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To Bite or Not To Bite: That´s Luis Suarez and Adidas´ Question

June 27, 2014 | About:

In this article, let´s look at Adidas AG (ADDYY), the German multinational corporation that designs and manufactures sports shoes, clothing and accessories based in Herzogenaurach, Bavaria, which spent approximately $70M to sponsor the FIFA World Cup Brazil 2014.

Adidas logo is prominently displayed throughout the World Cup and is also the official ball provider “The Brazuca”.

Both companies are sponsoring 19 of the 32 teams

Both Nike Inc. (NYSE:NKE) and Adidas have invested time and money to individual player and club endorsements for the World Cup. Nike actually sponsors more teams and individual players. Nike has ten teams including Brazil and the United States, while Adidas has nine: Germany, Spain, Colombia, Bosnia and Herzegovina, Argentina, Japan, Russia, Mexico, and Nigeria. German sports company Puma also has nine team sponsorships, including Italy.

Turning our attention to individual player sponsorships, Nike has an advantage. It sponsors six of the ten most marketable players in the game, including Cristiano Ronaldo, Wayne Rooney and the Brazilian forward Neymar Jr. who Nike backed early with a $7 million a year contract and is one of the favorites to win the Golden Ball award. On the other hand, Adidas sponsors just three, including Argentina´s superstar captain Lionel Messi and the incomparable Uruguayan Luis Suarez.

Luis Suarez (Uruguayan Football Player)

Luis Suarez appeared to bite Italian defender Giorgio Chiellini in his country's final group game at the 2014 World Cup in Brazil. Suarez, who has twice been suspended previously for biting, appeared to take a chomp at Italy's Giorgio Chiellini. The FIFA, the football's world governing body, had opened disciplinary proceedings against Uruguayan football star; and yesterday he was suspended for 9 official matches and banned from taking part in any kind of football-related activity for a period of 4 months.

Big Boost from Events in Brazil

Adidas has a 12% share of the global sports market, behind market leader Nike (19%). In the soccer market, Nike generates $1.9 billion in revenue from soccer gear, while Adidas generates $2.4 billion.

The German company forecasts sales growth of 6% to 8% for the year including close to $2.8  billion from soccer sales. Adidas chief executive Herbert Hainer estimated that his company would generate approximately $2.8 billion from the soccer segment in its current fiscal year.

Final Comment

It has taken Nike decades to catch up to Adidas on the soccer segment. Both companies are now competing in more markets than before, and Adidas is losing market share in some of its core businesses.

Since 1970, Adidas has had a partnership with FIFA that will continue into the future. But today, Adidas comes under pressure to act as a “moral referee” and perhaps it ends its association with Suarez. If Nike handles Suarez image well, it could be good for sales.

I believe the World Cup could be a huge catalyst for Nike. For this reason, I would recommend investors looking to benefit from the World Cup should consider buying shares of Nike which remains perfectly positioned to possibly gain Luis Suarez image.

Hedge fund gurus have also been active in the company in the first quarter of 2014. Joel Greenblatt (Trades, Portfolio) and John Hussman (Trades, Portfolio) have taken long positions.

Disclosure: Omar Venerio holds no position in any stocks mentioned.

About the author:

Omar Venerio is capital markets, derivatives, corporate finance and financial management professor. He is passionate about the stock market and providing independent fundamental research and hedge fund and insider trading-focused investigation.

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