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Just doing it: Ohio State, Nike extend $46 million, brand-building agreements

December 16, 2013

byler.18@osu.edu

Nike is dotting the “i” in Ohio State.

OSU holds a three-part agreement with Nike, based in Beaverton, Ore., set to gross the university almost $46 million over 11 years. Despite what the university gains, some say there are drawbacks to the agreement, which makes Nike the exclusive supplier of any athletic equipment used by OSU varsity athletes and gives the company licensing rights on OSU retail apparel.

OSU and Nike signed three separate seven-year contracts that went into effect Aug. 1, 2007. Recently, Nike exercised a contract option to extend all three until July 31, 2018, OSU spokesman Gary Lewis said in an email.

A representative from Nike declined to comment on the contracts.

The three parts of the agreement are a standard license agreement, an equipment supply agreement and an appearance and consultation agreement.

Money brought in from the equipment supply agreement and appearance and consultation agreement goes to the Department of Athletics, while money brought in through the license agreement is broken up across several areas, Lewis said.

 

Standard License Agreement

The standard license agreement sets OSU to gross a minimum of $2.6 million over 11 years. Money from the license agreement is paid to the Office of Trademark and Licensing and is then distributed to different areas of campus; 55 percent goes to academic affairs and 15 percent each goes to athletics, the Alumni Association and the Office of Student Life, Lewis said.

Nike is contracted to pay OSU 12.5 percent of net sales on products it has the exclusive rights for. This includes all “authentic competition apparel,” such as jerseys. Royalty for all other OSU products Nike sells is set at 11 percent. OSU is guaranteed an annual minimum payment of $200,000 for the first seven years and $300,000 for the extended four years.

Each payment so far, however, has exceeded that minimum.

From 2007 to 2012, Nike grossed an average of $8.8 million annually on its sale of OSU merchandise, paying OSU an annual average of about $1.1 million.

The contract also includes a section which obligates Nike to comply with the Fair Labor Association Code of Conduct.

The FLA seeks to protect workers through established principles of fair labor. The Code of Conduct “defines labor standards that aim to achieve decent and humane work conditions,” according to the FLA website.

 

Equipment Supply Agreement

The equipment supply agreement between OSU and Nike, the most lucrative aspect of the deal for OSU, sets the university up to gain more than $42.7 million.

Of this, about $26.9 million is in equipment Nike supplies to OSU’s 36 varsity teams and more than 900 student-athletes.

Nike is “the official supplier of the athletic footwear and authentic apparel products” for these teams, the contract states. This means OSU team members, coaches and staff must exclusively wear and use only Nike products for all practices, games, exhibitions, clinics and any university or team-organized activities.

“Nike product” was amended to exclude hockey skates, technical swimsuits, baseball bats and catcher’s mitts. The contract does not state why these items are exempt.

No athletes or coaches were made available to The Lantern for comment despite repeated attempts. OSU Athletic Director Gene Smith was also not made available for comment.

OSU coaches, staff and Athletic Department employees (chosen by the university) can order up to $166,000 of Nike product annually for their personal use. The total annual amount, however, would be decreased to $150,000 “in the event Thad Matta ceases for any reason to serve as the coach of the men’s basketball program,” the contract states. The contract does not give a reason for why this is included.

Lewis did not say why the contract was amended to exclude certain items or why OSU would be given less money if Matta was no longer the men’s basketball coach. “The contract language reflects the negotiated agreement between the parties,” he said.

Besides supplies and equipment, Nike is contracted to pay OSU a base compensation of about $1.19 million annually for the first seven years of the agreement and about $1.49 million for the four extension years in exchange for sponsorship benefits.

Such benefits include advertisements in OSU gameday programs, promotional games and competitions during home sporting events and use of OSU facilities.

In addition, OSU is to allot Nike tickets to all home varsity athletic events and any football bowl games or basketball tournaments OSU plays in.

The equipment supply agreement also details performance bonuses Nike is set to pay OSU, totaling as much as $87,000 annually.

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Click to expand.

Bonuses for football and basketball National Championships total $42,500 and Conference Championships total $20,000. Nike agreed to pay $2,500 for any football BCS Bowl appearance and $2,000 for a tier 1 bowl appearance, in addition to up to $10,000 for a top five football or basketball ranking in the USA TODAY or Associated Press final poll, depending on which is higher. A bonus is also included for any 95 percent winning season, totaling up to $10,000 for football and basketball.

This year, Nike is set to pay OSU $5,000 for the football team’s recent participation in the Big Ten Championship Game and $4,500 for making it to the Orange Bowl. OSU is set to travel to Miami to play the No. 12 Clemson University Tigers in the Discover Orange Bowl Jan. 3 after earning a bid.

The university is contracted to provide at least 10 tickets “for best available seats” to Nike for the Orange Bowl. Tickets for the game start at about $75 and go to more than $250.

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Nike also sponsors an internship at its headquarters each summer for an OSU student.

 

Appearance and Consultation Agreement

Nike is contracted to pay OSU $28,000 annually for coach appearances and $22,000 for coaches’ and staff’s “design and marketing consolation,” the agreement states.

The head coaches of OSU’s football, men’s and women’s basketball and men’s and women’s soccer teams are each required to make four public appearances annually. The purpose of these appearances, the contract says, is to “promote sports participation and the values associated with such participation.” All other coaches are required to make one annual appearance.

