Reader Q&A: The Michigan-Nike Sponsorship Contract
The University of Michigan is one of the member institutions in the college athletics groups commonly referred to as the "$100 Million Club," an elite group of schools that generate at least $100,000,000 in annual revenue. A large portion of that revenue comes from athletic sponsorship deals with apparel and equipment suppliers. When the university entered into an athletic sponsorship agreement with adidas that began in 2007, it was not a member of the $100 Million Club. As the contract term progressed, Michigan broke the lofty threshold and continues to do so as its contractual relationship with adidas comes to an end. The deal with adidas was the most lucrative contract at its time, and the deal with Nike was also the most lucrative in college athletics until Nike decided to pay a bit more to the Ohio State Buckeyes.
For me, Michigan's relationship with Nike is a return to all that is good. I grew up wearing my maize and blue Michigan swag with the symbolic swoosh in some visible place. So, when the adidas contract kicked in gear my freshman year, I refused to buy new apparel adidas made with the exception of the annual football t-shirt and, eventually, my NFLPA-licensed #10 Tom Brady jersey. Nike is the big dog in the athletic apparel industry, and it only seemed right that Nike and Michigan, a big dog in college sports, work together.
You asked, and I'll answer. The fun does not stop there, though. This Question and Answer session on this significant contract can show how the sponsorship market has evolved and where changes in the current NCAA "collegiate model" could take place.
** Click here for the full Michigan-Nike sponsorship contract.
** Click here for the full Michigan-adidas sponsorship contract.
Q: Who is helped/hurt by the deal?
A: Overall, both Michigan and Nike gave up a little to gain a lot. I believe both parties - the university and the supplier - are helped. Here is a parallel situation to understand the umbrella idea: You hit it off with someone and develop a very close relationship. You create a solid foundation together and have a lot of success, but you become aware of a couple factors that makes you rethink whether you should be together (e.g.,your family is not too fond of the person but they think a different person who has been wanting to be with you for eternity would be a better match). You decide to end the relationship, which hurts you as much as the other person, but you are also anxious to see what novelty the new relationship brings. The showering of attention is awesome at first, the changes are different but worth a try, and then it gets old. You had what you wanted. You had what you needed. You were a power couple, and you blew it off for this? You decide you need to get out as soon as possible, but you don't want to make it obvious that you missed your original person. You let them battle it out over you even though secretly you know who you are going home with at the end of the night.
Michigan Athletics and Nike are a power couple that strengthen each other. Like I said earlier, Michigan went with adidas and possessed the most lucrative sponsorship deal in the NCAA. adidas actually agreed that if it offered another school a more beneficial deal than it gave Michigan, "adidas [agreed] to make a written offer to grant to the University that same more favorable average annual value on he same terms and conditions that were offered to the other college or university within thirty (30) days of the execution of the other agreement." Michigan had ALL of adidas' attention, and it gave that up to get back together with Nike. Nike is giving up a heck of a lot of money to win Michigan back, but it was successful and gets an ideal power partner.
Some may argue that switching back and forth between suppliers harms the student-athletes who are used to the way equipment and uniforms look and feel or who may develop medical issues from wearing a particular supplier's design. I see merit in that statement. So, the student-athletes may be hurt if they feel they cannot adapt to Nike designs, but there are medical exceptions that give a some very limited flexibility. One example is where the deal gives student-athletes the green light to alter the footwear if the footwear is the root of the problem, but only if the student-athlete sees a podiatrist and also if Nike cannot make a design that solves the problem for the student-athlete.
Q: Does Michigan Athletics get that much value out of the free equipment? Is it even free?
A: Michigan Athletics is actually receiving a higher monetary value from "annual product allotment" (ranging from $4.7 million to $6 million annually, totaling $80.2 million through the option terms) than from "annual base compensation" (ranging from $4.82 million to $5.82 million annually, totaling $76.8 million through the option terms) except for 2017-18 and 2018-19. That does not even include the additional $4.8 million "supplemental product allotment" that Michigan has a right to order at any time during the contract, student internships that Nike must offer to three lucky Michigan students each year, and performance bonuses for Football, Men's Basketball, and Women's Basketball. There is a short list of teams that will not receive some or any Nike or Jordan Brand products. For example, the water sports programs use Speedo, and the gymnastics team will not have Nike "competition product" including uniforms. Nike also will not be supplying equipment like volleyballs, golf clubs, tennis racquets and balls, and helments/protective head gear for all sports.
