Brands and companies have been partnering with athletes for as long as I can remember. A partnership is a way for the fans of these athletes to associate themselves with a product or a brand. This will hopefully generate more interaction with the brand’s website or even generate more sales. Typically, these partnership deals involve a monthly salary that is paid to the athlete in return for social media posts, appearances, speaking engagements, or whatever is the agreed-upon contract. However, since starting my internship at Athelo Group, I have learned that there are other ways to get partnership deals signed without needing a brand to spend tons of money from their marketing budget. Another way to strike a partnership deal is by offering the athlete a percentage of equity in the brand. We currently represent an athlete that has a partnership where they were paid with a small amount of cash as well as equity in that company. The rest of this blog post will touch on other examples of equity being used in partnership deals as well as the positives and negatives of using equity.
The “idea of paying athletes inequity started around 20 years ago” with Mike Repole, current Chairman and Founder of BODYARMOR, while he was working for Vitaminwater and Smartwater (Sportico.com). At the time, Vitaminwater was looking to partner with legendary New York Mets third baseman David Wright. They wanted to have David appear in commercials and promote the product during press conferences. Mike offered David two options. The first was cash straight up for multiple commercial spots. The second, which David Wright decided to opt in to, was “receiving a 0.5 percent ownership stake in the company.” (Medium.com) One year after the partnership finished, Coca-Cola purchased the parent company of Vitaminwater, and Wright was able to “turn his equity stake into $20.5 million dollars.” (Medium.com)
Another example of equity being used in a partnership deal took place in the early 2010s between Under Armour and Steph Curry. At the time, Under Armour was far behind Nike and even Adidas when it came to sneaker community and sales. A major part of the reason why they were able to sign Steph Curry was due to the “the company equity offered.” (IBTimes.com) The equity offered was able to “incentivize Curry to work hard for the brand” in order to increase his equity in the company. For example, the more sneakers Curry was able to sell, the more valuable his equity would become because Under Armour was increasing its profitability. A deal like this was able to help Under Armour for two reasons. The first was that they were able to use equity to convince a rising athlete, at the time, to sign with a “niche sneaker company.” (IBTimes.com) The second reason was that this deal allowed Under Armour to “limit their expenditures.” (IBTimes.com) This means that instead of spending cash from their marketing budget they could save this money and reinvest it into their company. As a growing company, this was beneficial in the efforts to chase Nike as the top sneaker provider.
A more recent example of a brand using equity in a partnership would be BODY ARMOUR announcing “their partnership with Christian McCaffrey, Trae Young, Sabrina Ionescu, CeeDee Lamb, Kemba Walker, Drew Lock, and Ronald Acuna Jr.” (Sportico.com) All these athletes received equity in this sports drink, which had recently passed Powerade in grocery store sales. The idea behind this would be to bring in seven of the top athletes in North America to help promote the rapidly growing brand. This way the brand can stay top of mind with the community and quickly compete against the top competitor, Gatorade. BODY ARMOUR most likely would not have been able to afford all seven of these athletes in a cash partnership due to their social media following and prestige, but equity is a different story. Equity has proven to be a good sales driver when trying to close an athlete or athletes to join as a partner, however, for every positive, there are some negatives.
Brands and companies have been partnering with athletes for as long as I can remember. A partnership is a way for the fans of these athletes to associate themselves with a product or a brand. This will hopefully generate more interaction with the brand’s website or even generate more sales. Typically, these partnership deals involve a monthly salary that is paid to the athlete in return for social media posts, appearances, speaking engagements, or whatever is the agreed-upon contract. However, since starting my internship at Athelo Group, I have learned that there are other ways to get partnership deals signed without needing a brand to spend tons of money from their marketing budget. Another way to strike a partnership deal is by offering the athlete a percentage of equity in the brand. We currently represent an athlete that has a partnership where they were paid with a small amount of cash as well as equity in that company. The rest of this blog post will touch on other examples of equity being used in partnership deals as well as the positives and negatives of using equity.
