WEB EXERCISE 4

In recession, Nike is likely to cut marketing Published: Monday, November 2, 2009

CHICAGO — Nike, one of the world's biggest sports marketers, could send shock waves through the

industry this year by cutting its marketing budget as part of a push to reduce expenses.

Nike, known globally through its endorsement deals with athletes like Tiger Woods and Kobe Bryant and

European soccer clubs including Manchester United and Arsenal, signaled that it was in a cost-cutting

mode by saying on Tuesday that it would eliminate as many as 1,400 jobs, or 4 percent of its work force.

Even if the company reins in advertising spending, sports sponsorships and endorsement deals - which is

considered likely - Nike would still be able to maintain its dominant position, analysts said.

"They have such penetration in their marketing budget that they can use attrition to cut off contracts,"

said Robert Boland, professor of sports management at New York University. "You'll definitely see a

different allocation and you'll definitely see some reduction. When you're the biggest, you have the power

to do that."

General Motors and FedEx, two other major sports sponsors, have reduced their marketing budgets,

including sports-related spending, in response to the recession.

Nike officials would not address specific plans but said everything was being reviewed.

"As part of restructuring our business, we're analyzing all aspects of our costs, including sports marketing

contracts, advertising and brand marketing," said Derek Kent, a company spokesman. "There are

opportunities for reductions in endorsement contracts, and we are evaluating them on a case-by-case

basis."

Eliminating deals with lesser athletes, teams and sporting events could result in significant savings for

Nike, analysts said.

"They still want to uphold the spending on their marquee athletes," said Tom Shaw, an analyst with Stifel

Nicolaus. "But there are opportunities to cut back on the secondary and tertiary type athletes or even

teams that perhaps didn't really captivate or drive eyeballs to the brand."

Nike spent an estimated $255 million to $260 million on sponsorships last year, up from $240 million to

$245 million in 2007, according to IEG, a research firm owned by WPP Group, the advertising

conglomerate.

Nike spent $143.4 million on advertising in the first nine months of 2008, down slightly from a year

earlier, when it spent almost $184 million over all, according to TNS Media Intelligence.

Nike surprised analysts in December by emphasizing cost-tightening in a conference call after third-

quarter results. In the past, the company was not known for frugality.

"Nike's sports marketing strategy looking backwards was a little bit more free-spending than it will be

moving forward," said Paul Swangard, managing director of the Warsaw Sports Marketing Center, an

academic arm of the University of Oregon.

Omar Saad, an analyst with Credit Suisse, wrote in a research note Wednesday that Nike was at the

beginning of a longer-term restructuring that would extend beyond job cuts.

"We think a story of slowing revenues will be overshadowed by Nike's willingness and ability to cut

expenses in the coming quarters," Saad said.

Nike's North American marketing budget, he added, is likely four times that of its rival Adidas and far

above what is needed to maintain its market share.

Shaw, the Stifel Nicolaus analyst, said Nike had also started spending its marketing dollars more wisely,

pointing to the use of Bryant in viral marketing, or marketing that depends on social networks, e-mail

messages and word of mouth.

"They're still using their brand power and big, marquee endorsement contracts," Shaw said. "But instead

of coming up with an expensive TV campaign, they came up with something that people are watching on

YouTube. It's more bang, less buck."