I believe that Michigan Athletics is getting great value out of the equipment Nike is supplying, but "free" is not necessarily the word I would use. As with any valid contract, each party gives consideration for whatever they receive under the terms. They have to wear Nike at a list of events and such, but there is more to it than that. Michigan is giving Nike some good benefits as well, and when I say "good" I mean "really good." For instance, in Michigan's contract with adidas, section 10 "Sponsorship Elements/Benefits" expressly states "adidas agrees that it will not receive any complimentary sponsorship elements/benefits (e.g., tickets, hospitality, venue signage, publication ads)." Period. In contrast, in Michigan's contract with Nike, section 10 "Nike Sponsor Benefits" is nearly three pages long. Michigan is giving Nike the following sponsor benefits when a Covered Program is participating:
- Football: 10 tickets for each home and away game; 4 VIP parking passes for each home game.
- BIG 10 Football Championship Game: 12 tickets.
- Bowl Games: 20 tickets.
- Basketball (M & W): 8 tickets for each home and away game (subject to allotment); VIP parking passes for each home game.
- BIG 10 Basketball Tournament (M & W): 12 tickets.
- NCAA Basketball Tournament (M & W): 12 tickets.
- All Other Programs: Up to 8 tickets for each home game upon request.
- A suite (for football) and a champion's box (for basketball) for each contract year.
We will discuss the other "sponsor benefits" like advertising in a later section.
Q: Will Michigan Athletics have to change its maize and blue color scheme?
A: There is some truth to that statement but not for the reasons many people believe and not for the reason famously published a handful of years ago. In 2010, The Michigan Daily incorrectly and improperly reported that "Nike [ ] copyrighted the color 'Maize,' so Adidas actually had to make a new version of our school color, now known as 'Sun' (which the volleyball team has affectionately dubbed the 'highlighter' jerseys)." This may seem valid instinctively because the colors in fact had changed, and a lot of fans did not like the color combination adidas was using. If Nike was able to use a color combination more representative of the traditional maize and blue, why couldn't adidas?
Well, we need to clear up the confusion. First, colors are not copyrightable. I do not know where the authors got that information since nothing is cited and no source is noted (poor journalism?), but a color scheme like maize and blue is not protected by copyright law. A color scheme may be protected by trademark law if the colors are unique enough and the brand is strong enough. Though it appears to be a minor mix up to the average eye, we should note the legal difference between copyright and trademark.
Second, a trademark acts as a source identifier. When a color scheme has trademark protections, the trademark owner does not own that color scheme. The trademark owner owns the right to use that particular color scheme in its own industry. For example, the University of Texas uses "Burnt Orange" - specifically, Pantone Color #159 to be exact - consistently to represent the university in its respective industries. Guess what? The University of Michigan uses similar practices with "One maize. One blue. One brand." Michigan specifically uses Pantone Colors #7406 (maize) and #282 (blue) as its primary palette. Michigan Global Communications zealously enforces this signature color combination so that anyone around the world can see those two colors together and associate that good with the University of Michigan. So, if anything, the University of Michigan has rights in the maize and blue everyone thinks of, not Nike.
Third, Nike did do something when Michigan chose adidas over Nike in the mid-2000s, but it was not what was reported. Nike filed applications and successfully received trademark protection for the designs it made for the university until just recently. For example, Nike received trademark protection for the maize stripe on the golf clubs it designed for the school's golf team. That is the problem adidas was dealing with when it was designing product for Michigan - it could not use the traditional color scheme for designs on Michigan Athletics product without potentially infringing on Nike's designs. That is why we had "Sun." Now we have Nike and can return to Pantone Color #7406, and all is right in the world.
Q: What is the deal with Jumpman, in general? How much more money does Michigan Athletics get because of it? What is it going to do for the school? Is Nike or Jordan going to try and advertise inside of venues?
A: Before talking about how Michigan gets to use this special line, let's discuss what it is exactly. Jordan Brand is a subsidiary line of Nike apparel products and merchandise by basketball legend Michael Jordan that is most well known for the Air Jordan basketball shoes. The "Jumpman" logo, which Nike owns, is a silhouette of Jordan leaping while performing a slam dunk that represents Jordan Brand. So, Nike owns Jordan Brand as a subsidiary, Jordan endorses the brand's designs, and Michigan has special rights to wear the brand.
