Why Big Brands Spend so Much on Athlete Endorsements

Sports endorsements are a gigantic industry amassing astronomical dollars in revenue and reaching millions.

Whether LeBron is dunking in a new pair of Nikes, Federer is driving to the court in his Mercedes Benz, or Ronaldo is drinking Gatorade, big name brands are willing to spend big time dollars on athlete endorsements for many reasons.

In fact, probably more reasons than we can even think of or list here. So we’ve shortened the list, and outlined what we think are the 3 most significant reasons that big brands spend $1.6 billion on endorsements every year:

 

1. Build Brand Awareness

Big name brands can capitalize on an athlete’s positive public image by having an athlete endorse a product which aligns with the image and values of the company.

A recent Harvard Business School case study states Maria Sharapova was a perfect spokesperson for the Canon PowerShot digital camera “because she possesses a number of qualities that fit with the brand being powerful but with precision, and having a sense of style.”

The best endorsement deals work to match a corporate brand image with an athlete’s image in order to target consumers with similar values and increase brand awareness.

Nike's Employee of the year? -LeBron James

Nike would be wise to pay LeBron James more endorsement money in order to maintain a sustainable competitive advantage through brand equity which leads to increased revenue.
Image: abardwell via flickr

2. Validate Product Features

An athlete with thick, healthy hair might be contracted to promote a certain brand of shampoo giving the impression that their thick hair results from using the shampoo. Such was the case when Troy Polamalu and Joe Mauer were contracted to lend their thick manes in order to endorse Head & Shoulders shampoo.

Likewise, an athlete might be contracted to promote a certain brand of nutritional sports drink, giving the impression that his or her athletic physique and performance results from using a specific sports drink.

In fact, Michael Phelps endorses PureSport protein recovery drinks because it allows him to “push his body to the max everyday” and because it is “the only thing that he knows which works.”

Additionally, Dwayne Wade, who endorses Gatorade, encouraged fellow teammate Lebron James to drink Gatorade instead of Powerade after James experienced cramps during an October 2012 game. “That’s why he’s cramping,” Wade said, smiling. “He needs some Gatorade. We got electrolytes and all that now.” James quickly reminded everyone he is not a Gatorade guy and instead chooses to endorse Powerade.

Consumers looking to achieve the results that their favorite pros do will be more driven to consuming those endorsed products.

 

3. Boost Brand Equity

Brand equity is the value a company realizes from a product with a recognizable name. Endorsement deals can increase brand equity for brands as well as athletes.

In 2012 LeBron James earned $15 million from Nike, but Nike sold over $100 million worth of James’ signature shoe just in the U.S. alone.

Image courtesy Nike Inc.

Image courtesy Nike Inc.

It might seem crazy to think LeBron deserves a pay raise from Nike until the endorsement figures are analyzed. After all, LeBron did earn Nike quite a hefty profit: more than any other Nike employee.

If Nike were not willing to increase his pay, would it be wise for LeBron to take his marketing and endorsement talents (i.e. his brand equity) somewhere else? As evidenced by LeBron and many others, athletes can help build brand equity through endorsements and big brands are willing to pay athletes in order to create and maintain brand equity.

 

Which All Lead To…Making More Money

Endorsements from athletes help create competitive advantages in the marketplace which help ensure the long-term success and profitability of big name companies.

The increase in revenue created from these competitive advantages from athlete endorsements easily outweighs the costs brands pay athletes in order to endorse products, making athlete product endorsements highly effective.

In fact, these highly profitable rates of return earned on investments by big name brands on endorsement deals paid to athletes are actually, well, quite a bargain for companies to capitalize on in order to increase brand awareness, equity, image and thus long-term success and revenue.

And the best part? You don’t have to have a ton of money to get involved in endorsement marketing. Just an opendorse account or a gameplan for getting endorsed.