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Reebok deals up in the air Adidas must negotiate transfer from leagues

Staff writer

Published August 08, 2005

The Adidas three stripes might replace the Reebok vector on NFL jerseys and could become the icon seen on NBA and NHL apparel.

That is, if the newly merged company successfully completes a license transfer with the pro leagues.

If it can’t strike a deal, then Adidas’ $3.8 billion planned acquisition of Reebok could open the door for Nike to get back into the pro sports apparel business.

Reebok is the exclusive jersey supplier for the NFL, NBA and NHL, via its acquisition of The Hockey Co. last year. It also has a footwear license with Major League Baseball. The total financial commitment to the leagues stretches to about $500 million, with deals extending into the next decade.

Licensing agreements, though, have standard “non-assignment” clauses that make them non-transferable when a company is acquired.

That means that if Adidas wants to keep Reebok’s licensing deals, it will have to reach some sort of new agreement with the leagues.

Depending on what posture the leagues take, that could cost the newly merged company millions. And should they not come to terms, the leagues would be able to bring in a rival bidder such as Nike.

“If Adidas wants to take Reebok off the NFL, the NFL can say no,” said Jeff Sofka, a former executive with the league’s licensing department and now the principal of the marketing consultancy Bendigo Co. “I’m sure the NFL would consider Adidas and the three stripes a top brand, but they should use this opportunity and the leverage they have to negotiate a better long-term agreement or to open it back up to bid.”

Industry insiders believe Adidas will likely move to be the brand name associated with the leagues as part of a strategy to position Adidas as the premier performance brand. But even if it doesn’t make that move, the sale of Reebok will necessitate amended agreements with the leagues.

The NFL, which has warrants to purchase Reebok stock as part of its agreement with the company, released a statement that said, “We do not anticipate any impact on the NFL-Reebok partnership this season since the deal is not expected to close until the first half of 2006. We look forward to meeting with executives from both Adidas and Reebok to discuss long-term plans and opportunities.”

Reebok signed a 10-year, $250 million licensing agreement with the NFL in 2000.
Reebok made an aggressive push into the $8 billion U.S. pro sports licensed merchandise business in late 2000 when it signed a 10-year, $250 million agreement with the NFL. The following year it acquired Logo Athletic out of bankruptcy, using that company’s manufacturing facilities and infrastructure to create a new division within Reebok to focus on the licensed business. Then Reebok signed a 10-year deal with the NBA valued at more than $150 million. Its acquisition of The Hockey Co. last year included an NHL licensing agreement, which was amended to put the “RBK” brand on team jerseys.

The licensed apparel business is not for the faint of heart. Industry leaders Starter Corp., Pro Player Inc. and Logo Athletic all went bankrupt between 1999 and 2000. Even Nike struggled, letting apparel deals with the NFL, NBA, NHL and MLS run out in recent years.

But the market has been fruitful for Reebok.

Sales for NFL and NBA merchandise were up double-digits in the most recent quarter, according to financial disclosures, while Reebok’s own branded apparel business was down. The NBA’s total licensing business has nearly doubled since 2001, and the NFL’s has also edged upwards each year, according to The Licensing Letter.

The licensed sports apparel business is clearly one of the elements that made Reebok an attractive acquisition target for Adidas.

In a conference call to discuss the planned acquisition, Adidas CEO Herbert Hainer said, “Reebok’s NFL, NBA, NHL and MLB licenses have been spectacular successes. Reebok’s skill in managing and extending the product range in this area are factors Adidas can utilize in the future.”

Adidas’ own history with pro team apparel in the United States is less than stellar. It briefly had an NBA license in the mid 1990s for a streetwear line. It became an official NFL on-field supplier starting with the 1998 season and eventually provided on-field apparel for four teams — the New England Patriots, Washington Redskins, Tampa Bay Buccaneers and San Francisco 49ers — during the 1999-2000 season. But Adidas was supplanted when Reebok signed its exclusive deal.

The company is still a licensee of MLB, dating to when Adidas signed a $93 million sponsorship and apparel agreement with the New York Yankees in 1997 that prompted a lawsuit from the league. A settlement, reached a year later, involved Adidas becoming an MLB licensee through 2006, but the company has not aggressively chased that business, and it has also been slow to exploit licenses with several major colleges.

Hainer cited that as one key area where Adidas will achieve growth by tapping into Reebok’s expertise.

“When we talk about the collegiate licensed business,” he said, “we have the licenses, but Reebok has the skills to produce, to be fast on the market, which we haven’t used to the maximum potential.”

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