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

May 08, 2020
Hello everyone, welcome back to

case

studies with the business doctor. I'm Tom Ells

worth

. This week, another request from the audience. Well, in a way, they had applied to several 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 they 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 the beginning of the Air Jordan and the negotiation came into it, 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 were very, very different. things and this week there will be two main points and the first will be to have the guts to go big, but not so big that it kills you, but don't be afraid of big things, even if you are a small company.
air jordan s   how nike created a brand worth billions   a case study for entrepreneurs
There could be great deals your size that make a difference for you. Don't be afraid to do great things, but never let yourself be killed. The second would be to learn the art of negotiating with win-win steps and clauses that actually work for everyone, not every contract. It doesn't have to have anything but gimmicks and we'll see some of that this week, so now, let's dive into the negotiation and the history of how the Air Jordan shoe came to market and everything that went into getting there, first of all. Going back to many of you may be familiar with Air Jordan sneakers, there is a story that Air Jordans were once banned by the NBA, well in a way they were, that's not really the story, there is a little of folklore behind it.
air jordan s   how nike created a brand worth billions   a case study for entrepreneurs

More Interesting Facts About,

air jordan s how nike created a brand worth billions a case study for entrepreneurs...

Fans may remember that in the beginning there was 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, um, but it came down to that, the MBA in the same moment. At first they wanted all the teams to wear shoes that had a lot of white in the color of the shoe and they wanted the shoes to match the rest of the team and at the time Commissioner David Stern was not amused and he didn't like it. When Jordan came out on the court wearing some very dark black and red shoes that matched the Chicago Bulls colors, they actually looked pretty cool, they looked good, but it wasn't what the league wanted, so yeah, the League came out and said no.
air jordan s   how nike created a brand worth billions   a case study for entrepreneurs
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 with those Air Jordans. the court was fined by the NBA at the beginning of what would be the history of marketing and footwear going back in time. He graduates 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. Smith at the time had a contract with Converse and was paid about ten thousand dollars a year to get his team the University of North Carolina, Tar Hills, one of the three or four legendary programs in the history of college basketball, like Ucla , Kansas and Duke.
air jordan s   how nike created a brand worth billions   a case study for entrepreneurs
These were the legends of college basketball and for 10 grand you could get a coach in those days to make sure his players wore your shoes. It seems like a small amount of money today, but back then, I guess it was pretty impressive, however, Dean Smith received money. that's for conversation, but when michael

jordan

graduated he really wanted to be adidas, he loved adidas, he loved the

brand

, he loved some things about it, he wanted to be sponsored by adidas when he entered the NBA, but adidas had its own problems, as you can see in 1978, just a few years before, adi dassler, which is where adidas gets its name from, but he had passed away and his wife kathy ran the business, plus he had brought his son horst and his four daughters and they all ran various divisions of adidas . and to make things

worth

it all the sons in law married to those women were also involved so adidas didn't have all the direction addie dassler had given him because she had passed away to make matters worse now the mom , wife kathy. was going through health problems and was actually in very poor health and would pass away within a year, so adidas, the legendary adidas company, was not in a position in terms of leadership consistency to really sit down and make a real run with Michael Jordan, so disappointed. he and

jordan

's agent said let's talk to converse converse is sponsoring all of them it's basketball shoes let's talk to him jordan didn't really want to do that he didn't really want to do that he went to the meeting just because Dean Smith had a relationship with Converse and said, "Okay, my coach, the man I love the man who coached me, we won the national championship together." Okay, I'm going to go see Converse, so they're going to see Converse and Converse was very confident and they said look, we have magic, we have 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 in? They looked around and didn't offer much different response. They just said, Well, we know Mike's great, we'll treat him the same as the other pro players, a hundred thousand dollars a year and them. They were asking, well, is there anything else? Is there anything innovative? uh 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 it's a Magic Johnson deal. him like Larry Bird and give him a hundred thousand like them and he hasn't even walked on the NBA court yet, come on, this is what we're going to do and yet Jordan and his father weren't innovative at all, no.
No other ideas, there weren't any, so they left, so Converse didn't really have a chance and also at that time Converse was already losing ground because Nike was hiring trainers and doing better than Converse and other shoe companies . making advancements and converse was also the last to make innovative fabrics and doing things like making a basketball shoe out of pure leather was something that Nike had already been researching so actually converse was already kind of slipping into the background even though They saw themselves as the king, the next thing that happened is that they received a call from a very unusual source. o.j simpson o.j simpson was working for the

