Stars, jerseys, shoes and stocks?

US company Nike first entered the gear market for the world’s most popular sport in 1994 when the US was hosting the World Cup. Since then teams wearing Adidas have twice won the cup (Spain 2010, France 1998). Teams sponsored by Puma (Italy 2006), Nike (Brazil 2002) and Umbro (Brazil 1994), (whom Nike have since acquired) have each won the title once.

It is a major priority to these companies to secure their market share in the football industry. Competition has intensified, particularly since Nike entered the football gear market. This is reflected in the number of teams each company sponsors. This year for the first time Nike equips the largest number of national teams, with a total of ten. Adidas and Puma each sponsor eight teams. The main sports clothing companies also enter into individual contracts with major football idols. Nike supplies footwear to Cristiano Ronaldo, Adidas to Lionel Messi, and Puma to Mario Balotelli.

According to the bookmakers, the Brazilian team, which is equipped by Nike, are the favourites, followed by Argentina, Germany and Spain, which are supplied by Adidas. Italy, sponsored by Puma, is ranked in fifth place.

Marketing Strategies around the World Cup

It is widely believed that the supplier to the winning team for the World Cup can also expect a boost on the equity markets. The winning company will indeed sell significantly more football kits and associated footwear. Unfortunately, this does not translate into a significant market event. Even if a World Cup victory leads to increased sales, this is simply a once-off factor in the valuation of the company, not a recurring source of income.

The winner on the playing field is not necessarily the financial winner. In the battle for market share, one must also equip teams and players who may turn out to be popular and successful in the future. Amateur and young players across the world prefer to wear the kit and footwear of their idols. Nike has made enormous efforts to catch up with the market leader, Adidas. Nike had about 1.4 billion euros of football-related sales in 2013. Adidas plans on selling about 2 billion euros of football articles during the World Cup and in the aftermath.

The sporting goods companies pursue opposing marketing strategies. Adidas has been FIFA's official partner since 1956. The company is therefore traditionally associated with the World Cup. This year's "Brazuca" football, which is not regarded as a bargain at a suggested retail price of 129.95 euros, is nevertheless finding millions of buyers. Its predecessor, "Jabulani," sold 15 million. As an official sponsor of FIFA, the Adidas name will be prominent on FIFA products all through the period of the World Cup, and will be seen in all stadiums and TV broadcasts.

Not so for Nike: The company's entry into the football business is legendary, due to its “ambush” tactics. In “ambush” marketing, a company tries to achieve a high media presence during a major event - without having secured any official sponsorship. Nike was not actually represented on the field in the 1994 World Cup final between Brazil and Italy. They gave away baseball caps with the well-known Nike swoosh at entrances to the stadium; spectators gratefully accepted them in the hot weather, and wore them into the stadium. Nike achieved high media presence at a very low cost. We also may recall how Mario Goetze wore a large, printed Nike T-shirt as he presented himself as a new player at Adidas-sponsored Bayern Munich.

Innovation in the Sporting Goods Industry

The innovative power of a company in an increasingly networked world is the decisive sales driver, not major sporting events. Sporting goods companies are changing from a product provider to a lifestyle companion for their customers. Integration of sports into smartphones and apps is playing an ever-greater role.

Sporting goods manufacturers are also competing against technology companies which are also bringing new products to the market in this segment.

Large corporations are investing enormous sums in research on innovative hardware and software. Adidas spent about 128 million euros on R&D in 2013. Smaller manufacturers such as Asics, specializing in running shoes, have much smaller budgets. Asics spent about 8.3 million U.S. dollars in 2013.

Examples of new technology developments include the MiCoach system from Adidas, and the Nike+. Customers can measure and record their sports activities with integrated chips, and share them on social networks. Asics has similarly developed its My Asics app for training. Fitness bracelets, offered by technology companies such as Sony and Samsung, pursue a similar strategy. The common thought in most of these platforms is to integrate the customers into a community, and therefore enhance loyalty to the producer.

Sporting Goods Manufacturers to Invest in during the World Cup

The share prices of sporting goods companies do not therefore revolve around the World Cup. After very good stock performances for both Nike and Adidas in the past year, these stocks are currently in a consolidation phase. Nike is priced fairly high now. Adidas is suffering from the weaker ruble, with exchange rate fluctuations, and depends upon political developments in Russia, an important market for the company. After a difficult first quarter, expectations for second quarter results have risen significantly for Adidas. Basically, no price increases are to be expected during the World Cup; in Adidas' case, a good second quarter after the weaker start of the year could provide a certain price impetus.

Over the short term, it makes little sense to invest in sporting goods manufacturers in the wake of the World Cup. First, medium-term trends, such as the current exchange rate weakness in the ruble for Adidas, are more relevant. On the other hand, manufacturers are now much more balanced in their product range. Thus even in non-World Cup years they offer a broad range of innovative products, which contributes to continued growth. One can see this by comparing marketing budgets in World Cup and non-World Cup years; the budgets remain relatively constant – only the focus shifts.

So, when Brazil and Croatia open the 20th World Cup on June 12th, sports-crazy investors should sit back and just enjoy the show.