The “idea of paying athletes inequity started around 20 years ago” with Mike Repole, current Chairman and Founder of BODYARMOR, while he was working for Vitaminwater and Smartwater (Sportico.com). At the time, Vitaminwater was looking to partner with legendary New York Mets third baseman David Wright. They wanted to have David appear in commercials and promote the product during press conferences. Mike offered David two options. The first was cash straight up for multiple commercial spots. The second, which David Wright decided to opt in to, was “receiving a 0.5 percent ownership stake in the company.” (Medium.com) One year after the partnership finished, Coca-Cola purchased the parent company of Vitaminwater, and Wright was able to “turn his equity stake into $20.5 million dollars.” (Medium.com)
Another example of equity being used in a partnership deal took place in the early 2010s between Under Armour and Steph Curry. At the time, Under Armour was far behind Nike and even Adidas when it came to sneaker community and sales. A major part of the reason why they were able to sign Steph Curry was due to the “the company equity offered.” (IBTimes.com) The equity offered was able to “incentivize Curry to work hard for the brand” in order to increase his equity in the company. For example, the more sneakers Curry was able to sell, the more valuable his equity would become because Under Armour was increasing its profitability. A deal like this was able to help Under Armour for two reasons. The first was that they were able to use equity to convince a rising athlete, at the time, to sign with a “niche sneaker company.” (IBTimes.com) The second reason was that this deal allowed Under Armour to “limit their expenditures.” (IBTimes.com) This means that instead of spending cash from their marketing budget they could save this money and reinvest it into their company. As a growing company, this was beneficial in the efforts to chase Nike as the top sneaker provider.
A more recent example of a brand using equity in a partnership would be BODY ARMOUR announcing “their partnership with Christian McCaffrey, Trae Young, Sabrina Ionescu, CeeDee Lamb, Kemba Walker, Drew Lock, and Ronald Acuna Jr.” (Sportico.com) All these athletes received equity in this sports drink, which had recently passed Powerade in grocery store sales. The idea behind this would be to bring in seven of the top athletes in North America to help promote the rapidly growing brand. This way the brand can stay top of mind with the community and quickly compete against the top competitor, Gatorade. BODY ARMOUR most likely would not have been able to afford all seven of these athletes in a cash partnership due to their social media following and prestige, but equity is a different story. Equity has proven to be a good sales driver when trying to close an athlete or athletes to join as a partner, however, for every positive, there are some negatives.
There are a lot of positives for both the brand as well as the athlete when it comes to equity in a partnership. In terms of the brand, I believe that the two biggest positives are that using equity in a partnership can help the long-term growth of a smaller/startup brand, and offering equity entices the athletes to work harder. If we look back at the Under Armour and Steph Curry example, Under Armour was a newer company at the time. They did not have a multi-million-dollar marketing budget that they could use to sign a rising star such as Steph Curry. However, they still had equity that they could provide which enticed Steph to agree to a partnership. Under Armour then saved millions of dollars to reinvest into other areas of the business such as research and development or advertising. If a brand is looking to partner with an athlete, no matter the social following, a way to save money is to offer equity in a partnership. The second biggest positive for brands would be that equity typically gets athletes to work harder for the brand. If an athlete’s main payment is inequity they are going to want to sell and work hard for the brand so that the equity has more value. This means that athletes could be doing things beyond things agreed upon in their contract so that they can make more money.
In terms of the athletes, the biggest positive to receiving equity would be the possibility of making more money than from a cash deal. If we look back at the David Wright example, he could have signed a cash deal for a couple million but ended up making $20 million. Obviously, there is the risk that the company does not perform well, and the athletes lose equity, but if the athlete has faith in the product and the company nine times out of ten the athlete will be successful.
One of the biggest issues when it comes to equity and endorsement is that this style of payment is so new. This means that the law is constantly changing and is fluid which means the athlete needs to be fully aware of what they are getting themselves into. In the past, a typical partnership agreement would have “an athlete endorsed a product for a specified time period in exchange for a fee and other nominal items.” (Brian J. Murphy) An example of this would be Pizza Hut paying Mike Trout $5 million dollars for one year if he does two commercials on behalf of the brand. Now with equity involved, Pizza Hut could pay Mike Trout five shares for two commercials. The issue here is the time frame. Equity shares can last as long as the company is making money, so it is important for the athlete to understand what the brand wants. If the athlete does not listen to the brand, they could face serious legal problems.
My final recommendation based on all the information above would be for both the athletes and the brand to do their homework. The brand should not be giving away equity shares like they are free samples, sort of like what BODY ARMOUR is doing. If they see the right fit with a certain athlete, I think it would be smart to offer them equity so that way they can build this company together. For the athlete, they need to make sure they can effectively promote the product to their audience. The athlete does not want to promote a product that goes against their image because then the company will be unsuccessful, and the value of their equity shares will plummet. Exchange endorsements for equity is not a bad thing as long as everyone is on the same page.
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