Air Jordan's - How Nike Created a Brand Worth Billions - A Case Study for Entrepreneurs

hi everyone welcome back to the

case

studies with the doc biz this week it's tom ells

worth

another request from the audience ok they had more or less asked multiple companies and one of them was

nike

i know a lot about

nike

i used to wear nike running shoes growing up and i also knew a lot about Nike and you know their tiger woods line and golf clubs that eventually got out of the golf equipment business but there were a lot of

case

studies in there but one stood out to me and it was It was the beginning of Air Jordan and the negotiation started, so this week we're going to dive in and see how the negotiation played out and how what Jordan wanted and what Mike ended up with was very, very different. things and this week there will be two central points and the first one will be to have the guts to go big but not so much that it kills you but don't be afraid of the big deal even if you are a small company there. there could be great deals on your size that make all the difference for you d Don't be afraid to go big, but never let them kill you.

The second would be to learn the art of negotiating with steps and win-win clauses that really work for everyone. Not all contracts have to have nothing more than traps and we'll see. some of that this week so now we're going to dive into the deal and the story of how the Air Jordan shoe got to market and everything that went on to get it there first of all we go back to a lot of you who may be familiar with the air

jordan

shoe there is a story that once air

jordan

s were banned by the nba well in a way that's not really the story there is a bit of folklore behind it that fans may remember that in the beginning there was like a five thousand dollar fine that happened a couple of times and yes there was some of that but there is truth and fiction in the whole story but it all came down to the MBA from the start wanting all teams to wear shoes that they had a lot of white in the shoe color and they wanted the shoes to match the rest of the team and at that point commissioner david stern wasn't amused and didn't like it when jordan walked out on the court in black and red shoes m oops dark that matches the chicago bulls colors actually they looked very attractive they looked good but it wasn't what the league wanted and yeah the league came out and said no no we don't want there , so you can read many versions of that story. and many things but that was the first day on the court but let's go back in time to find out how Michael Jordan ended up in those Air Jordans on the court and was fined by the NBA at the beginning of what would be marketing and shoe history. going back in time he graduated from the university of north carolina the university of north carolina was coached by dean smith a hall of fame person and a hall of fame coach dean smith at the time had a contract with converse and he was paid about ten thousand dollars a year to get his team university of north carolina tar hills one of the three or four legendary programs in college basketball history with like ucla and kansas and duke these were the legends of college basketball and for 10k you could get a coach back in those days to make sure his players wore your shoes seems like a small amount of money today but back then that was pretty impressive however Dean Smith got paid for that for Converse but when michael jordan graduated he really wanted to be an adidas, he loved adidas, he loved the

brand

he loved. stuff about it he wanted to be sponsored by adidas when he got into the nba but adidas had their own problems you see in 1978 just a few years before adi dassler where adidas gets its name from but he had passed away and his wife kathy. he ran the business, plus he had brought his son Horst and four daughters with him, and they all ran various divisions of adidas and to make things

worth

while, all the sons-in-law married to those women were also involved, so adidas didn't have all the address that Addie Dassler had given him because he had passed away to make matters worse now that the mother wife Kathy was in poor health and in fact very poor health would pass away within a year, so adidas, the legendary company, adidas was not in a position in terms of leadership consistency to really sit down and make a real run on michael jordan this let him down and jordan's agent said let's talk to converse converse is sponsoring everyone it's the basketball shoes let's talk to him jordan he really didn't want to do that he really didn't want to do that he went to the meeting just because dean smith had a relationship with converse and he said okay my training dor the man i love the man who trained me we won the national championship together ok i'm going to go see converse so they're going to see converse and converse i was very um very confident and they said look we got magic we got a larry bird, we. have dr j we have people like mark aguirre we have all these players we are the basketball shoes and we are the kings of basketball shoes and michael jordan was there with his father and they asked well where does michael fit and they looked around and said they didn't offer a very different answer, they just said well we know we know Mike is great we'll treat him like we do the other pro players one hundred thousand dollars a year and they were asking, well is there anything else? something innovative huh and now on the opposite side they're thinking wow what's wrong with this guy we're going to teach him you know we're going to treat him excuse me like magic johnson treat him like larry bird and give him a hundred thousand just like them and he didn't even he's walked the court in the nba but come on now this is what we're going to do and still jordan and his dad weren't like anything innovative no other ideas no there wasn't so they left. so converse didn't really stand a chance and also because of t At the time converse was already losing ground because Nike was signing trainers and doing better than Converse and other shoe companies were dabbling in and Converse was also the latest to do innovative fabrics and do things like make a basketball.

