Under Armor highlighted the challenges facing the American college sports industry when it decided to end outfitting agreements with two leading hundreds of millions of dollars worth of university programs.
The deals with the University of California, Los Angeles, and the University of California, Berkeley, were part of a marketing campaign by Under Armor in recent years to provide colleges with a mix of cash and goods in exchange the right to equip their sports. teams.
The two universities said they would challenge Under Armor’s decision to end the deals. Armor’s deal with UCLA was touted as “the biggest clothing deal in the history” of American university sports when it was signed in 2016, at $ 280 million over 15 years. The contract between Berkeley and Under Armor is worth $ 86 million over 10 years.
“This is clearly a failure for Under Armor,” said David Swartz, equity analyst at Morningstar. “They didn’t sign a $ 280 million, 15-year contract just to end it four years later.”
The fight against clothing contracts highlights another financial headache facing universities as the Covid-19 pandemic endangers the college sports industry by more than $ 8 billion. It also marks an important strategic shift for Under Armor in its challenge to Nike and Adidas.
“Under Armor recently made the difficult decision to end our partnerships with UCLA and the University of California at Berkeley because we paid for marketing benefits that we have not received for a long time,” said the company in a press release. Monday.
Scoreboard is the new must-have weekly Financial Times briefing on sports affairs, where you will find the best analysis of financial issues affecting clubs, franchises, owners, investors and media groups across the global industry. Register here.
The Berkeley sports department said Under Armor “had no reason to terminate” their contract, while a UCLA spokesperson said the school “was exploring all of our options to resist Under Armor actions “.
Under Armor was founded in 1996 by Kevin Plank, a former college football player who developed the company’s iconic antiperspirant t-shirts after being frustrated with playing in cotton clothing. It has since become an outfitter of $ 5 billion, signing champion athletes, including Stephen Curry of basketball and Tom Brady of American football.
Agreements with university sports teams have marked Under Armor’s most significant marketing forays in recent years. The best schools receive tens of millions of dollars a year under such deals, while brands such as Under Armor, Nike and Adidas earn the right to use student athletes as billboards for their product when games are broadcast on television.
The director of another prominent university sports program, Ray Tanner of the University of South Carolina, said he had recently contacted Under Armor to “discuss our current contractual agreement”. A spokesperson for the company did not have an immediate comment regarding the relationship between Under Armor and the University of South Carolina.
Other important programs signed by Under Armor include the University of Auburn, the University of Notre Dame and the University of Yale.
The company has been challenged in recent years by a confluence of leadership changes, a contraction of wholesale retailers in the United States, and a general trend towards so-called athletics or fashion-inspired clothing. which is not the strength of the performance clothing brand.
Last month, Under Armor chief financial officer David Bergman said the company had taken several steps to improve liquidity during the Covid-19 crisis, including modifying its credit facility and offering convertible bonds. He also said the company would revise the terms of its sports marketing contract to preserve cash flow.
Under Armor is expected to pay $ 131 million in sponsorship and marketing agreements until the end of 2020, according to a schedule in its latest annual report.
The contract was terminated after the UCLA sports department reported an $ 18.9 million deficit in the 2018-2019 school year, indicating underlying financial challenges even before the pandemic does not effectively cancel sports activities since the spring. Athletes from the school have expressed in the past the problems they claim to have encountered with the products they received from Under Armor.