Rory McIlroy, Nike and the $250m, 10-year sponsorship deal

 

5 live Golf: McIlroy's sponsorship deal

  • Where: BBC Radio 5 live
  • When: Monday 14 January 2013
  • Start time: 21:30 GMT

On Monday, in a plush room at the Fairmont Bab Al Bahr hotel in Abu Dhabi, Rory McIlroy's ascent to the sporting elite was confirmed with the announcement of the most lucrative endorsement deal in British sport.

While the exact figures have not been made public, insiders believe the 23-year-old's contract with Nike will earn him up to $250m (£156m) over 10 years. Why such staggering amounts of money? Why Rory, rather than any other young sportsman? What does this mean for Nike, for Tiger Woods - the man the brand was built around - and for golf?

Why so much?

A little context. If accurate, those estimates mean McIlroy's deal is substantially bigger than both Tiger Woods's most recent 10-year Nike contract - reportedly worth £124m - and David Beckham's lifetime deal with rivals Adidas, estimated to earn the footballer £100m. So how is such a monumental figure calculated?

World's richest sportsmen

Floyd Mayweather
  • Floyd Mayweather (boxing - £52.6m)
  • Manny Pacquaio (boxing - £38.4m)
  • Tiger Woods (golf - £36.8m)
  • LeBron James (basketball - £32.8m)
  • Roger Federer (tennis - £32.6m)
  • Kobe Bryant (basketball - £32.4m)
  • Phil Mickelson (golf - £29.6m)
  • David Beckham (football - £28.5m)
  • Cristiano Ronaldo (football - £26.3m)
  • Peyton Manning (American football - £26.2m)

Source: Forbes. Figures derived from bonuses, salaries, appearance fees, prize money, endorsement and licensing from June 2011 to June 2012.

Most Nike golf endorsements are determined by multiplying the player's world ranking points by an agreed figure. Each point could be worth $5,000 to a mid-level Tour player, $10,000 to a bigger name.

The better the golfer plays - and so the greater the profile for Nike - the greater the reward, with a guaranteed base-level income factored in to account for ranking fluctuations caused by injury or loss of form.

McIlroy's deal is different. Just as his abilities on-course and status off-course exceed those of his Tour colleagues, so too does his value to sponsors.

"There will be a sound business case behind the numbers: 'Rory will help us sell x amount of equipment and clothing'," says David Cushnan, sports business expert and editor of SportsPro magazine. 

"But as scientific as they make it, there will also be an element of gut feeling about this. Nike didn't want their direct rivals to get their hands on him."

"There will be both a science side and an art side to the calculations," an industry insider told BBC Sport. "The science works out how much value he can add to a brand, how much he can bring in in golf sales.

"The art side is about reputation. How is the brand talked about on social media? What's the sentiment around that brand?"

Then there is the particular appeal of McIlroy's chosen sport.

"As far as sponsors are concerned, the key sports for individual athlete endorsement are golf and tennis," says Cushnan. "Golf has always been a leader in the value sponsors can get from their investment.

"There is a perception of a higher-end demographic, of supporters with more disposable income. Golfers don't tend to be tied into a team, where you can have sponsorship clashes - like Messi wearing Adidas boots but with a Nike swoosh on his Barcelona shirt - that affect the value of your deal.

"You get a golfer 100%. And there are more opportunities for golfers to do promotional work. They are more in control of their own schedules than a team player like a footballer.

"From Nike's point of view, they will want full control over everything McIlroy does. The size of the deal helps them make a statement, but it will be incredibly comprehensive, which will limit his opportunities elsewhere."

Which leads us to another multiplying factor in the deal.

McIlroy had existing contracts with equipment manufacturer Titleist, Dubai-based hotel group Jumeirah, sunglasses brand Oakley, Santander bank and watchmaker Audemars Piguet. Only the Santander deal has lapsed, meaning part of the £156m will have been set aside to buy him out of those other contracts.

Then there is the competition.

Titleist were never likely to get caught up in an auction. Their business model is based more on the reputation of their clubs and balls than holding on to their one-time star endorsements like Woods, Phil Mickelson and Ernie Els.

Callaway, the company that signed the latter two players from Titleist, have endured a series of poor financial returns in recent years. But that left one other, the company that dominates the £15bn US golf market: TaylorMade.

According to sources close to the deal, the Adidas-owned equipment brand offered close to £100m for McIlroy's signature. But Nike, driven by a series of critical events, refused to be outbid.

Why does this work for Nike?

For someone who had just authorised a £156m outlay on a single player yet to win either the Masters or Open, Nike Golf president Cindy Davis spent Monday's news conference wearing a wide smile.

World's most marketable athletes

Neymar
  • Neymar (football)
  • Rory McIlroy (golf)
  • Lionel Messi (football)
  • Usain Bolt (athletics)
  • Cristiano Ronaldo (football)
  • Blake Griffin (basketball)
  • Novak Djokovic (tennis)
  • Sebastian Vettel (F1)
  • Tim Tebow (American football)
  • Yani Tseng (golf)

Source: SportsPro. Rankings based on marketing potential from 2012-2015.

The company's golf division has endured successive bad years, seeing revenues drop 2% in the 2010 financial year and 4% in 2011. Nike as a whole has been hit with successive scandals involving its marquee names - the jailing of NFL star Michael Vick for his part in a dog-fighting ring, the revelations from Woods's private life, and now the dramatic fall of Lance Armstrong.