brand

built as a marketing consultant, it was part of his sponsorship deal with them because when he was in the nfl, the latter part of his time in the nfl he wore shoes that were called Juice Mobiles and that was their connection with Spot Bill, so they made these basketball shoes.
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, I was with Herch Rental Car, it was a very well-liked guy who had a very, very level reputation, so he had all kinds of endorsements and he was saying look at this guy from north carolina, michael jordan is the next me, that's what he said oj and in his consulting role, the sports belt said, listen, you have to go find this guy, so the vice president of marketing, who was the CEO's son. and the owner of sport bill says hello dad, what do we do? and he said: if that's the story and I believe it and I trust it, go find michael jordan and here's the quote, don't leave a dime at the door.
In other words, we're going to go get it, so Sport Bill wants to go out and get it, so Michael Jordan and his uh, his agent went to them and said, "We're going to make you the star of our company, you're going to be the marketing icon of our company". you're going to be everything and that was pretty impressive, but you know, Michael Jordan's heart was still with adidas and the sport built big and studded, but not exactly in other areas, so they let Michael Jordan's agent be the next to be part of the phone. calls and arrangements that would change the course of history in basketball shoes he talked to

nike

in basketball shoes and this is what he did he called

nike

and talked to rob strasser and he said rob I want to come in and see you and I'm bringing michael jordan and we want to talk about basketball shoes and rob strasser did a lot of big deals at nike and falk's agent michael jordan emphasized to him how big and important this was going to be.
Well, 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 crisis, they have these things going on, you know, the kids run the company, come on. Mike and he said no, you know I want to go see adidas. Well, Fox called Michael Jordan's parents, James and Dolores, and this is what he said. I need Michael to be at the meeting with Nike. I need you to go to Oregon and then you get a call.
He came back and said, "Okay, I'm going to Oregon, but my parents, James and Dolores, are coming with them and they all left when they got there, they met with Strasser, they also met with Peter Moore, a designer, and Howard White , Sonny Vicaro and Sonny Vaccaro.legendary and very well known because he was the guy 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 him and he was at the meeting with these guys. at the meeting and they explained it to him and they said this is what we're going to do for you and they played a video of a song called Jump by the Pointer Sisters and they put a lot into their presentation and Michael sat back and listened and then he said: "You know, one of the reasons I like Adidas is because they make a slightly lower cut shoe instead of the high ones that you made and instead of Nike telling them you're going to wear what we give you and that was nice." typical of what would happen with footwear contracts they said well tell me about it maybe we'll adjust maybe we'll design it differently and that impressed jordan because now they're talking about adapting the shoe to him not only do they want to put their name on it and give him They handed over a check.
They involved him in the shoe that impressed him and that would be important. They took a short break and went to a separate conference room and made even more presentations on how they would market it. and what they were going to do and the president of Nike, Phil Knight, came to speak and said his part and explained what they were going to do and a great meeting was had, but Jordan didn't say yes, at least not yet, he left with a offer and the offer he left was five hundred thousand dollars for five years a contract of 2.5 million dollars remember that magic johnson and larry bird were receiving one hundred thousand dollars each from converse and recently james dignified had gotten a deal from new balance for 180,000 this was an exaggerated contract, but it wasn't just that they said we think we're going to go far with you and we want you to participate in the benefits of Nike, we're also including stock that we're giving you. stock and Nike that could make this deal worth seven million dollars to you, so here was Nike putting up to seven million dollars on the table, something unheard of at that time, it was exaggerated, nothing could say that we love you more than that , but they also want to protect themselves and there's an important lesson here in the negotiation when Nike came back and said: we think you're going to be monstrous, we think this is going to be monstrous, but these are the criteria, if one of these things doesn't happen, we can get out of 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 in one of your first two years Then we might opt ​​to get out a little early in the contract, meaning they would put all these chips on the table and if he doesn't turn out to be this incredible basketball hero, this incredible star, they could come out okay, they looked at it and Michael Jordan's side said okay, so If he doesn't do those things, he can get out, but what if he does those things and we're still selling shoes and people like Mike and maybe he's?
You know, we think he'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 certain million dollars worth of shoes, we'll stay in the contract, so that was a good negotiating point." to say". I want you to do this but I have to do that and if I do that then you have to do it back and forth. That's a good two-party contract. It's not just I'm the boss. I'm writing the check here.
So never be afraid to find out how you can include win-win situations in your contracts and whether you are a small or large company, you can include clauses that really benefit you and your clients. business partner, so there it was, they left Nike with that deal and when they left, Jordan didn't say yes, he came home and ordered his agent to call Adidas and say, "Here's the deal, if I They offer something similar to this. I still sign with adidas because that's where his heart was. I guess it happened. Adidas couldn't do it and they weren't going to do it and they said that was it, so now they knew they were going to go.
Nike and the poor from uh spotbuilt, 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 making the shoe. They are going to adapt the shoe, they are putting marketing behind the shoe, they have a lot of marketing force, we are going with Nike, so they chose Nike and, by the way, speaking of marketing, one of the things that spoofed Michael Jordan's agent. What What they asked for in the contract was that they would spend a million dollars marketing the Air Jordan shoe.
Well, the season is moving forward now that we have all this negotiated. We have a star. We have slippers. We have everything set up. the season progresses everything went right even the things that went wrong went right the shoes that michael jordan wore on the court that eventually david stern then the nba commissioner said hey wait a minute you know all the shoes on the team have to match and those aren't the team colors even though they were the team colors, red and black, david stern just didn't like the fact that they were actually a lot of black and red and they were kind of dark sneakers, they didn't look like white . sneakers like before and he wasn't ready for that so he found them and that led to a TV commercial that was really funny and by the way, again, those were airships that had been designed and colored in the color of the latest . air jordan's black and red those weren't even the air jordan shoes that would eventually be on the market, which is a little trivial for you, but anyway Nike released an ad saying this on October 15th Nike

