James' $90M deal poses huge risks for Nike, industry

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LeBron James' seven-year, $90million endorsement pact with Nike, signed before he logs a single minute of NBA time, clearly signifies one thing: The mega-endorsement deal for pro athletes is back.

Five years ago, all of corporate America, particularly athletic shoe companies, were shedding celebrity endorsers as fast as possible. Basketball shoes were "out" with kids. Brown shoes of all types, particularly hiking boots and skateboard shoes, were "in." Reebok, amid plummeting sales and a precipitously falling stock, cut ties with more than 700 athlete endorsers in a single calendar year. Nike similarly slashed its endorsement budget. Even reigning NBA superstar Shaquille O'Neal couldn't get a shoe deal.

Fast forward to the present. The U.S. athletic shoe market, amounting to $15.7billion in retail sales in 2002, has posted three straight years of modest revenue growth. And James' Nike deal caps a 30-month period in which tennis phenom Venus Williams and NBA stars Allen Iverson, Vince Carter and Tracy McGrady all signed or renegotiated shoe endorsement pacts worth well into eight figures.

Beyond that simple truth, however, the marriage between Nike and the unproven James poses huge risks and plenty of pressing questions for both sides and the sports industry at large.

Will the next prep superstar demand an even bigger deal? What about established NBA stars currently without shoe deals, such as three-time NBA champion Kobe Bryant and Yao Ming? What happens if James is merely good, or even great, instead of transcendent? Does James really have the sales cache to become a new cultural icon, or simply move $90million worth of product? Can he live up to the pressure and expectations the deal immediately creates?

"LeBron, in terms of image on the pro level, is an unmolded piece of clay. He's a blank canvas," said David Carter, a Los Angeles-based sports consultant and lecturer at the University of Southern California. "Yet another question is whether this deal is more about sales and market share, or mindshare and branding."

Nike, for its part, isn't saying much besides being thrilled to have James aboard.

"LeBron has obviously captivated the country and we think he brings us a youthful energy," said Nike spokesman Celeste Alleyne.

James' deal is even more staggering when compared to other massive sports endorsement pacts. The contract more than doubles a $40million deal Reebok has with Venus Williams, arguably the dominant female athlete on the planet outside of sister Serena. James also nearly doubles a $50million deal between Reebok and Iverson, the only other player besides Michael Jordan to sell any truly significant quantities of a signature basketball shoe.

Syracuse star and NCAA champ Carmelo Anthony, who will either be the No.2 or No.3 pick in next month's NBA Draft behind James, also signed last week with Nike for an estimated $3.5million a year, or less than a third of James' annual take. Some NBA scouts project Anthony will be a better pro than James.

And then there is Tiger Woods, Nike's other major endorsement property, who now barely tops James in Nike earnings. Woods signed a five-year, $100million extension to his Nike deal in 2000, just after he won his fifth major and became the youngest golfer ever to complete a career Grand Slam.

Nike also signed Woods and Jordan to then-startling endorsement deals the moment they turned pro. But Woods and Jordan entered those contracts with truly substantial amateur resumes. Woods won an unprecedented three straight U.S. Amateur titles and NCAA Player of the Year honors in 1996, and played six majors as an amateur, making four cuts.

Jordan, meanwhile, was a two-time All-American at North Carolina, the 1984 NCAA player of the year, and led a gold medal-winning Olympic squad before joining Nike and the Chicago Bulls.

James, by comparison, has won Ohio prep player of the year honors three times and his team is a state champion, including an undefeated run this past season. But his basketball career to date, like any prep player, shows no meaningful, regular competition on a top-flight national or global stage. And no player jumping straight from high school to the NBA, even Bryant, has dominated in their first two seasons.

As a result, Nike's startling investment in James owes to a desire to make further inroads with young shoe buyers, a jealous protection of its 39 percent market share, tops in the industry, and a desire to have a tougher, more urban figure on its endorsement roster to counter Reebok and Iverson.

Even if James does not become an instant NBA All-Star, he already leads the league in TV-fueled hype, a tough feat given the league's penchant for personalities and propaganda. And that hype, instead of talent or accomplishment, sometimes means much more in a fickle marketplace.

"If you're No. 1 in a still somewhat flat market, you want to keep that market share, and more importantly, you don't want to hand an opportunity for market share directly to your competitor," said Bob Williams, president of Illinois-based Burns Sports & Celebrities, which brokers endorsement deals. Both Reebok and Adidas actively sought a deal with James.

"Even with all that in mind, this is very risky. It's just so hard to dominate in today's NBA. This is going to be either a brilliant move or a terrible move for Nike. I don't see any in-between," Williams said.