McIlroy, like no other sportsman, can help turn both issues around.

"Nike have been stung badly by the fallout from those scandals," says Cushnan. "Long-term they are looking for someone to replace Tiger from both a broadcast and fan perspective.

"Nike are facing greater competition than ever before - from Adidas, from [Chinese brand] Li Ning. They wanted someone reliable, someone who will be at the top of the game for a significant period.

"They will feel really confident that Rory is the right man to lead their brand. Golf is genuinely global now - if you back a top golfer, you are highly visible in the US, in Europe and Asia too."

Woods's first five-year Nike contract, signed in 1996 when he was still to turn pro, was worth an unprecedented £25m. His second, signed in 2001, was two and a half times as big again.

While both made complete financial sense to the company, Tiger is no longer enough on his own.

McIlroy, say insiders, has not been signed as a like-for-like replacement. Instead, expect to see the two marketed together - Woods chasing the four more major wins he needs to match Jack Nicklaus's record, McIlroy battling him as the new generation.

"It's a very clever call from Nike," an industry source told BBC Sport. "Both Nike and golf need Tiger and Rory going down the 18th together. They will have lots of fun on the global market with Tiger and Rory as a pair."

Why Rory?

McIlroy is the current world number one, the youngest multiple major winner since Seve Ballesteros 32 years ago, PGA player of the year, European Tour golfer of the year and winner of both PGA and European tour money lists. But there is more.

McIlroy the brand

Cindy Davis, Nike Golf President

"Rory is an extraordinary athlete who creates enormous excitement with his on-course performance while, at the same time, connecting with fans everywhere."

Cindy Davis, Nike Golf President, on Rory McIlory

"Very obviously, he's the best in the business, and last season simply underlined that," says Cushnan. "Beyond that, he's very clean-cut - what Tiger used to be - and he is well-spoken and eloquent.

"He understands the media and commercial side of sport. He has deftly avoided most controversies. In an uncertain world for sponsors, he is a safe bet."

Then there is the look, the personality.

"Rory has the smile, he has that hair, he has the Irish blarney," says a source close to the deal. "He is a genuine superstar, instantly recognisable, hugely likeable. Even when it all went wrong for him, as at the Masters in 2011, he dealt with it brilliantly, in a way that endeared him to as many people as winning it would have done."

McIlroy and Woods are not the only golfers Nike sponsors. But while Paul Casey, Charl Schwartzel or Anthony Kim carry resonance with golf fans, only McIlroy's appeal stretches outside the sport.

As Nike's Davis gushed on Monday: "Rory is an extraordinary athlete who creates enormous excitement with his on-course performance while, at the same time, connecting with fans everywhere."

McIlroy will also aid Nike's boost to be seen as a credible manufacturer of clubs and balls. Despite Woods's successes, the company's reputation still lags behind that of specialists like Titleist and TaylorMade.

McIlroy should, on precedent and ability, win more tournaments and more majors, than any other player of the next five years. Nike equipment could receive no greater reciprocal endorsement.

The charismatic Northern Irishman caused considerable surprise when he left former agent Chubby Chandler's ISM management group in 2011 to sign for the Dublin-based Horizon Sports Management.

With this deal, his new agent Conor Ridge is delivering what his new client reportedly wanted - to be established as a global presence.

Nike are likely to have retained final approval over any other sponsorship deal McIlroy signs. This will limit Ridge to brands that cannot clash with the sportswear giant - car companies, financial services suppliers. But that control is one reason for the unprecedented size of the contract.

Why so long?

Ten years might strike some as a long contract in an uncertain world. But there is logic in the deal's length.

"It's about as safe a bet as a company can make," says Cushnan, whose magazine rated McIlroy as the second most marketable sportsman in the world last year.

"Not many people are suggesting that in a couple of years McIlroy will have peaked. He will be world number one or thereabouts. There is also plenty left for him to do; he has yet to win the Masters or the Open, so his peak is a long way off.

"By signing him for 10 years Nike are both showing that they don't want anyone else, and being able to plan long-term marketing campaigns and branded products."

What risks are attached?

McIlroy, who dates Danish tennis star Caroline Wozniacki, has found himself in the occasional pickle since turning pro - describing the Ryder Cup as an "exhibition" in 2009,  complaining about the weather at the 2011 Open, having a row on Twitter with pundit Jay Townsend.

All three were minor affairs, followed by apology and explanation. Nike should not have another Tiger or Lance in the pipeline.

The biggest danger to either side? The equipment itself.

Sir Nick Faldo has already described McIlroy's switch from Titleist clubs and ball as "dangerous".

Although he has been practising with them for several weeks, McIlroy will only use his new clubs competitively for the first time in the Abu Dhabi HSBC Championship later this week.

"Every manufacturer will tell you we can copy your clubs and tweak the golf ball so it fits you," says Faldo. "But there is a feel and sound as well, and there's confidence."

If a player like McIlroy switched clubs at any stage of his career there would be great subsequent interest in whether it affected his tournament finishes. That he has done so in a deal of this magnitude will only intensify that focus.

"He is up there to be knocked," says an industry source. "If Rory goes four or five tournaments without performing, the questions will start. The word in the industry is that the product must be amazing for him to have taken the risk."