Kevin Durant and Steph Curry have had some epic battles on the basketball court in recent seasons, but those battles are now at an end thanks to the two-year $54.4 million contract Durant signed to join Curry's Golden State Warriors. While Durant and Curry have ended their feud on the court, the proxy war between Nike (NKE) and Under Armour (UA) has just been ratcheted up off the court.
Durant's move to California opens up a whole new chapter in his career and his relationship with Nike. As Nike looks for ways to increase revenue, this new chapter provides the Beaverton, Ore.-based company with a chance to showcase one of its most valuable assets right next to that of one of its main competitors on a nightly basis. Whether this new type of exposure will end up being a positive remains to be seen.
Durant is one of the league's most popular players, garnering a Most Valuable Player award in the summer of 2014 and leading the league in scoring four times in his young career.
Thanks to his on-court performance, Durant's shoes have been widely popular for years and in 2015 he was Nike's second-most successful endorser (behind LeBron James, who was by far basketball's most bankable superstar, selling twice as many shoes as Durant).
"UA's signature Stephen Curry basketball shoe US business is already bigger than LeBron, Kobe and every other player except Michael Jordan," Morgan Stanley analysts wrote in March. "Curry basketball footwear sales have meaningfully accelerated over the last two months and are now trending at a $160M annual sales run rate."
Morgan Stanley's note projected LeBron James coming in second with $150 million in shoe sales this year and placed Kevin Durant in third place with $82 million in sales. However, the firm expects four of the five top spots to belong to Nike athletes including Kyrie Irving and Kobe Bryant.
Under Armour has been able to slowly chip away at Nike's dominance after firing the first salvo in its war against Nike in 2014 when it tried to lure Durant away from its rival.
In 2014 KD was the target of a bidding war between upstart Under Armour and Nike. Nike was the front-runner to retain Durant's services two summers ago when the company's original seven-year $60 million deal with Durant expired.
Under Armour made a strong push for Durant's services in 2014, making an offer that more than quadrupled Durant's Nike deal. Under Armour reportedly offered Durant a 10-year contract worth between $265 million and $285 million. Under Armour's push for Durant that summer was unique in that the offer included equity in the company.
Nike, which has contracts with about three-fourths of the league, according to Inc.com, tends to structure its deals with a minimum cash guarantee, plus a 5% royalty. Michael Jordan for example reportedly earned $100 million from royalties on his Jordan brand shoe in 2014 alone.
So while Under Armour was offering Durant equity, Nike had the cash up front to woo Durant with a 10-year deal that could be worth north of $300 million. Meanwhile after missing out on Durant, Under Armour successfully signed Steph Curry to a cash and stock endorsement deal. The move made a splash in the basketball shoe market and began Under Armour's quest to chip away at Nike's more than 60% market share.
Two summers and numerous on-the-court battles later, Durant and Curry's inextricable bond got stronger when Durant joined Curry's team, leading basketball sports-writer Adrian Wojnarowski to tweet:
For Nike, this is a coup: It wanted to slow UnderArmour's momentum with Steph Curry and Warriors. Now, KD promises to impact Curry's star.¿ Adrian Wojnarowski (@WojVerticalNBA) July 4, 2016
Nike's basketball division could be the boost the company needs as it faces intense industry headwinds, according to Morgan Stanley analysts.
Nike's shares fell following last week's earnings release despite revenue that grew 6% year over year and topped analysts' expectations for the period. But the company also said that future orders were slowing, leading Morgan Stanley to caution investors that it is not "safe" to buy Nike stock right now.
Even as Nike has reached unprecedented levels of success in recent years, the industry sentiment is that a slowdown -- due in part to increased competition from the likes of Under Armour and Adidas -- is forthcoming.
Nike may be facing headwinds, according to Morgan Stanley, but the strength of its basketball shoe roster is directly tied to its overall success. Durant is a key player on that roster, and if he is able to compete on the biggest stage wearing Nike designed shoes, Nike may be able to turn projected stumbling blocks into stepping stones.