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NBA Draft Prospects Find Sneaker Money Market Dry For Rookies

johnwallstreet
·5 min read

The 2021 NBA Draft will take place tomorrow evening in Brooklyn, and Oklahoma State guard Cade Cunningham is widely projected to be the top overall selection. The soon-to-be Detroit Piston recently agreed to a footwear and apparel deal with Nike, a pact that is reportedly the most lucrative shoe deal in this draft class. To be fair, however, that is not a particularly high bar to clear. Jalen Green, who played for the G League Ignite last season, is the only other presumptive lottery pick to have announced a deal that includes a cash component to date. Excel Sports Management founder Jeff Schwartz said the dearth of incoming rookies with well-paid shoe contracts is indicative of a market where endorsement money is hard to come by.

Our Take: The terms of Cunningham’s deal with Nike were not disclosed. And Excel, which represents the 19-year old, opted not to comment. But it is believed the point guard at the top of this year’s draft is set to earn a shoe endorsement deal worth more than $2 million per year.

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Gonzaga PG Jalen Suggs is the only other player in the draft class expected to get a deal in the $2 million range. Green (who has a deal) and USC center Evan Mobley (who could go as high as No. 2 overall) were thought to be receiving offers worth less than $1 million per year. “You must be a special player in Top 4 to get a deal [this year]. Everyone else won’t have one unless they came through a shoe company’s grassroots program and will do a merch bonus deal or are in a target market,” said one agent who asked to remain anonymous.

It is difficult to compare the current sneaker endorsement market to years past—both in terms of deal values and volume. “Every year the shoe market is different. It depends on the shoe companies’ appetites to spend,” Schwartz said. “The more companies out there are spending, [the] more competition in the market, so dollars go up. This year, fewer companies are spending so there are fewer guys getting shoe deals. Last year was a complete anomaly where none of the shoe companies spent.”

If 2020 was abnormal for the lack of brands pursuing players (Nike didn’t have a player selected in the Top 3 for the first time since 1988), 2019 was abnormal for the amount of money it took Nike to land the top prospect in the draft. Pelicans forward Zion Williamson inked a seven-year deal worth a reported $75 million. “Net of Zion, you have to go back to Durant [in 2007] to find a rookie [shoe] contract that was of any magnitude,” Matt Powell (senior sports industry advisor, NPD Group) said.

There has also been a recalibration of the market in recent years, as brands have come to the realization that it is nearly impossible to generate a positive ROI on massive endorsement deals. For perspective, Powell said there is not a single active NBA player whose merchandise sales “come anywhere close to offsetting the cost of their contract.” Of course, one could argue there is a marketing and credibility component that needs to be considered when evaluating those deals.

The decline of the basketball shoe category is another reason why “we have started to see some sanity come back into the [sneaker] endorsement market,” Powell said. “Basketball shoes now represent just 3% of the U.S. sneaker business. [The demand for them] is probably at its lowest ebb ever, and I’m not projecting we’re going to see that business bounce back quickly.”

While Cunningham and Green were the first players in the class to sign, they are unlikely to be the last. Schwartz said he “expects to see more deals, but on the smaller side.” Powell suggested some of footwear and apparel brands may be waiting to see where certain players land before they sign them. “Clearly, where [a player] plays matters—especially in terms of merchandise sales,” he said.

Back in 2018, we saw Puma explode back on the scene, signing several highly touted rookies including Deandre Ayton (the No. 1 pick) and Marvin Bagley (No. 2). New Balance and Converse have also started to endorse players in recent years. Powell says all three have found success with their basketball lines, though none is seeing substantial, tangible return.

That doesn’t mean trio of upstarts will be taking a pass on this year’s draft class. The industry consultant said he expects all three to “be in play for some of these rookies.” The presumption is that eventually basketball sneakers will come back into fashion, and these companies want to have a foothold in the market when it does.

To be clear, just because Cunningham and Green aren’t making Durant and Williamson shoe money today doesn’t mean they won’t in the future. As Powell explained, the philosophy across brands now is largely to “sign a [bunch of rookies], pay them a million or two million dollars a year [over the first few years] and see how they pan out. If they are marketable, good on the court and don’t get in trouble [off of it, they will] pay them bigger money later. Steph Curry is the poster child for that [model].” Curry is currently on a deal estimated to be worth $20 million per year with Under Armour.