Saturday 1 October 2016

Share Watch: Sporting life means sticking to the rules

John Lynch

Published 15/08/2016 | 02:30

Nike Inc is valued at $95bn and is the world’s largest seller of jerseys, shirts, shorts and shoes with brands like Nike and Converse. It employs 62,500 people worldwide (Stock picture)
Nike Inc is valued at $95bn and is the world’s largest seller of jerseys, shirts, shorts and shoes with brands like Nike and Converse. It employs 62,500 people worldwide (Stock picture)

There was a time in Ireland when it seemed that sport was all we had. Children in Dublin (certainly in my part of Dublin) spent the day kicking football in the street and aching to 'dribble' like Stanley Matthews had done in the FA Cup final in 1953.

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Meanwhile, in Kilkenny, Cork, Limerick, Wexford and Waterford the kids spent the day whacking a sliotar against the wall of the handball alley, dreaming of becoming Jimmy Doyle, Nicky Rackard or Christy Ring. At the same time the boys in Kerry just studied how to be the better than the rest! Sport wasn't a business. It was a passion rewarded only by success.

I'm not sure what sport has since become. If it is only a business it has become an extraordinarily influential one. In the last decade the numbers who play has exploded beyond all expectations.

Every parent wants to see his or her child become a sporting prodigy and will happily invest in the prospect. That means tracksuits, expensive footwear, training equipment and even bulking-out medicinal preparations.

Corporations catering for this explosive growth have become some of the most powerful in the world.

But fundamentally sport means so much to us (as the thrilling Irish goals in the Euros showed) that if it is to be exploited, there is a moral responsibility to ensure things are done within the rules.

These thoughts occurred to me while I threw the 'slide rule' over Nike, the world's largest marketer of sports footwear and apparel and possibly the most valuable sports brand in the world.

Nike Inc is valued at $95bn and is the world's largest seller of jerseys, shirts, shorts and shoes with brands like Nike and Converse. It employs 62,500 people worldwide, selling its products in 110 countries, through retail stores and factory outlets.

It has had to confront some moral dilemmas about where it outsources its production. Its footwear products are made in 145 factories in 14 countries, from Vietnam to China to Indonesia. Its apparel products come from factories in 39 countries, mainly in Asia.

Not too long ago Nike was accused of tolerating contractors with poor working conditions and low wages, which led to a backlash from consumers. It claims it has since sorted the problem but it is a difficulty that bedevils all manufacturers as they chase the lowest cost suppliers.

Nike sales last year were an impressive $32bn, up 10pc on the previous year, with Nike brands contributing $28bn and Converse $2bn.

Apparel sales were less than half that of footwear. Recently Nike announced it intends ditching its golf equipment business. The US market accounts for almost half of Nike's total sales last year and was the fifth year of double-digit growth.

Revenues at $32bn show an increase of almost 50pc in the last five years. The company anticipates sales of $50bn in the next four years.

Net income was $3bn showing a similar rate of growth as revenue.

Its share price increase in this period is also impressive, rising from $33 per share to $105 prior to its share split.

Today it trades at $56, down a tenth this year.

Outsourcing is not the only moral consideration for Nike. The business has been transformed in the last quarter century by TV and also by unprecedented sponsorship deals which are being threatened by the drug cheats. Heroes of the past like the aforementioned Stan Matthews or tennis great Rod Laver would be dumbstruck at the money now thrown at sports people.

But the professional cycling tour and what's happened in Russian athletics is causing a worldwide rethink. Will fans round on the big money sponsors?

'Greybeards' like me may have nostalgia to fill the bleak winter days, but younger sports lovers' trust and belief could be shattered. If they see morality disappear from the sports arena what will happen to arguably the biggest growth sector of the last fifty years? It could test Nike's business model.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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