Nike X Michael Jordan - The Greatest Partnership Ever?

In 1984, the popular shoe brand, Nike, entered a risky but strategic partnership with a basketball player. That partnership eventually turned Nike into a hundred billion-dollar brand and established its name as the world's number 1 sports shoe brand. The basketball player in question here is...

His Airness, you know the name - Michael Jordan.

A few disclaimers before we get into the story:

This isn't a story about the origins of Nike or Michael Jordan but a strategic partnership in the company's history that went on to enable it leapfrog all of its competition.

Let's get started.

The year is 1984 and Nike - after scaling year-on-year to become an underdog in the sports shoe business - is beginning to lose steam. In Phil Knight's (Nike's co-founder) letter to shareholders that year, he wrote, "Orwell was right: 1984 was a tough year."

The company went from an all-time high of over $700 million in 1983 to under $300 million in a year, laying off 10% of its workforce - about 400 people.

Nike needed a sort of boost from anywhere it could get to recover a part of the market share it was already losing to Reebok.

At the time, Rob Strasser, aka Rolling Thunder, the then Director of Marketing at Nike was looking to build the company its own line of athletes partners that would help establish its name in the basketball market.

But Nike was just a running shoe company that also markets its shoes as a lifestyle product. It was no way near big names like Adidas and Converse in terms of sponsorship deals and promotions in the basketball market.

Nike can only break into this market if they have their own big basketball star.

Michael Jordan

Rob works together with one Sonny Vaccaro in the company to help get this vision off the ground. Sonny started recruiting several college basketball players to wear Nike shoes when playing.

During the course of his work, Sonny discovered a freshman college basketball player that just got drafted into the NBA playing for Chicago Bulls - Michael Jordan (MJ).

Sonny sort of believes this boy could become the dream and convinces Nike to go all in and get him at all costs. Sonny, on his part, tries to see if he could get a meeting with MJ by leveraging his friendship with George Raveling - Michael's assistant coach at the 1984 Olympics - but the young lad doesn't want to meet him.

Then Rob Strasser calls up David Falk, Michael's agent - who he has a good relationship with - to see if they can arrange a meeting with MJ and sell him their vision.

At this time, most of the big names in basketball were signed with Converse - Larry Bird, Magic Johnson, Dr Jay, etc.

So, instead of giving Nike a chance, Michael went to Converse first but the deal his agent was proposing seemed outrageous. There was no way they were going to put a teenager who hasn't had NBA experience yet ahead of their big names. (I mean, I wouldn't do it too if I were Converse. Michael had no real NBA experience yet at the time and he wasn't even the no 1 pick from the draft). Then over to Adidas.

Adidas was always Michael's first choice. He wore them while playing college basketball and striking a deal with the most prominent sports shoe company would be a dream come true for him.

And another 'but'. Adidas wanted him but they weren't willing to go through with the demands of the deal for a player that people don't know yet. As a result, the only option left was Nike.

David Falk and Rob Strasser arranged the meeting in Nike's headquarters in Beaverton, Oregon. Michael still didn't want to go but his Mum sort of convinced/forced him to give them an opportunity. Plus George Ravelling - his assistant coach at the Olympics - had always wanted him to go to Nike.

MJ and his family visit Nike headquarters and Rob pitches the deal he and David Falk came up with to Michael. Here's the breakdown:

• A five-year deal worth a whopping $2.5 million - that's $500k annually.

• His own signature shoe line.

• 5% gross sale of the shoe and associated merchandise goes to his bank account.

• Royalty on incremental sales in future years beyond the baseline of everything in the Nike basketball line.

• Stock options.

Nike took a huge risk offering MJ this kind of deal. It was unheard of in the history of sponsorship deals with athletes. No basketball player at the time was earning that kind of money from a sponsorship deal or even had a shoe line named after them.

Big names like Larry Bird and Magic Johnson earned $100k for wearing Converse Weapons. Nike was building a shoe around a rookie MJ (who may fail to become a star) and offering him such huge sums.

However, it's important to note that Nike was the only company among the three top dogs at the time that was well-positioned to make this kind of deal. They didn't have any big names with them yet. And they sort of saw MJ as that kid that could rise into a big star and establish their brand as an authority in the basketball market.

There was a clause to the deal though:

• MJ was to either win rookie of the year, MVP or make all-stars within the first four years - if not, Nike can call off the deal.

MJ immediately liked Rob during the pitch and his Dad was all in on the deal. It was the deal of a lifetime!

But when a young American kid has his mind set on something, it's kinda hard to convince them otherwise. MJ took the deal over to Adidas and said he would sign with them if they could offer anything close to what Nike was offering.

He wasn't telling them to match the deal - just come up with anything a little bit close. Adidas wasn't gonna offer anything above $100,000 annually to a kid who's in his rookie season in the NBA. As a result, MJ signed the deal with Nike and the revolution unfolds.

Air Jordan 1

After Peter and the team at Nike designed the shoe, David Falk initially suggested they should call it "Michael Jordan". But nobody knew MJ yet so the shoe wasn't gonna a ring a bell.

He later came up with the name "Air Jordan" drawing inspiration from Nike's air soles shoe technology.

Before the release of the Air Jordan 1, Nike made MJ wear specialised red and black Air Ships to match the colours of the Chicago Bulls. He rocked the shoes during the 1985 Slam Dunk contest.

However, the NBA had a rule which mandates all shoes worn by athletes to have at least 51% percentage of white in their design. The Air Ships had none.

NBA sent MJ a warning of the several fines he would pay if he continued with those shoes when the season fully begins. Nike saw this as a marketing opportunity and decided to run a commercial and other marketing program based on the warning letter from the NBA when releasing the Air Jordan 1.