The pure leather shoe was something Nike had already been looking into so actually Converse was already slipping into the background even though they saw themselves as king the next thing that happened they got a call from very unusual font o.j simpson o.j simpson was working for spot built

brand

as a marketing consultant it was part of his endorsement deal with them because when he was in the nfl the last part of him in the nfl wore cleats that were called juice mobiles and that was his. Spot Bill connection so they made these basketball shoes uh they made these soccer shoes for OJ and OG says we have to make basketball shoes for Michael Jordan and let me tell you I know something about marketing because I'm everywhere and in those days O.J was everywhere.

He was with Herch Rental Car. He was a very well-liked guy who had a very, very high reputation, so he had all kinds of sponsorships. saying look at this guy from north carolina michael jordan is the next me that's what he said oj and in his consultant role sports belt he said listen you gotta go find this guy so the vice president of marketing, who was the son of the CEO and owner. from sport bill says hey dad what do we do and he said yes that's the story and i'm believing it and i trust you go find michael jordan and here's the quote don't leave a dime at the door in other words let's go find him for that the sport bill wants to go out looking for it and then michael jordan and his uh his agent went to see them and they said we will make you the star of our company you will be the marketing icon of our company you will make it everything and that was pretty impressive but ya you know the sport built t versus adidas michael's heart was still with adidas and the sport built big and cleats but not exactly in other areas so they let michael jordan's agent then do some of the phone calls and fixes that would change the history course in basketball shoes spoke to nike with basketball shoes and this is what he did called nike and spoke to rob strasser and said rob i want to come see you and i will bring michae l jordan and we want to talk about basketball shoes and rob strasser did a lot of big deals at nike and falk michael jordan's agent stressed to him how big and important this was going to be good he calls michael and michael says i don't want to go see nike i don't want to go to any more meetings i want you to call adidas and get me adidas he says look they're in a mess they they have these things going you know the kids are running the company come on mike and he said don't you know i want to go let's see adidas alright fox named michael jordan parents james and dolores and this is what he said i need michael to be at the meeting with nike i need him to go to oregon so he gets a call and says ok i'm going to oregon but my parents james and dolores come together and they all went when they got there they met strasser they also met peter moore a designer and howard white and sonny vicaro and sonny vaccaro now he is legendary and well known because he was the ti po who said this is the guy michael jordan is the guy and he's going to be a big hit for this company and we're going to get it and he was at the meeting these guys were at the meeting and they explained it to him and they said this is what we're going to do it for you and they put on a video of a song called jump by the pointer sisters and they put a lot into their presentation and michael sat and listened and then he said you know one of the reasons i like adidas is because they do a a little bit lower cut shoe instead of the high tops you did and instead of Nike telling them okay you'll wear what we give you and that was pretty typical.

What would happen with footwear contracts. They said, well, tell me about that. Maybe we'll adjust that maybe we'll design it differently and that impressed Jordan. because now they're talking about fitting the shoe for him they don't just want to put his name on it and give him a check they got him involved in the shoe that impressed him and that would be important they took a little break and went to a separate conference room and did even more presentations about how they would market it and what they would do and the president of Nike Phil Knight came in to talk and said his part and explained what they were going to do and they had a great meeting but jordan didn't say yes at least he still walked away with an offer and the offer he left was five hundred thousand dollars for five years a contract of 2.5 million dollars remember magic johnson and larry bird were receiving one hundred thousand dollars each from converse and recently james worthy had reached an agreement with new balance for 180,000 This was an over the top contract but it wasn't just that they said we think we're going to go places with you and we want you to be a part of Nike perks.

We also include actions. We give you stocks and Nike. That could make this deal worth seven million dollars to you. in those moments it was over the top nothing could say we love you more than that but they also want to protect themselves and here's an important lesson in negotiation here when Nike came back and said we think you're going to be monstrous we thought this is going to be monstrous but this is the criteria if one of these things doesn't happen we can cancel the contract early if you don't win rookie of the year if you don't get named to the all-star team if you don't average 20 points a year 20 points per game rather in one of your f The first two years we could opt to go out a little bit early in the contract, which means they put all these chips on the table and if it doesn't turn out to be this incredible basketball hero, this incredible star, they could turn out well, they looked. on that and the michael jordan side said okay so if he doesn't do those things he can leave but what if he does those things and we still sell shoes and people like mike and maybe he's, you know, We think it's going to be huge, but what if he's an average player, but people love him and he sells a lot of shoes and they said okay, so if he sells a minimum level of a certain million dollars worth of shoes, we'll keep the contract, so that was a good bargaining point? say i want you to do this but i have to do that and if i do that then you have to do that back and forth that's a good two part contract that's not just i'm the boss i'm writing the check here it is so you never have afraid to figure out how you can put win-win situations in your contracts like that and whether you're a small company or a large company you can include clauses that really benefit you and your business partner so that's where they left Nike with that deal and when they left, Jordan didn't.

