words & interview // Nick DePaula
Yesterday morning, it was announced by adidas that they had officially signed Houston Rockets star guard James Harden to a footwear and apparel endorsement deal.
This wasn’t your average shoe deal.
Since Harden’s former brand, Nike, had a match clause on any future endorsement offers James could receive, adidas was poised to offer Harden a once-in-a-lifetime opportunity that will feature an on and off-court signature collection, long-term security and unparalleled marketing potential. The offer was first reported last week by ESPN’s Darren Rovell to be worth $200 Million over 13 years. Ultimately, Nike decided not to act on their clause and match the deal.
To hear all about the factors that went into their massive proposal, how Harden will fit in, and what we can expect to see from the partnership, I went straight to the top, and spoke with adidas Basketball GM Chris Grancio. At the helm of the hoops category, Grancio, along with adidas executives Mark King and Eric Liedtke, have looked to re-shape the approach for basketball. There’s a noted shift in investment going forward, with more focus on signing marquee players and building through the league’s annual Draft. As a result, adidas will simply let their official uniform rights deal with the NBA expire upon its conclusion in 2017.
I spoke with Grancio early this morning for an in-depth conversation about adidas’ landmark signing of James Harden.
CHAPTER 1: ENDORSEMENT POTENTIAL
As both fans of the game and heads of a global sports brand, Chris Grancio and his team at adidas follow every player around the league closely. They’re also following emerging players at the grassroots and college levels, and ultimately are looking for strong fits that can be endorsers of adidas.
From the brand’s standpoint, it was Harden’s instant impact and ability on the court, coupled with his emerging off-court fame and penchant for daring style that gave them the confidence he could become a needle-moving signature athlete.
Nick DePaula: What were some of James’ attributes that made him attractive as an endorser?
Chris Grancio: We love his style and personality, on-court and off. I think that’s one of the things that when you look at our business, the attributes that have led to being able to build signature franchises and businesses around, we see all of that in James. He’s got a unique style on the court, and he puts the ball in the basket. Off the court, he makes his own style and we use the word “creator” a lot internally right now, and that’s the mindset we’re going after. We see every single bit of that in the way he carries himself, the way he plays on the court and the way he looks to set new territory. It makes it a really exciting match for us.
NDP: How would you describe his playing style, and how does he fit with adidas’ current roster of players and their playing styles?
CG: There are a couple of things, when we think about him on court. One, he has the ball in his hands a lot and he’s got a lot of eyes on him every single night. He does the unexpected. He’s got kind of an unusual, herky jerky game, and it’s a little bit different, frankly, from a lot of the guys that we have in the portfolio today.
We’ve got some great partners, and if you think about John Wall, Derrick Rose and Damian Lillard, they’re guys that fly up and down the court at full speed. James’ game is a little bit different, and we like that a lot and think that brings a really nice element to our family, when we think about our core guys that are playing and putting the ball in the basket. We’re really excited about what he can bring to us on the court, and the insights that he can bring as we start to collaborate and build signature product for him.
NDP: adidas has recently made some strides in China. How much extra value does James bring to the table with the fact that the Rockets are hugely popular throughout the country there?
CG: Going back to our days with TMac, Houston has been a priority market for us. It’s obviously a huge franchise in China, and certainly we see a wealth of opportunities in partnerships with the NBA, the Rockets, and on the ground in China. We look forward to exploring a lot of those things, whether it’s building academies, grassroots events or finding ways to connect more with the Chinese consumer. It’s a wide open space, and certainly a big part of what we can and will do in the years ahead will also be based on the opportunities we feel we have in China.
NDP: When Kevin Durant was getting his huge offers last summer as the marquee sneaker free agent, at that point he was the reigning MVP and had an established history of signature footwear business. Were there any worries from your perspective about James’ lack of signature shoe history as you looked to prepare an offer of this size, or was that looked at as a positive?
CG: No, and we’re excited about that actually. We’re really looking forward to coming in with a clean slate, and being able to build something completely new, completely different and completely unexpected from the ground up. That’s maybe the most exciting part about coming into a partnership with such a high-performing player entering the prime of his career – we’re able to come in and do something completely new. We were really excited about that.
CHAPTER 2: THE PITCH
There have been enough signature brand pitches in recent time to count on one hand. Simply put, it’s entirely uncommon that a signature-level player doesn’t come to an agreement on an extension before entering true sneaker free agency. LeBron, Kobe, Paul George, Kyrie Irving and Damian Lillard all agreed to extensions with their existing brand before hearing pitches from other companies. You could look to an exclusive crowd of only Kevin Durant, Blake Griffin, Russell Westbrook and Dwyane Wade as players that listened to pitches from other brands offering a true signature collection endorsement deal right from the jump.
