How Nike landed Michael Jordan

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Friday, February 15, 2013
How Nike landed Michael Jordan
By Darren Rovell
All Michael
Jordan
wanted to
wear was
adidas in
the NBA.
Although he
wore
Converse at
North
Carolina,
because his
coach Dean
Smith was The promotional value of having Michael Jordan wear Nike shoes was
getting paid every bit as important as the revenue he generated.
about $10,000 a year to put the brand on his players, the German make was his
dream.
But adidas wasn’t making an offer. It wasn’t that they thought Jordan wasn't worth
anything; they were just caught at a bad time. After company founder Adi Dassler
died in 1978, his wife, Kathe, took over the business. But she had her son, Horst, and
her four daughters each running separate divisions.
The husbands of the daughters also were closely involved, which didn't make things
easy. By the time of the Jordan negotiations, tensions were high and thoughts of a
succession plan were a top priority as Kathe was not in good health. She died later
that year.
“They were definitely in a state of flux,” said Frank Craighill, who represented Horst
at the time. “It wasn't an easy thing to split."
Jordan was extremely disappointed.
Michael didn’t want to show up at Converse headquarters, but because of his
relationship with Smith, he went.
“We’re sitting in the conference room and they’re saying things like, ‘We are
basketball,’” Jordan's agent David Falk recalled. “They’re telling us that they have
Magic, Bird, Dr. J and Mark Aguirre.”
According to Joe Dean, who was in charge of Converse’s marketing at the time,
Michael was supremely interested in the company’s pitch.
“I give him a lot of credit,” Dean said. “He was asking, ‘With all these stars, where
do I fit into the conversation?’”
John O’Neil, the president of Converse, took that question.
“We’ll treat you like all our other superstars,” Dean remembered O'Neil saying,
offering him a financial package of about $100,000 a year, commensurate with what
the top players were earning at the time.
Michael’s father, James, wanted in.
“Don’t you guys have any new, innovative ideas?” he asked.
Dead silence.
Converse had no chance. At the time, the brand was beginning to lose its spot as the
nation’s top producer of athletic shoes. Converse was slow to use leather, and
although Nike was signing coaches for bigger dollars, Converse didn’t have the
desperation it should have had in negotiations with Jordan.
“We were in a tough spot,” Dean said. “If we gave Michael more, what would we
have done with Magic, Bird and Dr. J?”
The Wild Card
It was O.J. Simpson, of all people, who called it: Michael Jordan would be the best
new star in sports.
“This kid at North Carolina, he’s the next me,” O.J. said in
the summer of 1984. “We should go for him.”
At the time, Simpson was vice president of promotions for
the Spot-Bilt brand, a shoe owned by a company named
Hyde Athletic that had paid Simpson to wear Juice Mobiles
while he was in the NFL. Now he was drawing a regular
paycheck from the company that made its money off selling
its cleats to teams.
So John H. Fisher, then Spot-Bilt's vice president of
marketing, went to his father and asked him what to do.
“He told me, ‘Don’t leave a dime at the door,’” the younger
Fisher said.
If Jordan had his
druthers, he would have
chosen adidas after
leaving North Carolina.
So Fisher went to meet with Michael, his father, James, and
Falk in Washington, D.C., at the headquarters of ProServ, the agency where Falk
worked.
For an inside edge, Spot-Bilt had hired Nike’s old ad agency, John Brown &
Partners. They showed Falk and the Jordans some storyboards and ideas. They used
O.J. as an example of what they could do and explained that Jordan would be the
most important athlete in their portfolio if he wore the Spot-Bilt brand.
Nike Moves In
Nike was a fast-rising star. The company's revenue went from $28.7 million in 1973
to $867 million by the end of 1983. But things had started to turn on them toward the
end of the year. In February 1984, the company reported its first quarterly loss ever.
The Olympics in Los Angeles that summer provided a nice morale boost -- most
notably, Carl Lewis won four gold medals in Nikes -- but there wasn't an immediate
translation in sales.
Converse and adidas weren't ready for Jordan, but all of a sudden, Nike needed him.
If the company could only get him on the plane.
He had just come back from the Olympics, and after a full college basketball season,
he told Falk he was exhausted.
“I have no interest in going there,” Falk said Jordan told him. “Just do what you need
to do to get me with adidas.”
Falk wouldn’t have it. Although he was the least senior partner at his firm and had
met with Jordan in person only a couple of times, he had to have Jordan at Nike with
him.
Nike was Falk’s go-to company, and he had a tremendous relationship with Rob
Strasser, the guy who did all the deals. “I’d tell Rob how much I needed to have a
player sign with Nike, and he made it work,” Falk recalled. Most of Falk's clients
wore Nike, including Bernard King, Phil Ford and Moses Malone.
Falk didn’t want to push his luck, and he wasn’t getting through to Jordan, so he
called Jordan’s parents, James and Deloris. He told them he needed their son at the
presentation. And the next thing Falk knew, Jordan was packing his bags with his
parents in tow.
When they arrived in Beaverton, Ore., they went into an office in one of the two
buildings that stood at Nike at the time. The group met with Strasser, designer Peter
Moore, and those responsible for basketball at the company, Howard White and
Sonny Vaccaro.
Jordan was shown a highlight tape of himself to the Pointer Sisters "Jump," a song
that had recently debuted. Moore showed him a red-and-black shoe design. Jordan
said that one of the reasons he liked adidas was because they were lower to the
ground than the higher shoes that Nike was making. Moore said he could tailor them
to Jordan’s liking.
No one was doing that at the time. You were given what the company gave you.