These appearances create “positive brand association,” said Courtney Brunious, associate director of the University of Southern California Sports Business Institute.

“Nike likes to associate itself with coaches or players or anyone else in the sports world that’s a winner,” Brunious said in a Nov. 26 interview with The Lantern.

OSU football coach Urban Meyer recently made an appearance in Nike’s “Winning in a Winter Wonderland” commercial released Dec. 6. The film “shows how some of the world’s best athletes brave the elements to perform at the highest level,” a Nike press release said.

In addition to the appearances, OSU must also provide Nike with feedback from coaches and staff concerning its supplied Nike products, as well as test specific Nike products.

 

The contract extension

Nike was given and recently exercised the option to extend its three agreements with OSU, originally ending in July 2014, to July 31, 2018.

The extension positions OSU to bring in about $18.5 million in addition to the more than $27 million brought in by the original agreement.

This is broken down into $1.2 million for the standard license agreement, about $17 million for the equipment supply agreement and $200,000 for the appearance and consultation agreement.

Nike was given the option to extend the contract. Giving them, rather than OSU, this power increases the value of the deal, said Paul Rose, business law expert and associate professor of law at OSU’s Moritz College of Law.

“Options have value,” Rose said in a Dec. 2 interview with The Lantern. “If Ohio State wanted to increase the value it was receiving from Nike, it would give Nike that option (to extend the agreements). If Ohio State took the option, they could cancel the deal whenever, then that deal would be less valuable to Nike so Ohio State would get less revenue.”

Change can also be costly.

“Nike has this brand power. I can see a lot of pressure to keep Nike from coaches to athletes,” Rose said. “They like the way their uniforms fit, they like the way they look, they like that Nike changes them all the time and has the special rivalry uniforms.”

This season, the OSU football team wore alternate jerseys for its games against Penn State, Wisconsin and Michigan.

 

Nike in the B1G

OSU isn’t the only Big 10 school to have agreements with Nike, but it is the most lucrative deal and the only school that has multiple agreements with Nike.

Iowa, Purdue, Michigan State, Illinois and Minnesota all also have multi-year contracts with Nike. Product supply, coaches appearances and licensing are combined in one contract in these “multi-sport” or “all-sport” agreements.

Purdue grosses the least in the Big Ten, bringing in about $10.5 million in 12 years. Illinois follows OSU as the second highest, set to make more than $15.2 million for 10 years.

Some experts said Nike’s agreement with OSU is more lucrative than other schools because of OSU’s brand power.

“Ohio State simply has a better brand value than some of the other Big 10 universities,” Rose said. “We just have a better brand than anyone else, which is why Nike will pay us more.”

Brunious agreed.

“The Ohio State athletic brand has traditionally been a bigger brand than some of those other ones in the Big 10,” Brunious said.

OSU athletes wearing Nike apparel strengthens Nike’s brand power, Brunious said.

“The exposure (OSU athletes) bring to the university because they are wearing Nike uniforms, that creates a lot of value for (Nike),” he said.

Four other Big 10 schools – Nebraska, Wisconsin, Indiana and Michigan – hold contracts with Adidas. Northwestern has an agreement with Under Armour.

Michigan holds an eight-year agreement with Adidas earning the school a reported $80 million, according to the Portland Business Journal. Nebraska and Wisconsin hold five-year agreements grossing $12.5 million and $10.5 million, respectively.

 

Implications of the agreement

Despite the money grossed by the deal, some see a downside to giving one corporation exclusive rights. There are implications for requiring coaches and athletes to always wear a specific brand or specific clothing.

“There has to be some right to choice that the students are giving up because of the deal,” said Wendy Epstein, assistant professor of law at DePaul University College of Law.

While uniforms are not a source of concern when it comes to Nike’s exclusivity, because players will always be mandated to wear the same brand of jersey, issues may arise with other equipment, such as shoes, baseball bats or soccer balls.

“Maybe they (could) wear whatever shoes they want and now they’re being required to wear Nike,” Epstein said in a Dec. 10 interview with The Lantern.

Student-athletes coming into OSU’s program could prefer a different brand and be forced to switch to Nike.

“If you look at recruiting, a lot of the high school students coming up, they have a particular brand affiliation,” Brunious said, adding that some athletes might be more likely to go to a school affiliated with their prefered brand.

When some college athletes go professional, they could then take the brand affinity of their university with them.

“If a college athlete is with a Nike school or an Adidas school, they may have developed a comfort level with that apparel and it may make it that they will continue wearing that at a pro level,” Brunious said. A professional athlete wearing Nike would bring the brand even more exposure.

In the end, Epstein said limiting choice is a matter of a cost-benefit analysis.

“So the question is, is the school getting the best deal because of the exclusivity agreement or not? It’s a question of economics. I don’t know that it’s a question of free choice.“

This story is the second in a five-part series about Ohio State’s contracts with Nike, Huntington, Coca-Cola and QIC Global Infrastructure. The series was made possible by the generosity of Ohio State and The Lantern alumna Patty Miller.


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Comments (4)

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  1. Thad Rivers says:

    Morning read

  2. Sean Berg says:

    Any good? This would interest me

  3. Luke Adair says:

    How strict is UCF's contract with what the coaches have to wear? Sounds like staff at Ohio State can't even wear non-Nike shorts/pants at practice, pressers, etc….similar with y'all?

  4. Anonymous says:

    In depth and well done. Good read.

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