Most shoe deals expire September 30th, and a current brand will typically have an exclusive negotiating window until the summer of that year to negotiate a player’s extension. With an eye on hearing pitches from other companies, James Harden recently met with adidas executives in Los Angeles to hear the brand’s official offer and presentation.
Nick DePaula: In terms of the pitch down in LA, what did your presentation to James include that helped to convince him this would be the right move for his career?
Chris Grancio: It all came together pretty quickly. At the end of the day, when we had a chance to sit down with him, it really was about explaining to him who we were as a brand, where we were going, what we wanted to stand for and be really clear with him about the opportunity he has and the role he can play in our basketball family. He can come in and create the new, and start to change the trajectory of adidas Basketball.
We are very much resetting our business today. We’re doing that with what are going to be incredibly exciting new products that are going to come out in 2016. We’re doing it with a complete overhaul and investment with our adidas Uprising events and our All-American Camp. We’re continuing to drive our Global Nations platform, and James is going to be a big part of that as an NBA athlete.
NDP: What were some of the things he specified that he’s looking for as an endorser?
CG: I think he was looking for a partner that would really engage with him and wanted his input. Someone that wanted to build a true partnership around product. He has a very strong point of view around what he likes, on what he wants to wear and how he thinks he can change the game. We were very receptive to that, and we’re looking for partners that want to put their thumbprint on our brand, that want to come in and help us create. We’re very much looking to build ourselves as an open source company, and there’s no better way to do that than partner with one of the most vocal, outspoken and stylish athletes in the game.
NDP: James has pretty consistently worn low tops. What else did he convey in terms of what he’s looking for in his footwear from a performance standpoint?
CG: We’re just starting to get into that process with him now. Over the next month, we’ll see him three or four times to start to really get into the details on footwear, biometric analysis and performance attributes of product. We’re going to really start to look at how we can outfit him with the best possible products for his game.
NDP: We’ve seen signature guys like John and Dame be activated mostly within the performance Basketball category, but it’s sounding like James will also be very visible from an Originals standpoint as well. How much was the recent strength and momentum of Originals products a factor for him?
CG: For sure it was, and we have a tremendous amount of momentum in our Originals business. We are the original sports brand, and we’ve got an archive that goes back 70 years. There’s a lot of room to play there, and certainly he’s excited about what we can do with him off-court as well. That may be through Originals, or that may be through another style partner. We’ve certainly made that off-court commitment to him, and I think that’s one of the things that’s made this an unprecedented partnership.
We have made the commitment to him that we want to work both on-court and off-court as we develop a brand with him. That’s certainly something that we’re excited about and we believe he’s got a really strong ability and an interest and desire to really shape culture. It’s one of the reasons that basketball is such an exciting sport, because there’s the pure athleticism on the court, and then also the cultural piece that sits around the game off the court.
CHAPTER 3: THE DEAL
Typically, top NBA rookies will sign a shoe deal once they’ve been drafted for anywhere from 3 to 5 years in length. Harden, drafted 3rd overall in the league’s 2009 Draft, initially signed on with Nike for 4 years, at around $250,000 per year, according to multiple people. It was the same deal that fellow top ’09 picks Blake Griffin and Tyreke Evans were offered and signed, with your standard incentives for All-Star appearances and other performance bonuses included.
Once their rookie shoe deal’s expiration came around in 2013, Blake had established himself as a major star in Los Angeles. He signed on with Jordan Brand until 2019 at around $5 Million per year, after also being heavily recruited and pitched by Under Armour. By that fall, Harden hadn’t yet established his own star power, having just been traded to Houston the season prior after beginning his career as a rock solid 6th man in Oklahoma City.
With an extreme confidence in his on-court ability and his growing profile as an endorser, rather than also sign a long-term deal in 2013, James’ agent Rob Pelinka of Landmark Sports opted instead for a short term, 2-year extension with Nike.
That brought us to this summer, where Pelinka was able to leverage Harden’s MVP-level play and breakout season into a mammoth deal with adidas. It’s that same superstardom and career trajectory of Harden’s that adidas values so much, as they look to re-shape their roster of players by investing more in endorsement deals.
Nick DePaula: Earlier this spring, you very publicly stepped away from negotiations with the NBA for the uniform rights deal. How much did that decision add to your player spending budget and impact the commitment you were able to offer James from a monetary standpoint?
Chris Grancio: The reality for us is that we needed to reset our trajectory. We needed to write a different business plan for adidas Basketball. The NBA partnership has been fantastic for us, but at the end of the day, we wanted to make a bigger statement around the way we build product, the way we market product, and the way we connect with the high school athlete.
As we looked at the best way to do that, investing in our product team, investing in more athletes and investing in our adidas Uprising platform were all the things that came out as clear headlines for us. If you look back at what we’ve accomplished this summer, we certainly have started to drive those new investments, and we’re confident as we get into 2016 that we’ll start to see the business results.
