Nike Inc has spent hundreds of millions of US dollars on celebrity athlete endorsements over the years, adding its trademark "swoosh" to stars like Michael Jordan and Tiger Woods.
But signing high school basketball phenomenon LeBron James to a contract worth more than US$90 million is a rare move for Nike, considering its latest pitchman has yet to step onto the court as a professional.
"There's no question about it, there is a tremendous risk here," said John Horan, publisher of the Sporting Goods Intelligence newsletter.
The Beaverton-based athletic shoe and clothing maker signed the 18-year-old James to a seven-year endorsement contract on Thursday. Later, the Cleveland Cavaliers won the NBA draft lottery; they're expected to select James -- who's from Akron, Ohio -- in the June 26 draft.
Nike is playing for big stakes -- an US$8 billion market for athletic shoes in the US. By outbidding rivals Reebok and Adidas for James, Nike hopes to block erosion of its US market share for basketball shoes, which depends almost entirely on teenage boys, said David Carter, a University of Southern California sports marketing professor.
If the James endorsement deal helps Nike preserve just 1 percent of that market share, the company breaks even, Carter said.
"So when you're talking US$90 million, the question is, would you bet 1 percent of your market share on LeBron James? Absolutely," Carter said.
The deal might make financial sense, but now an awful lot is riding on a very young man who won't have the benefit of working on his game in college. Paul Swangard, managing director of the Warsaw Sports Marketing Center at the University of Oregon, called the deal an "act of faith."
But he said the deal was so important that Nike founder and chairman Phil Knight was brought in to close the deal, showing James how the company could create an entire line of products around him, as it did for Jordan, who eventually became a Nike executive after overseeing the creation of the Air Jordan brand.
"My sense is that LeBron probably left some money on the table with other deals with Reebok and Adidas," Swangard said. "It was ultimately less about the money and more about the platform Nike created for him."
"Certainly the hype and the buzz around LeBron is unprecedented, but I think this deal had as much to do with industry conditions as it did with his talent," Horan said.
The worst-case scenario is an injury or scandal sidelining James before he proves himself in the NBA, but the payoff potential is tremendous if he lives up to his billing and becomes a superstar like Jordan did, marketing experts said.
By comparison, Jordan was a relative bargain in 1984, when Nike signed him for US$2.5 million over five years. By the time Jordan first retired from the NBA in 1998, Nike had turned him into a brand name and had already sold US$2.6 billion worth of Air Jordan shoes.
"More often than not they look like marketing geniuses at Nike; they remind me of investment banks a few years ago that put big money down on a lot of Internet companies. Many went belly up, but a few went through the roof," Carter said.
Nike paid US$100 million in 2000 to sign Tiger Woods with a five-year endorsement deal that some analysts criticized as exorbitant -- until Woods won his second Masters, said Jamelah Leddy, an analyst for McAdams Wright Ragen in Seattle.