Nike vs Adidas
Your next Head-to-head is here – deep dive covering the world’s fiercest corporate competitors all the way from inception to the present day. In this weekend’s addition of Head-to-head, we are covering two companies that changed the face of sport forever…
The Origins of Giants
While Nike is now known for basketball, its founding came from a different sport: track and field. In the 1960s, Nike co-founder Bill Bowerman was the coach of the University of Oregon’s track and field team. Bill was fascinated by all aspects of the competition, especially the shoes. After a significant amount of trial and error, Bill had one of his athletes and future Nike co-founder, Phil Knight, try his now-iconic waffle iron sole. And yes, he did make it in his waffle iron. Phil lent his shoes to his teammate Otis Davis, who used them to win the 400-meter dash in the 1960 Summer Olympics.
Much like Nike, Adidas first got its footing in the sport of track and field. But unlike Nike, in 1924 Adidas started with spiked running shoes, some of the world’s earliest. In 1928 the company got its first big win when Lina Radke won the 800m gold medal at the Olympics. At this time, the name on the door was Gebrüder Dassler Schuhfabrik (Dassler Brothers Shoe Factory), founded by brothers Adi and Rudolf Dassler.
Like Adidas, Nike did not start with the name we all know and love today. In fact, like Adidas, it started with a much longer name, Blue Ribbon Sports, founded in 1964 when Bill Bowerman and Phil Knight teamed up. Bill brought the shoe designs, and Phil brought the manufacturing plan. Phil had come up with the novel idea that moving athletic shoe manufacturing from Germany to Japan would not only save margin but also would not risk any change in quality. Bill agreed, and Blue Ribbon Sports was born.
In 1971, following a litigious split with its Japanese manufacturer, Phil and Bill rebranded the company as Nike, with the now world-famous swish. Unfortunately for Adidas, the company’s transformation resulted from the brothers failing to resolve personal and professional differences. As a result, in 1949 Puma and Adidas were born headed up by Rudolf and Adi respectively.
One Large Step for Modern Sports
Today, Nike is known for basketball, and Adidas is known for football. But both companies got their start in track and field. So why the change? The origins of Adidas’ football takeover came quickly after the split in 1954 when the German national team hired the company to be their boot supplier for the World Cup. Over the next eight years, the company quickly spread, and by the time the 1962 World Cup rolled around, every game had at least one pair of Adidas boots on the field. But Adidas was far from satisfied, and after spending the next eight years solidifying its position, the company turned its sights to the real star of the cup; the ball. That’s right, by 1970, Adidas’ influence on football was so strong that it produced the ball for the World Cup, an unbroken streak that it claims to this day.
Nike’s first beachhead into basketball came from university athletics in 1977, with a US$5,000 payment and 120 free pairs of Nikes to University of Nevada, Las Vegas coach Jerry Tarkanian (which at the time was not only legal but also standard practice). Shortly after this first battle was won in the war for basketball’s dominance, Nike took control of U.S. university basketball, with most of the top programs using Nike. But the big money was in professional basketball, and Nike had a problem. Control of the sport was with Converse since 1936 when the All-Star became the official basketball shoe of the gold medal-winning men’s Olympic basketball team. World War II sealed the company’s control when it became the official athletic training shoe of the U.S. military. But by the 1970s, this control was slipping due to Converse’s refusal to change with the times and adopt leather. In short, the time was right for a competitor to take control. Still, Nike was not at the front of the line; that honor went to Adidas. But when the company had the contractual right to sign the 1984 third draft pick, it declined. Nike, on the other hand, decided not only to sign Michael Jordan for a five-year, US$7m contract but also to get his advice on the exact design of the shoe. With Jordan now firmly attached to Nike, and his dominance of the sport, the company cemented its status as basketball’s shoe.
Where Are They Now?
Now that we know how Nike and Adidas became the giants they are today, let’s take a quick look at their current situation. In FY22 (ending 31 May 2022), Nike generated US$44.4b in revenue on a currency-consistent basis after growing 6% year-on-year. FY21’s revenue growth was driven by Nike Direct and wholesale, led by Sportswear and the ever-present Jordan Brand. Gross margin increased from 1.2%, totalling 46% as the company’s supply chain problems continued to abate. In FY22, Nike generated US$6b in net profit with US$13b in cash and equivalents. The company still dominates professional basketball, with a 2021 study by Baller Shoes DB estimating 67% of NBA players wear Nike, compared to 10% for Adidas.
But don’t feel bad for Adidas; the company saw 16% currency-neutral revenue growth in FY21 (ending 31 December 2021). This resulted in €21b in revenue generated, and gross margin increasing 0.7% to 50.7%. Like Nike, the company saw significant improvement in its COVID-19-related logistics problems in FY21, although it will be a while before they are no longer an issue. Net income from continuing operations reached €1.5b in FY21, and the company ended the year with €3.8b in cash and equivalents. It is important to note that the company increased its capital expenditures by 51% to a whopping €667m as it invested in new stores and remodeled existing ones. But most of the expenditures are from the IT department, which continues improving and expanding its infrastructure.
So while Nike started later, the company is the clear king of the sports apparel giants. But don’t count Adidas out just yet, as FY21 shows the company still has a lot of fight left.