Nike (NKE) is sticking by superstar Maria Sharapova despite her two-year suspension from professional tennis for using a banned substance. But investors should start questioning whether to stick with the apparel giant given Nike's poor transparency about celebrity-endorsement deals.
The International Tennis Federation suspended Sharapova on Wednesday following her positive test earlier this year for the banned drug meldonium. However, an independent tribunal appointed by the ITF concluded that the Russian star hadn't intentionally taken a prohibited substance, as people can legitimately use meldonium (which the ITF only recently banned) to treat heart disease.
Nike, which suspended Sharapova's relationship with the firm in March when news of her failed test first broke, moved quickly this week to voice support for the embattled star.
"The ITF Tribunal has found that Maria did not intentionally break its rules," the sports-apparel giant said in a statement. "Maria has always made her position clear, has apologized for her mistake and is now appealing the length of the ban -- we hope to see Maria back on court and will continue to partner with her."
In other words, we can expect Nike to try to cash in on Sharapova's eventual "triumphant return" to tennis. I can already see the TV and social-media marketing blitz for Sharapova's "Comeback Collection," featuring fashion high-tops and butt-hugging training pants. I wouldn't even be surprised if they start taping videos of the athlete training extra hard during her suspension to help sell Sharapova's "comeback story."
But what's happening with the company's stable of athlete-endorsers raises questions about why Nike continues to hide just exactly how much it pays top athletes. Shouldn't management disclose this to shareholders?
After all losing a key, very marketable athlete such as Sharapova (or boxing legend Manny Pacquiao, which Nike recently dumped for anti-gay comments) is a business risk. Underperforming athlete-endorsers also present a material risk.
Consider Tiger Woods, who renewed his Nike contract in 2013 for what was an undisclosed sum (but presumably a boatload of money). The problem: Tiger hasn't been Tiger in recent years, and might not even play at all in 2016 due to a back operation. Seeing Woods decked out in Nike gear and hitting three balls into the water at a recent event wasn't only sad, but frankly embarrassing for a brand that prides itself on athletic superiority.
With golf's greatest ambassador not competing, Nike's golf business might take a hit even though the apparel giant is paying Woods gobs of money. At the same time, traditional golf companies like Callaway Golf (ELY) and privately held Taylormade are doing fine due to stronger innovation. That's not exactly music to NKE shareholders' ears.
Can Nike reopen Woods' contract? It beats me, as Nike doesn't disclose details of its endorsement deals. But if I had my kids' college funds tied up in Nike stock, I'd want to know how much the company is paying -- and whether there's room to rework a contract that clearly no longer makes strategic sense.
Nike is also presumably paying basketball legend Kobe Bryant a good amount of endorsement money even though he's officially retired and will soon fade from the spotlight. We haven't seen much of Bryant since his last epic game -- and he's no Michael Jordan, so he might not have the same "selling power" in retirement that Jordan does.
And while Cleveland Cavaliers star and Nike endorser LeBron James is still performing impressively (just check out his latest playoff performance), he's taken a backseat to Golden State's Stephen Curry, who backs Growth Seeker holding Under Armour (UA).
However, Nike isn't paying LeBron to take a backseat to anyone. It's paying him handsomely to own the NBA -- day in and day out -- and help NKE sell lots of clothing and basketball sneakers. But judging by recent comments from footwear retailer and Trifecta Stocks component Foot Locker (FL), Nike's LeBron sneakers are far from lighting up cash registers right now, due to tepid innovation and high price.
The bottom line: It's time for a change, Nike.