NDP: From a strategy standpoint, I really like that shift. I’ve always been of the belief that it’s better to partner with players than be an official league or event sponsor. Because of the nature of there being a match clause, how did that impact the number of years that were offered? Did you offer a more uniquely structured deal, knowing that the deal could be fully matched and he couldn’t sign outright with you?
CG: At the end of the day, we made the best offer that we could to James, based on how we saw him fitting in with our brand. There are realities around contracts that I won’t get into, but when we sat down with him, we felt like we had a great partnership fit, we felt like we could do some really exciting things on court and off together, and ultimately that formed the foundation of how we moved forward with our proposal.
NDP: From a broad marketing overview, there was the “It Takes 5” positioning a few years back that marketed a full starting 5 from a position standpoint. Since you’ve taken over with the 2012 Draft, there’s been a distinct shift towards adding point guards and attacking wings. Will we continue to see that going forward, and is that your vision for the brand?
CG: When you’re an underdog, you have to have a sharper point of view. I think we’ve built that and we’ll certainly continue to sustain that. There’s always room in our brand for great partners like Tim Duncan and Joakim Noah, but from a focus and mindset standpoint, for sure, we want to be the house of guards. We want to be the brand that point guards come to and look to.
We want to be the best basketball brand for when kids are out looking at the players that inspire them and they’re looking at products that are going to help them achieve what they want to be on the court. We want to own that, and we know that it’s going to take some time to do it, but that’s certainly where we’re going to continue to focus and invest.
NDP: There are some analysts that value signature deals by simply saying “Player A sold this much product with his Player A logo on it, so that’s what his measured revenue is for the brand this year.” But I’ve always argued that there’s a much bigger halo effect when you have a player of this magnitude and there are so many grey areas of the business that a signature athlete can impact. How do you look to measure the value of a deal this big over time?
CG: I think that’s right. There is a very tangible business that we can evaluate. But then there’s an impact on the overall category that we can evaluate, and there’s an impact for us on the style side of the business with Originals and some of our other labels that we can evaluate. There’s also the entire brand’s list of categories.
Ultimately, when people take a very narrow view of how many signature shoes you’re going to sell, and does that justify the expense, they frequently miss a lot of the things that we look at from our side of the table, in terms of the impact it has for the brand, the way it authenticates us on court and what it can mean for us in a larger business sense both in America and in China.
CHAPTER 4: JAMES IN THREE STRIPES
With yesterday’s announcement, adidas set off a wave of millions of impressions across social media and news outlets. With an eye-popping $200 Million figure up front in bold font, it was the kind of headline that was highlighted across every genre of coverage.
As you can imagine, the excitement level at adidas headquarters and offices around the globe was equally frenzied. As Grancio explains, we can expect to see James Harden immediately included in the brand’s biggest campaigns this fall. For now, both the brand and player will be collectively celebrating as they look forward to beginning their new partnership together.
Nick DePaula: Now that it’s official, can you share a sense of what the excitement level has been like, both internally at the Village in Portland and also in Germany?
Chris Grancio: Yeah, and I’ve gotten a lot of emails over the last day. [laughs] I’ve gotten emails from Russia, Brazil, China, India, and all of the folks across the world in our business are incredibly excited about it. This may be a splashy headline, but as you know Nick, we’ve been talking about this brand reset since March. We made the decision, very publicly, to change the direction of our category and our business.
This is one of the first big proof points that I think a lot of people can see that we’re serious. We’re going to continue to invest, and we’re going to continue to drive this business in a very big way. It’s created a tremendous amount of excitement here internally, and we’re excited to continue to build on that momentum with great product and a great partnership with James.
NDP: Have you heard from James since yesterday? What has his reaction and excitement been since the announcement went public?
CG: Yeah, and he’s fired up! I texted with him last night, and I know that he’s happy to get started as soon as he can. He’s currently under contract until September 30th, so he’s limited in terms of what he can actually say or do publicly. We’re doing everything we can to get ahead and get started to put ourselves in a position to hit the ground running in October.
NDP: Can you clarify Dwight Howard’s current standing with the brand? It’s my understanding his deal was set to expire this fall and that he’ll be switching brands this fall. TMZ had reported that him being an adidas brand and Rocket teammate of James’ was a factor, but that seemed off base and wasn’t my take.
CG: We don’t discuss contract details, but Dwight is currently under contract, and we’re having ongoing conversations with his reps to see what happens.
NDP: When can we expect to see James officially be activated – I assume right at October 1st?
CG: We’ll certainly start October 1st, and he’ll be featured as one of the athletes in our Q4 brand campaign. He’ll be a big part of joining the brand family, right off the bat, and we’re excited to get started as quickly as we can with him.