Professional football players get paid a lot of money, even as rookies, because the NFL gets very high ratings on television. Of the top 10 programs on TV in 2012, NFL programming took the top eight spots, according to Nielsen. Even the draft, the NFL’s biggest off-season event, is more watched than other sport in season such as the NBA, NHL or major league baseball.
Unsurprisingly, advertising to fans is a major revenue generator for the NFL. Advertisers are always working to reach that vaunted 18-45 male demographic — a large portion of NFL viewers. Anheuser-Busch InBev NV (ADR) (NYSE:BUD) is one of the biggest ad spenders, marketing its beers to eager fans. In 2012, the second round of the NFL draft was sponsored by Inbev’s Bud Light.
When Inbev spends tons of marketing money on NFL-related programming, does that create shareholder value? Many who have invested in Inbev in the past few years can’t be complaining: since Anheuser-Busch’s merger with Inbev in 2008, the stock is up 52%. There could become a point of advertising saturation for the company that might prove detrimental. But Anheuser-Busch InBev NV (ADR) (NYSE:BUD)’s strategy of launching new beer products seems to be working on attention-deficit NFL fans. And when spending marketing dollars on NFL programming, Inbev knows that a lot of beer drinkers are watching.
The huge marketing deals that companies sign with draft picks are also big business. Endorsement deals are commonplace, with NIKE, Inc. (NYSE:NKE), Adidas and Under Armour Inc (NYSE:UA) battling in recent years to sign coveted picks. The most marketable draft picks play quarterback, so its no surprise that these sports apparel companies are jostling to sign deals with signal callers.
In 2011, rookie quarterback Cam Newton signed a record contract with Under Armour Inc (NYSE:UA) valued at $1 million per year. Prior to the 2012 draft, quarterback Robert Griffin III signed a deal with Adidas.
But these deals to endorse gear pales in comparison to agreements that decide what equipment is used on the football field during games. NIKE, Inc. (NYSE:NKE) signed a five-year deal with the NFL to be the exclusive provider of on-field apparel. That deal has cost Nike over $1.1 billion. It handily trumps Reebok’s previous ten year NFL apparel deal, which was estimated to cost $250 million (Reebok was purchased by Adidas in 2006).
Under Armour Inc (NYSE:UA) in particular has a lot of room to grow as football’s popularity continues. It has a tenth of the market cap that NIKE, Inc. (NYSE:NKE) possesses. It is focused on football, particularly since its founder, Kevin Plank, is a former University of Maryland player. The company signs deals with colleges to provide apparel for their football teams. The company clearly wants to nurture talent for rookie endorsement deals rather than spend money on pie-in-the-sky deals like NIKE, Inc. (NYSE:NKE) did with the NFL or with veteran star players. Spending like this is smart, as it ends up costing less yet still allows Under Armour to compete with NIKE, Inc. (NYSE:NKE).
It appears that Adidas and its subsidiary Reebok are missing out on the NFL bandwagon as NIKE, Inc. (NYSE:NKE) and Under Armour Inc (NYSE:UA) wage a David and Goliath-type battle for NFL athletes. After its NFL apparel deal expired, Adidas signed a contract for Reebok to sponsor CrossFit gyms. It’s a long-term strategy to bank on physical fitness rather than pro-football, a sport that most people don’t actually play.
Adidas has pledged to sign a contract with the fastest NFL prospect, which signals that it wants to promote its shoes, but perhaps not much else NFL-related. That might not be a bad move, as the deal with CrossFit could bring the company more revenue as that brand is positioned closer to potential customers that might actually buy athletic gear from Rebook.
The NFL draft is not a science: within three years, only 62% of draft picks will still be on NFL rosters. But teams have to pay for drafting talent. The companies that spend marketing money on drafted players can get good exposure as long as the player becomes a good professional player. Maybe that’s why Nike’s deal isn’t so bad despite the cost: no matter the player, they’re all wearing that swoosh logo on their jersey during games.
The article The Players Are not the Only Ones Gaining from the NFL Draft originally appeared on Fool.com and is written by Daniel Cawrey.
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