Why Nike is caught in the middle of the NBA's dispute with China
- China's dispute with the NBA over a team manager's tweets in support of the Hong Kong protests could be a headache for Nike, the exclusive sponsor of the league's player outfits.
- Nike's presence and popularity in China is huge - the sportswear giant netted 17% of the $10.7 billion in revenues it made last quarter in Greater China.
- The sportswear giant's CEO reaffirmed its commitment to the region last month: "Nike is a brand of China for China."
- If the NBA's fallout with China hurts the league's popularity in the region, Nike could suffer.
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The National Basketball Association and China are facing off, and Nike could get caught in the crossfire.
The Houston Rockets' general manager, Daryl Morey, tweeted his support of the Hong Kong protesters. NBA Commissioner Adam Silver has defended his right to free speech and declined to apologize.
The Chinese government reacted by suspending broadcasts of NBA games, and Chinese retailers owned by Alibaba and JD.com pulled Houston Rockets merchandise from their online stores, according to CNBC. In fact, all of the NBA's Chinese partners have suspended ties with the league because of the dispute. As Nike is an exclusive sponsor of league outfits and relies on the popularity of the NBA to sell apparel and sneakers, it could suffer from the fallout.
Nike has become increasingly reliant on the region for growth. Its sales in Greater China surged 22% in the first quarter of this fiscal year to make up about 17% of its total revenue. Basketball and Nike are so popular in China, that "they can go there and basically charge what they want," one analyst told the Financial Times.
Nike's chief executive, Mark Parker, has repeatedly underlined the importance of China to the company and reaffirmed its commitment to the region.
"Nike is a brand of China for China and the results continue to prove it out. We've driven double-digit growth in Greater China every quarter for more than five years," he said on the company's first-quarter earnings call this year.
"We are also excited about the energy around basketball in this geography, and globally, as we enter the new NBA season," Parker added.
The clash between the NBA and China puts Nike in an uncomfortable position, where supporting one side risks alienating the other, eating into its popularity and sales. Saying nothing could also lead to it being lumped in with the NBA if consumers and partners boycott the league.
"The brand has been so hot over there, one hiccup could spell problems" for the entire investment case, according to Brian Yarbrough, analyst at Edward Jones in St Louis, who spoke to the Financial Times.