"On September 15th Nike created a revolutionary new basketball shoe. On October 18th, the NBA threw them out of the game. Fortunately, the NBA can't stop you from wearing them."

Impact

The commercial sparked a frenzy in the market. No other athlete in the world had their own line of shoes that you can market as their secret weapon.

People were looking for this shoe the NBA banned because it was too good. I imagine the thoughts of teenagers would be like "NBA banned this shoe because it was like a cheat that could make Jordan fly higher than other players."

Coupled with all the marketing hype, Michael won Rookie of the Year in his first season, made it into the NBA all-stars team and earned a nomination for MVP - almost all the clauses in his deal. All of these combined sent waves into the market, resulting in increased sales of Air Jordan 1.

The target of Nike was to sell $3 million worth of Air Jordan shoes after four years. In year 1 (1984-1985), Air Jordan shoes plus associated merchandise brought in $126 million in sales - this was the most sales a shoe line has made in its debut year at the time.

How about that? Nike is establishing itself in the basketball business and significantly increasing its revenue. They're coming for the big boys.

What about Jordan?

He made $6.3 million in just year 1 of the deal - the worth of his entire initial 7-year contract with the Chicago Bulls.

But it didn't get all rosy after that.

Air Jordan 2

MJ broke his leg at the start of the 1985-1986 season and sat out most of the season. As a result, sales of Air Jordan 1 in retail stores started declining. In addition, other brands started releasing a lookalike of the AJ1 into the market. And Nike was about to release the Air Jordan 2.

During the design of the AJ2, Nike took MJ's love for luxury and style into consideration and decided to re-engineer the whole look of the shoe. Nike wanted to make the Air Jordan 2 look like a sort of hybrid casual wear and basketball shoe.

Hence, during its design, they made the AJ2 look like a sort of luxury basketball shoe by producing it in Italy with premium leather. Although the AJ2 marked a strategic turnaround in the design of basketball sneakers, it met a poor reception in the market.

MJ hated the Air Jordan 2 designs and how it felt on the court even though he had a record-breaking season in it. Its significant increase in price compared to the AJ1 - from $65 to $100 - was unheard of at the time.

And this is the beginning of where things start to get complicated for Nike.

Following a huge fight with Phil Knight, Rob Strasser left Nike along with Peter Moore (the original Air Jordan 1 designer) and started their own company - Sports Inc. A couple of months later, Adidas bought the company and established its American branch in the same state as Nike's headquarters with Rob as the CEO.

I mean, the man who pioneered the Michael Jordan deal in the first place moved over to the competition. This was a bitter betrayal for Phil Knight to swallow.

Coupled with this, MJ's initial 5-year contract with Nike was coming to an end and he's already growing frustrated with the design direction of the shoe. He felt like his opinion wasn't considered by Nike in its design.

Rumours also had it that Rob and Peter were packaging a deal to bring MJ over to Adidas.

The deal that would go on to change Nike forever was on the brink of collapse. And then, one young Tinker Hatfield, a former member of the architectural team at Nike, enters the picture.

Air Jordan 3 and The Future

Tinker was tasked with the responsibility of designing the Air Jordan 3 and most probably saving Nike. Tinker's first move was to seek the opinion of MJ - his preference, what he hated about the Air Jordan 2, what he would love to add to the Air Jordan 3 and so on.

Tinker finished designing the Air Jordan 3 and the shoe's ready for unboxing. However, on the day of its reveal to MJ, he was out playing golf with you know who - Rob Strasser and Peter Moore. MJ arrived at the reveal 4 hours late and wasn't in the best of mode.

But when Tinker unveiled the Air Jordan 3 - highlighting all the suggestions MJ made in its design plus other innovative features like elephant print leather, and the famous Jumpman logo - he was locked in. And this marked another turnaround for Nike.

MJ went on to renew his contract with Nike adding a few tweaks to the previous conditions. The new deal included Nike establishing the Jordan brand within the company.

Following the new deal, Air Jordan 3 saw a huge boost in sales after a marketing partnership with Spike Lee and MJ won the MVP award that year.

To fuel the action further, the AJ3 was the first Jordan shoe released globally.

Since then, every Air Jordan shoe release has been breaking records and total revenue for the Air Jordan brand keeps climbing up year-on-year.

Over the course of 38 years, Nike has made a total revenue of over $38 billion from the Jordan deal with MJ himself earning $1.9 billion (and still counting). For comparison, his total basketball career earnings from playing in the NBA was $94 million over 19 years.

Nike went on to acquire Converse in 2002, surpass Adidas and is now the largest apparel business in the world with a market capitalisation of over $160 billion.

The Michael Jordan and Nike deal not only saved Nike but it changed the world by pioneering the cultural movement of making sneakers a status symbol across sports, fashion, music, streets, Hollywood, etcetera.

My Two Cents

• You have to develop the eye to recognise opportunities. But it's the grit to take the accompanying risks in grabbing those opportunities that pay off. Nike saw an opportunity, took the associated risks and it propelled them to become a hundred billion-dollar brand.

• Scaling a company to the next level requires you to make the right hires and let them have full responsibility for their tasks. The role of Phil Knight was minimal throughout the whole Jordan deal yet he reaped the highest upside.

• For every partnership to yield the desired results, both parties must bring their 'A' game. Nike was innovative and intense in the creation and marketing of Air Jordan shoes. Michael Jordan worked hard to become the greatest basketball player of his generation.

What do you think about the partnership between Nike and Jordan so far?

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Till I come your way next week, strike those deals and enter that partnership.