The money is good. Really good. $250 million good.
But there is much more to the new extension that Nike received from Texas on the apparel deal than just dollar signs. There are several long-term benefits that enhance the package, a couple of which are unique to the Nike brand. The fact that the process was sometimes fractious and public made it more interesting, and probably helped ease Steve Patterson out the door as UT Athletics Director.
Texas and Nike have been partners since 2000, and that partnership allowed Nike an exclusive window of negotiation for a 3rd extension of their agreement. A look at the timeline over the past few months points to an AD whose penchant for ruffling feathers and bullying patrons and partners alike eventually led to someone else stepping in and solidifying a record-setting agreement.
There were signs early this year that Patterson held little regard for past business relationships. In March, Texas dropped the Collegiate Licensing Co. (CLC), the largest, most established retail provider, as the licensing partner of the Longhorns. Instead, Texas signed a 10-year deal with 289c Apparel, a part of Dallas Cowboys Merchandising. The company, named after the Cowboys pantone number for their blue color, will manufacture and distribute Texas-branded apparel, in conjunction with Nike.
Texas is now handling licensing in-house and the move to 289c is expected to save as much as $1 million a year from travel and compliance expenses.
Not that it matters all that much, but the deal will stop Texas 9-year reign as the nation's leader in collegiate licensed retail sales, since that crown is for the CLC clients, which handles over 90% of all major college programs. Texas and Southern Cal are the only two major programs currently with 289c.
Nikes' current contract runs through 2016, but as we mentioned, negotiations for an extension begin earlier - negotiations that are usually private and done in good faith, where the current rights holder has the opportunity to make an offer acceptable enough to avoid a bidding war.
Patterson's reputation of trying to collect every dime possible, while generally ignoring the niceties of common courtesy was further enhanced by his handling of these negotiations.
The exclusive negotiating period lasted until Oct. 1, but as early as last May the smoke signals from Bellmont Hall were indicating that Patterson wanted to look around.
Of course, by late summer Patterson had napalmed enough bridges that he was finally made to walk over one of them.
Houston attorney Mike Perrin, a football letterman under Darrell Royal, took over as interim AD. Still by late September there were numerous reports that Nike would not get an extension during it’s exclusive negotiating period.
Yeah, well, actually there was a deal in place by the deadline. According to the contract submitted to the UT Board of Regents for approval, there had been talk of extending the exclusive negotiation window, but it wasn't necessary.
"A "sixth amendment" was, out of an abundance of caution, processed by the Athletics Business office and UT Austin central contracting office to extend the exclusive negotiating period for NIKE. Subsequent legal review and the receipt by UT Austin of the NIKE proposal on October 1, 2015 clarified that a "sixth amendment" was not needed and that NIKE and UT Austin had reached mutually acceptable terms and conditions for an extension beyond the Third Extension Term."
Here some key elements of the Nike extension:
- The deal runs through 2031, including a right of exclusive negotiation at the end of it for Nike.
- Nike pays a "signing bonus" of $20 million.
- Nike supplies all apparel and footwear plus selected equipment for all Longhorn varsity sports, guaranteed value of $67,900,000 over the life of the contract. It also includes an allotment of $1.5 million a year that can be used at the athletics directors' discretion.
- Nike will pay $6.5 million year cash for 15 years - a total of $97,500,000 over the life of the contract.
- Nike will provide an average of $1.5 million a year for non-athletic initiatives to the University of Texas.
- Four paid internships (2 for student-athletes, 2 undergraduate students).
- UT head coaches will make annual appearances at Nike-sponsored coaching clinics (hello Shaka Smart).
The Kevin Durant Effect.
Durant, the most marketable UT athlete in the past several decades, is an integral part of this deal that only Nike could deliver. Durant was on campus for a year, but he bleeds orange as much as anyone else. As part of this new extension, Durant will donate $15 million to the athletics department over the life of the contract to help fund basketball scholarships. The average cost of endowing a men's basketball scholarship is around $700,000.
Nike kept Durant last year with a $300 million deal. and keeping Durant in the fold was a key element to also keeping Texas.
Durant turned town Under Armour (a hometown competitor) to stay with Nike. Now as part of the Texas agreement, the company will produce a Kevin Durant-UT line of shoes and apparel to be used by other colleges as well as licensed retail gear to be sold to the public.
A lot has been written about Texas and the rumored deal Under Armour was ready to offer. Like Durant, Texas wants to get paid, but they also understand the value an industry leader brings to all aspects of your program. Nike controls over 95% of the athletic shoe market - Under Armour, less than 1%. In 2013, Under Armour sold $30 million in basketball shoes. The Kevin Durant Nike signature shoes generated $85 million.
Texas will receive royalties from the Durant line of UT products, in addition to the payment in the contract.
Durant will also be available for several promotional/fund-raising events each year, and Nike is also going to see to it that other Nike clients appear in other competitive venues, such as the open events at the Texas Relays.
There is no doubt that both Adidas and Under Armour are ramping up their efforts to cut into the Nike strangle hold on collegiate business. Nike is the biggest SOB in the valley and they plan to keep it that way. There are indications that they are changing their method of controlling the market. Rather than carpet bomb the collegiate landscape, they may be content to pay special attention to the elite programs. Nike recently let Arizona State go over to Adidas and both Wisconsin and Miami hitch up with Under Armour without much of a fight.
Instead they took Michigan back from Under Armour; they got a 10-year extension with Kentucky, as well with Florida State.
2017 will be relatively calm in the collegiate apparel wars, as Oklahoma and UCLA are the only elite programs that will be up for grabs. In 2018, Alabama, Nebraska, Ohio State and North Carolina all come into play.
Meanwhile Texas remains at the top of the money list - at least until then. No matter, the Longhorns have set the bar for everyone else from now on, and more importantly, it appears that the adults are once again in charge over at Bellmont Hall.