The Michigan programs that can wear Jordan Brand under section 7(a) will stand out hardcore. A handful of NCAA Basketball teams don the Jumpman, including Jordan's alma mater the North Carolina Tar Heels. Michigan's Men's and Women's Basketball teams will join that short list, but there is something even more significant. The Michigan Football team will be the first NCAA Football team to wear the logo. Instead of wearing the traditional Nike "Swoosh," the football and basketball programs will wear a maize and blue Jumpman. Additionally, Michigan may serve as one of Nike's focal points. Nike already has its number one team that it designs multiple unique uniforms for each year (the University of Oregon in its home state), and with Jordan Brand at Michigan, Nike may see a vision to flex its creative muscle in a similar way.
Moreover, more Michigan athletics programs may wear Jordan Brand footwear or apparel in the future. In section 7(a), Nike agreed to "supply other Covered Programs with Jordan (instead of NIKE) Brand footwear and/or apparel to the extent NIKE does so for the equivalent Covered Program and/or Products at any other college or university for which NIKE is a footwear and/or apparel sponsor or supplier" if Michigan submits a written request a year before the relevant season starts. So, if Nike agrees to supply the Tar Heels baseball team with Jordan Brand shoes and apparel, Michigan can request that Nike supply the Wolverines baseball team with Jordan Brand shoes and apparel at least twelve months before the baseball season begins, and Nike would oblige.
The contract does not state what amount of money or what fraction of the total product supplied will have the Jumpman, but one can reason it out. The result is whatever amount Nike will supply to the football and basketball programs plus however much of the additional allocation they use for those programs and the bases deals thereafter. For example, section 7(e) states that after Michigan makes its initial order of a minimum of 325 pairs of football shoes, it may order more pairs on a "2 for 1" basis (i.e., for every two pairs of Nike/Jordan Brand shoes bought, Nike will give Michigan one pair free). Michigan can also order football gloves on a "1 for 1" basis after an initial order of 500 pairs of gloves. Some covered programs' equipment and product costs more than others, too, which is always a factor when trying to balance the allotment.
Furthermore, some of the promises Michigan is making to Nike through the agreement do involve advertising, appearances, and benefits. Michigan acknowledges that "a principal inducement for NIKE's entrance into this Agreement is the exposure that the NIKE brand receives through the prominent visibility of NIKE Marks". So, yes, section 10 allows Nike to advertise in restricted ways:
- Reasonable access to shoot photos and footage that we can presume go toward advertising
- High-traffic merchandise display locations.
- A mutually agreed number of in-game P.A. announcements.
- "Full-page, 3-color NIKE advertisements (camera-ready ad to be produced and provided by NIKE at its cost) in every game program published that includes advertisements."
- Camera-ready signs placed at mutually agreed upon locations that prominently show NIKE logos, marks, or messages
- "Prominent NIKE imagery in the media guides, schedule cards, posters, newsletters and other sports related publications or collateral materials for each Covered Program" and all promotional materials that Michigan commissions or generates.
- Additional promotional opportunities made available during the contract term.
The rights extend outside the stadium as well. Section 9 gives Nike the right to request that Michigan coaches be available for personal appearances at Nike clinics and events to "promote men's and women's intercollegiate athletic programs, sports and fitness, team building, leadership and higher education."
Q: Who gets money when a jersey is purchased - Nike, M-Den, Michigan Athletics?
A: In short, Nike receives the money from jersey sales, and Michigan receives a royalty from those sales. Section 4(b) discusses royalties. It states that Nike is to pay Michigan a 15% royalty of licensed product non-footwear net sales, generally. That applies to jersey sales at the moment because the university licenses out the right to sell jerseys with Michigan-owned marks. Nike takes the main chunk of sales revenue because, from that, it pays Michigan a Total Guaranteed Compensation that the contracts specifies for each year. Per usual, the retailer (e.g., M-Den) receives a small portion of the sales through its own agreement.
Everyone makes a little money from jersey sales except student-athletes.
One provision that is relevant here was absent from the Michigan-adidas contract and really stands out to me. Section 30 "Annual Review" states that Michigan and Nike "commit to an annual review of the processes and practices utilized by each to carry out their respective obligations ... and to discuss any areas of concern or improvement with regard to the execution of such obligations." Committing now to looking over the contract year-by-year - regardless of how formal the review itself is - shows that the two parties likely acknowledge that changes in NCAA rules are bound to happen that could affect sponsorship relationships.
Would various student-athlete rights that may be recognized in the near future (e.g., rights to a portion of jersey sales, rights to sponsors, rights to seek endorsements) affect Michigan's and Nike's obligations under this agreement? Absolutely. Money could come from either Michigan or Nike or both, provisions regarding direct student-athlete sponsorship could be added, and other amendments are reasonably possible as well. Sponsorship agreements could be a prime spot to initially assert these changes once the NCAA rules allow for it.