TL;DR: Corruption allegations in Kenya’s running federation will hurt short-term branding more than market share.
The New York Times reported on 5 March that Kenyan professional running authorities are facing allegations of stealing sponsorship money from Nike, Inc. (NYSE: NKE). Nike, a long-time supporter of Kenya’s running program, is on the spotlight for a $500,000 commitment bonus that has been taken off the books by Kenyan authorities. Commitment bonuses are apparently rare in corporate sponsorships of running teams, and the relative large amount may be interpreted as a bribe.
ESG Spotlight: Corruption
There is no indication that Nike is under investigation for bribery by the US government under the Foreign Corrupt Practices Act, and the company has not indicated in its recent regulatory filings of such a specific risk. But with the continuing corruption allegations in the sporting world (i.e. FIFA, Formula 1), which has implicated some iconic brands, Nike’s involvement in this latest allegation will have a reputational and branding impacts. In the international sporting scene, Nike continues to face pressure from competitors such as the adidas, Under Armour and Li Ning, among others. Nike has acknowledged that the cost of sponsorship has increased due to escalating competition, but the loss of such sponsorships may also affect the company’s bottomline.
“However, as competition in our industry has increased, the costs associated with establishing and retaining such sponsorships and other relationships have increased. If we are unable to maintain our current associations with professional athletes, sports teams and leagues, or to do so at a reasonable cost, we could lose the on-field authenticity associated with our products, and we may be required to modify and substantially increase our marketing investments. As a result, our brands, net revenues, expenses and profitability could be harmed.” (2015 10-K, p. 71)
Coincidental or not, Kenya’s running federation has also struck a sponsorship deal with Li Ning, for which it immediately got $200,000.
Nike is still the most dominant athletic footwear brand and while the elite running market is a drop in its large running sales bucket, it plays a strategic role in the company’s branding that Nike cannot probably afford to lose.