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Why Nike Should "Just Do It:" Dump Tiger Woods

Nike's chief executive Mark Parker deftly putted when asked by an analyst on the second-quarter earnings call to comment on the Tiger Woods "situation," declining to say what adverse impact the celebrity golfer's acknowledged marital infidelities might have on sales trends. Nor would he address the future visibility of Woods as a Nike (NKE) spokesman. An assessment of the company's operating segment data from recent years suggests that the bottom line might actually benefit if this global leader in athletic apparel and footwear dropped Tiger as a celebrity endorser.

Notwithstanding the difficulty in measuring the quantitative effect of Tiger's celebrity endorsement on Nike's return on investment (ROI) -- as the company does not break out line-item sales of NikeGolf products, such as wedges and woods, carried in Tiger's golf bag -- it is accepted by most observers that Nike's successful entry as a credible brand into the competitive world of golf-related sales parallels its prescient signing of the then 20-year old PGA Tour rookie (to an initial $40 million five-year endorsement deal) back in 1996. Before Tiger, Nike was principally known for its running shoes and Air (Michael) Jordan basketball sneakers. Tiger helped to break new ground: successfully communicating that Nike was more "than the shoes" (to paraphrase a 1991 Michael Jordan ad). Golf apparel and related accessory sales rose from some $120 million in fiscal 1996 to approximately $500 million in 2005 (which by then also included "Swoosh" brand expansion to golf balls and other equipment items).

Under stress to maintain profitability, Nike extended its 2001 five-year endorsement deal with Tiger (worth a reported $100 million -- based on minimum guarantees) for another five years in 2006, according to Sports Business Radio.

Asked also about the insight behind sponsorship deals in general on the earnings call, CEO Parker said the company considered both the experienced feedback provided by athletes in fueling product innovation and the economics of the endorsement deals. Not to knock a guy when he's down, but in hindsight the high price tag needed to resign Tiger back in 2006 fails the ROI test: NikeGolf sales, which peaked in fiscal 2008 (ended May 31) at $725.2 million, slid back 11 percent in 2009 to $648.3 million, according to the 2009 earnings filing with the SEC. Revenue also declined for the six-months ended November 30, but by how much the company would not specify.

Should one blame the sales decline on the lousy economy or Tiger's knee-surgery, which sidelined him for the "back-nine" of 2008? Then again, Converse sales rose 26 percent to $915.3 million and U.S. footwear sales eked out a five-percent gain in sales to $4.5 billion ended May 31 (driven by stronger demand for the 25-year old Air Jordan brand).

Consistent with this ROI principle, too, one also has to question whether the $200 million (plus) in endorsement guarantees made to Tiger in the last decade have effectively influenced the desired audiences. No doubt that prior to his marital indiscretions Mr. Woods helped to create a positive perception of NikeGolf brands to an already focused set of customers (middle-age white guys). What is less clear, however, is whether Tiger has helped to materially expand market reach (and growth) to younger golfers.

The Tiger Woods scandal reinforces a recognized danger of celebrity endorsements -- in a crowded and competitive market (like golf), the sponsor will often leverage the myth of celebrity personality to try and raise product(s) profile above total brand clutter in the market.

Will Tiger's continued relationship with Nike prove toxic to NikeGolf brands and sales? "The man who can smile when things go wrong has thought of someone else he can blame it on, " said American writer Robert Bloch (the author of Psycho). When Nike reports its third-quarter earnings on March 17 we'll see how much CEO Parker is smiling.