Adidas Bets Big On 2016 NBA Draft Class

| About: adidas AG (ADDYY)

Summary

NBA endorsements drive basketball shoe sales.

While the NBA Finals pitted UA against NKE, ADDYY was working behind the scenes to capture young talent.

ADDYY has signed 5 of the top 7 players in this year's NBA Draft Class.

Included in those 5 players are Brandon Ingram, projected to go the highly-watched Lakers, and Kris Dunn, an explosive point guard who was pursued heavily by UA and NKE.

Competition in the basketball market appears to be heating up.

In the basketball shoe market, sales are driven by endorsements. Nike (NYSE:NKE) signed Michael Jordan in 1984 and never looked back as the company now controls upwards of 90% of the basketball shoe market. Things tightened in the market in the late 1990's and early 2000's when Adidas (OTCQX:ADDYY) used Kobe Bryant to steal market share. In 2003, though, NKE signed a high school kid named LeBron James and, a month later, convinced Kobe to leave the Stripes and join the Swoosh. Nike's dominance in the basketball market has only recently been threatened by the meteoric rise of Under Armour (NYSE:UA) and Stephen Curry. ADDY, which will be replaced by NKE as the official jersey provider of the NBA, has by-and-large taken a back seat to UA and NKE.

But perhaps not for long. While the world was watching UA clash with NKE in the most-watched NBA Finals since the Jordan-era, ADDYY was working quietly behind the scenes to sign a batch of young and talented players. ADDY has signed 5 of the top 10 players in the 2016 NBA Draft Class to NKE's 2 signees and UA's 0. While NKE has signed the near unanimous number 1 pick in Ben Simmons, ADDYY has signed some big names in Duke's Brandon Ingram, Providence's Kris Dunn, Cal's Jaylen Brown, Kentucky's Jamal Murray, and international star Dragan Bender. According to NBADraft.net, that means ADDY has signed the projected number 2, 3, 4, 6, and 7 picks in this year's draft. NKE has signed the projected number 1 and 5 picks in Simmons and Buddy Hield, respectively.

Click to enlarge

Signing players before Draft Day is not an unusual practice in the NBA. Jordan was plucked out of the 1984 Draft by NKE. James was given a NKE contract a month before he was drafted first overall in the 2003 NBA Draft. Signing rookies ensures the shoe company locks them into a deal on the chance they might explode into stardom. The shoe company takes several bets per year in the hopes of finding the next Jordan, Kobe, LeBron, or Curry to invigorate shoe sales.

The most impressive thing about ADDYY's success in signing players from the 2016 NBA Draft Class is that, of the domestic college stars, none of them played for an ADDYY sponsored college team. Brandon Ingram played for a NKE-backed Duke team, Jaylen Brown played for a Jordan-backed Cal team, Kris Dunn played for a NKE-backed Providence team, and Jamal Murray played for a NKE-backed Kentucky team. This may say something about how convincing ADDYY's pitch was, or how much the company's partnership with Kanye West has an effect on other deals.

The two most coveted assets for ADDYY are Brandon Ingram and Kris Dunn. Ingram is projected to go second in the Draft, which would send him to the LA Lakers. A big-time player in a big market is a valuable asset because regardless of success of the team, big market teams tend to get the national spotlight a lot more than small market teams. The Lakers are also in talks of landing a big-time free agent this summer, so Ingram could be paired with a superstar from the get-go and be on a talented big-market team that will receive a lot of national attention. Dunn, on the other hand, is an explosive point guard whose game translates almost flawlessly to the NBA. UA and NKE were reportedly both in pursuit of the Providence point guard, but ADDYY ultimately won out.

This year's NBA draft class is considered to be one of the most talented and deepest in recent memory, at least since the 2009 Draft which featured Steph Curry, Blake Griffin, and James Harden. Just as the basketball market seemed to be consolidating to a two-horse race between UA and NKE, ADDYY has stepped in and taken over this Draft Class by storm. If Ingram or Dunn or any of ADDYY's 2016 bets pan out, we could see the basketball market become even more divisive.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.