"They really made a great effort of trying to have my input on the shoe," Jordan told
me five years ago, adding that he had never put on a Nike shoe to this point in his life.
Then they moved into another room, where Jordan was shown more potential plans.
During the talk, Nike president and co-founder Phil Knight walked into the room.
Strasser knew that Jordan was a car nut, so he said to Jordan, "If you come with
Nike..."
It was at that point that Falk's head swiveled to the back of the room and saw Knight
clutching his chest, as if Strasser had the keys to a car in his pocket. Strasser reached
in and took out two die-cast Mercedes cars.
"I think Phil almost had a heart attack," Falk said.
Later that night, after the group went out to dinner, Falk asked Jordan -- who was
emotionless the whole trip -- what he thought.
"I don't want to go to another meeting," Jordan told Falk.
Knight Vision
On the advice of Vaccaro, Nike offered Jordan $500,000 a year in cash for five
years, which was a ridiculous number at the time. The previous highest contract was
James Worthy's deal with New Balance, an eight-year deal worth $150,000 a year.
Adding stock options and other parts of the deal, Falk said Jordan would earn $7
million over those five years, as long as Nike didn't sever the contract.
In order to protect the company, Nike included a clause in
Jordan's deal that said if he didn't accomplish one of three
things -- win Rookie of the Year, become an All-Star or
average 20 points per game -- in his first three years, it
could end the deal two years early. Falk then asked, "What
happens if he doesn't do any of those three, but still sells
shoes?" Nike's response, according to Falk, was if Jordan
sold at least $4 million worth of shoes in his third year,
he'd get the final two years of the deal.
When Jordan was told the terms, he said he made one last
private pitch.
"I was very loyal," Jordan said at the time. "I went back to
my adidas contract and said, 'This is the Nike contract -- if
you come anywhere close, I'll sign with you guys.'"
It wasn't happening.
It took some work to
persuade Michael
Jordan, including a
phone call to his
parents, but in the end,
he chose Nike.
As for Spot-Bilt, Fisher knew going up against Phil Knight was going to be hard.
Nike was almost 10 times as big as his company. The Spot-Bilt brand made shoes in
the U.S. Nike made shoes in Asia.
Knight was also killing the team business that was so profitable to Hyde’s Spot-Bilt
brand by giving shoes to teams for free.
“Our shoes were good, but they weren’t better than free,” Fisher said.
Fisher saw the writing on the wall when the equipment manager at the University of
Oklahoma, a big account, called him and said they didn’t have any choice but to wear
Nikes.
“Phil understood that the bigger prize was the promotional value instead of the
revenue from the team business alone,” Fisher said.
Knight had boldly proclaimed at a shoe industry conference in Chicago in the mid'70s that he wasn’t in the shoe business. He was in the entertainment business. He
might have given away his secret, but he was the best at it.
That's why when it came time to give an offer, Fisher gave it his best shot.
"Phil was who he was and Falk was a great negotiator, so I only had one time to do
it," Fisher said. When the numbers were revealed, Falk was impressed. In straight-up
cash, Spot-Bilt's deal would be worth more than what Nike offered.
If it came down to which company offered top dollar, Spot-Bilt would have landed
Jordan, but Falk knew Nike had the marketing muscle. In fact, he said he made them
commit to putting $1 million into marketing Jordan's shoes in their first six months on
the shelves.
Flying High
In the coming weeks, Falk came up with the Air Jordan name and Nike was working
hard to make a splash.
But first, Falk had to call Fisher to tell him that
Jordan would not be wearing Spot-Bilt.
"David called me and told us we had the
highest bid, even though I always assumed
Nike did," Fisher said. "He was very
respectful to me and said that Michael and his
father really appreciated the time we spent
with them."
So what would have happened if Spot-Bilt had
landed Jordan?
No one comes close to selling as
many shoes as Nike's Air Jordans.
"We wouldn't have had Jordan wear those black-and-red shoes," Fisher said. "We
were a family company, more conservative. We would have probably made a white
shoe with a red stripe on it."
As for whether the brand would have been able to keep up with the Jordan craze,
Fisher said he'd like to think it would have, but not at the pace of Nike.
When the 1984-85 season rolled around, everything went right.
The shoes were banned by the NBA because of their lack of uniform color scheme.
Nike paid the fines and made a commercial.
"On October 15th, Nike created a revolutionary new basketball shoe," the voice in
the commercial said. "On October 18th, the NBA threw them out of the game.
Fortunately, the NBA can't keep you from wearing them."
Jordan played every game of his rookie season, averaged 28.2 points per game, and
won the Rookie of the Year award. Kids wanted to "Be Like Mike."
The Air Jordan Is, at an unheard of price of $65 a pair, hit stores nationwide in
March 1985. By May, Nike had sold $70 million worth. By year's end, the Air Jordan
franchise had yielded more than $100 million in revenues.
In the company's annual report that year, Knight called it "the perfect combination of
quality product, marketing and athlete endorsement."
In 2012, the Jordan brand sold $2.5 billion worth of shoes at retail, its best year ever,
according to market retail tracking firm SportsOneSource. Air Jordans made up 58
percent of all basketball shoes bought in the U.S. and 77 percent of all kids'
basketball shoes. Most of those kids didn't even see Michael Jordan play.
"Sonny kept saying, 'He's the guy, he's the guy,'" White said. "But we didn't know
what that really meant. None of us thought it would be like it has been."
Neither did Jordan.
"Would the brand have been as strong if it was adidas?" Jordan asked. "We'll never
know."
But Jordan is thankful that adidas made it easier for him to walk away from the brand
he always loved.
"In hindsight, it was perfect for me because it made my decision that much easier, and
I ended up with Nike."