LeBron James’ personal financial outlook looks pretty solid.
This week, the sports world — which has seen more and more handsome royalties paid out to its star players by big brands — watched as a lifetime endorsement deal was signed between James and apparel retailer Nike estimated to be worth as much as $500 million. And while the number may seem astronomical to the casual observer, The Wall Street Journal reports that these large sums actually represent “prudent” spending for the sport apparel behemoth.
Although the terms weren’t disclosed explicitly, ESPN reported that the deal “easily surpasses” the 10-year, $300 million pact signed between Nike and Kevin Durant last summer. While the figures may seem jaw-dropping, they represent a modest percentage of Nike’s overall “demand-creation” costs, a category worth watching in its fiscal second quarter results this week, says WSJ. This category comprises marketing and sponsorships, as well as advertising and endorsements. While the amount spent by Nike on these activities tends to fluctuate wildly quarter to quarter, they have steadily risen over the past four fiscal years, hitting $3.2 billion in the fiscal year ended this past May.
Although the amount spent has continued to rise, as a percentage of total revenue, according to the WSJ article, Nike’s demand-creation expenses have been on a downward trajectory for much of the past seven years, which suggests its spending has been prudent rather than outlandish.
Nike will release its fiscal second quarter results on Tuesday (Dec. 22); they are likely to exceed Wall Street’s estimates, again. The stock is up more than 30 percent this year and has been a consistent performer, nearly tripling in value over the past five years. The stock trades at 28 times next year’s projected earnings, near the highest level since the late 1990s. Nike has topped expectations in 31 of the past 33 quarters. Sales are estimated to rise 5.8 percent.