt sponsorships in the past too — when fintech firm Slice paid ₹90 crores to get their logo on the Mumbai Indians’ jersey.
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