Did Nike overpay for its NBA apparel contract? by Daniel Roberts @FortuneMagazine June 12, 2015, 11:58 AM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons Nike has landed the contract to be the official apparel provider of the NBA, WNBA, and NBA Development League, beginning with the 2017-2018 basketball season. But don’t believe any of the (many) stories that say Nike “stole” the deal from Adidas. Adidas, which has had the contract since 2008, announced in March that it would not renew the deal when it expired. And it likely made that decision many months earlier. Owning the deal did practically nothing for the German sportswear brand. After a decade as the apparel provider of American basketball, the company’s share of U.S. basketball footwear is about 3%. Nike’s share? 96%. “With one company having 96% of basketball, I think you’ve got two choices,” said Adidas U.S. president Mark King in a candid interview with Fortune in March at the company’s U.S. headquarters. “You either exit [the sport]—which is not the craziest idea. It’s not. Or you figure, ‘Dammit, there’s got to be at least 5% out there who don’t really want [Nike]. So we think we can grow basketball. We are going to take a shot at basketball in a much more aggressive way.” Adidas’s “more aggressive way” will not involve being the apparel provider, obviously. Instead, it’s focusing on signing more individual basketball players to endorsement contracts — hoping to double the size of its NBA roster in the next two years, from 70 to 140. This is despite the fact that its past endorsement deals in the sport haven’t work out so well: its biggest name, Derrick Rose, has been regularly sidelined with injuries; it did a signature shoe with Dwight Howard, whose brand “stock” has plummeted; and it signed Tim Duncan, who is a high-achieving player but not so marketable or exciting to young fans. Consider how much the landscape of these exclusive deals has changed: in 2006, Reebok was the official outfitter for three of the big four sports leagues—NBA, NFL, and NHL—and had a smaller apparel and footwear deal with MLB. Only nine years later, Reebok, now owned by Adidas, is not the official sponsor for any of the big thee American sports leagues, and Adidas, come 2017, will only be the apparel provider for MLS. (Reebok is still the outfitter of the NHL, but the deal expires in 2016.) Nike NKE , on the other hand, has the NFL deal and now the NBA deal. Adidas’s NBA apparel contract, signed in 2006, was worth $400 million for 11 years. Nike has paid a reported $1 billion for an 8-year deal. So it paid more than double the money, for a quarter less of the duration. There’s a key difference, though, in Nike’s deal: its logo will appear on the uniforms that players wear in games. Adidas’s arrangement did not allow for that. “We are very happy with our relationship with the NBA, but on the other hand, whenever a contract is expiring, we always analyze what has this contract done for us, how does it play into our future strategy, what is the money we have to pay,” explained Adidas CEO Herbert Hainer back in March. Indeed, there’s no way Adidas’s cost-benefit analysis suggested that renewing the deal would be of value to the brand. Nike leapt at the chance: just one month after Adidas announced it would not bid, reports came out that Nike was already nearing a deal. But was $1 billion worth it, for a company that easily dominated basketball footwear even without being the league’s official apparel provider? The answer comes down to whether having its logo on the players’ jerseys is worth an extra $600 million. Adidas didn’t think so, and Under Armour UA , which was reportedly also bidding, may have agreed. (Did Nike overbid for the deal just as a defensive move, to box out Under Armour?) Having the swoosh on all NBA jerseys may seem like great brand exposure, but Nike is hardly lacking in exposure: its basketball business has seen 14 consecutive quarters of double-digit sales growth. Last year, it sold $340 million worth of LeBron James signature shoes; Adidas, by way of comparison, sold $32 million in Derrick Rose shoes. Nike is killing its competitors. At $1 billion cost, Nike didn’t really need this deal. Now it will have to prove that it spent wisely in a sport where it didn’t need much help.