created

a revolutionary new basketball shoe on october 18th the nba took them out of the game fortunately the nba can't stop you from wearing them and all the kids wanted a pair of these air jordans can you imagine that marketing muscle that the nba said no, but that doesn't hold?
By using them, guess what Michael Jordan averaged 28.2 points per game in his rookie season with the Chicago Bulls and was the rookie of the year, so the contract was closed thanks to that performance and suddenly all the kids wanted to be like Mike and there are other things that part of this were really interesting not related to the negotiation, like Nike put those shoes at 65 a pair, which was unheard of, you know, you know, there are so many things in this story that are unheard of, you know , 65 basketball shoes 19 You know, 85, I mean, that really revved up some parents.
Well, apparently not all parents were encouraged because some of the parents paid because Nike sold Air Jordans worth 70 million dollars at the end of the basketball season and over a hundred million. dollars in total Air Jordan shoes and merchandise that year and then that annual report, Phil Knight said something I love this quote because he's a marketer and I came from marketing when I graduated school, you know what? This was the perfect combination of a high-quality new product, our marketing, and the endorsement of an athlete, and it was an athlete that matched because Michael Jordan cared about performance, he cared about scoring, but he was also a wonderful, compelling personality. who had won a national championship in North Carolina and was a good guy.
He was a good guy and he was a great competitor and you would see him dunking with his tongue hanging out, he was an icon of the game so fast and Nike's Sonny Vaccaro was right, he's the guy, he's the guy, he's the guy he is. what sonny vaccaro would say over and over again this is our guy this is the good guy how has he been doing since then? That's a great story about $70 million 28.2 points rookie of the year 84.85 you already know the iconic Jumpman logo in 23. but where? Did they go from there? Let's take a look at some stats now to see how massive this brand has become today.
Air Jordans represent 58 percent of the basketball shoe market. That's pretty surprising. They are 85 percent of basketball shoes over a hundred dollars. 77 of the basketball shoes for children under 18 years of age. These look at these dominant 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, all these teenagers. It's like wearing Air Jordans and it's a brand and it's transcended its athletic career to become this enduring brand of athletic shoes, basketball shoes and, by the way, speaking of shoes, if you take the Air Jordan brand and compare it to the total market of footwear in the United States.
The total shoes represent 10.8 percent of the footwear market in the United States and by the way, they sell eight times more than Lebron James eight times when you think about Lebron James and being a current basketball icon and in the success he has and in his return. cleveland and winning for the city and all the things it does and air jordan still sells eight times lebron james there's only one word for that and that's fucking amazing, equally amazing is that air jordan within a year will potentially surpass 3 billion dollars per year in sales revenue is amazing and it's an amazing story, well that's this week's case

study

and that's how the deal came together between michael jordan and converse and adidas, nike and sportville that brought us the air brand jordan, it was a brand that got

created

by Nike that did everything possible to win and those two points stand strong, have the guts to go big but don't be so big that it kills your company but you don't have to be as big as Nike to make a big deal that maybe puts your company on the table and takes it further, but don't kill yourself and point two in the art of negotiating find ways to take steps where everyone wins because That's how some of the best deals in history, like the original contract for Air Jordan, were made, so that's this week's story.
Now I need the pillow. Pillow. Here we go. Subscribe to Valuetainment for more business doctor case studies and the best internet content for

entrepreneurs

until next time. I'm Tom Ellsworth and I hope I left you better than I found you.

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