I didn't say yes. He came home and instructed his agent to call adidas and tell them this is the deal. If you offer me something like this, I'm still signing with you adidas because that's where his heart was. Guess what happened. Adidas couldn't. They didn't do it and they weren't going to do it and they said that's it so now they knew you know they were going to go with Nike and the poor guys in uh built place believe it or not they offered more cash than nike they were ready to just kill the company to get michael jordan but they said no we're not going to do that nike is doing theshoe, they are going to adapt the shoe, they are putting marketing behind the shoe, they got a lot of marketing muscle let's go with nike so they chose ni ke and by the way speaking of marketing one of the things michael jordan's agent falk what was asked in the contract was that they would spend a million dollars on the marketing of Air Jordan shoes Well the season starts now We have all this negotiated We have a star We have shoes We have everything ready and the season progresses everything went well even the things that went wrong did alright the shoes that michael jordan wore on court that finally david stern then the nba commissioner said hey wait a minute you know all team shoes have to match and those aren't team colors even though they were team colors red and black team david stern just didn't like the fact that they were actually a lot of black and red and they were sort of dark sneakers that didn't look like they were white sneakers like they used to and he wasn't ready for that so he found them and that led him to a tv commercial which was really funny and by the way again those were airships that had been designed and colored with the color of the latest black and red air jordan's those w not even the air jordan shoes that would eventually be on the market, which is a bit trivial at heart for you, but nonetheless, nike put out an ad and it said this on oct 15th.

Nike

created

a revolutionary new basketball shoe on October 18. The nba threw them out of the game, luckily the nba can't stop you from wearing them and every kid wanted a pair of these air jordans. Can you imagine that marketing muscle, the nba said no, but that doesn't stop you from using them I guess. Michael Jordan averaged 28.2 points per game in his rookie season with the Chicago Bulls and he was rookie of the year, so the deal went down because of that performance and all the kids suddenly wanted to be like Mike and there are other things who are part of this. which were really interesting not bargain related like Nike put those shoes in 65 a pair that was unheard of you know there's so many things in this story that are unheard of you know 65 basketball sn eakers 19 you know 85 I mean it really made some parents to speed up, apparently not all of the parents were speeded up because some of the parents paid because Nike sold $70 million worth of Air Jordans at the end of basketball season and over a hundred million dollars total worth of Air Jordan shoes and merchandise that year and then that annual report Phil Knight said something I love this quote because he is a marketer and I come from marketing when I graduated school it was the perfect combination of a high quality new product our marketing and the backing of an athlete and he was an athlete that matched because michael jordan was about performance, he was about scoring, but he was also this wonderful personality and convincing that he had won a national championship in north carolina and he was a good guy he was a good guy and he was a great competitor and you would see him dunking with his tongue out he was an icon of the game so fast kly and sonny vaccaro from nike they were right he's the guy he's the guy he's the guy that's what sonny vaccaro would say over and over again this is our guy this is the good guy how's it been since then that's a great story about 70 million dollars 28.2 points rookie of the year 84.85 you know the iconic jumpman logo at 23. but where did they go from there?

Let's take a look at some statistics now to see how massive this brand became today. That's pretty amazing, 85 percent of basketball shoes are over a hundred dollars and 77 percent of basketball shoes for kids under 18. These look at these domineering figures, and by the way, kids under 18 have only seen Michael Jordan movies. he retired a long time ago they haven't seen him play live with all these teenagers they're like wearing Air Jordans and he's a brand and he's transcended his athletic career to become this enduring brand of athletic shoes, basketball shoes and by the way , sp Shoe production if you take the Air Jordan brand and compare it to the total shoe market in the United States.

Total shoes is 10.8 percent of the shoe market in the United States and by the way sells eight times what Lebron James does eight times when you think about lebron james and being a basketball icon today and in the success he has and coming back to cleveland and winning for the city and all the things he does and air jordan still sells eight times lebron james there's only one word for it and that's amazing equally amazing air jordan a year from now it's going to top potentially 3 billion dollars a year in sales revenue is unbelievable and it's an unbelievable story well that's the case

study

this week and that's how the deal between michael jordan and converse and adidas and nike and sportville plays out they came together and brought us the air jordan brand it was a brand

created

by nike that did everything to win and those two points stand out have the guts to go big but not enough guts to kill your company but you don't have what to be ta n big like Nike to make a big deal that might put your company on the mat and take you further, but don't Don't kill yourself and point two in the art of negotiating find ways to take win-win steps because this is how some of the best deals ever are made like the original air jordan contract so that's this week's story now i need the pillow the pillow here we go subscribe to valuetainment for more case studies of the biz doc and the best content on the internet for

entrepreneurs

until next time i'm tom ellsworth and i hope i left you better than i found you