The NBA lockout is over, and one Atlanta Hawks player who perennially takes heat for his inconsistent play is back in uniform. By all reports, Josh Smith looks trimmer and is shooting better. Which is exactly how Nike (the NBA's favorite sponsor) looks since its stock is close to its all-time high. In fact, Nike's price chart looks like a player who just launched from the free throw line to sky for a slam dunk. But, wait, who's that player coming in for the block? No, his name isn't Josh Smith; it's Social Mood. Here's what our analyst, Pete Kendall, says about prospects for the NBA and Nike, given the increasingly negative social mood.
CULTURAL TRENDS
The NBA ended its lockout of players, but a reduction in the number of games on the 2011-2012 schedule, from 82 to 66, assures that there will be a big initial downward jolt in the chart of NBA attendance, shown last month. We predict that this is just the opening spike lower. The bearish fallout will extend to other sports and sports-related firms. One of the forecasts made in our initial report, “Basketball and The Bull Market,” in 1996 was that Nike, which relied heavily on the public image of basketball star Michael Jordan, would experience a decline. As the chart of Nike’s shares shows (Editor's note: Chart not shown.), the stock declined 66% from early 1997 to March 2000, as basketball’s popularity took a hit. But Nike’s share price bounced back strongly with stocks after 2003 and soared to new heights as it diversified its spokesmen into a broader range of bull market athletes.
More recently, scandals are decimating Nike’s roster of sports icons. The re-emerging trend toward negative social mood is visible in the sagas of three separate legendary bull market performers, who are also Nike endorsers. Each case involves the sudden public dissemination of long-standing allegations and transgressions. Golfer Tiger Woods’ public image and performance suffered when revelations about long-standing infidelities hit the papers. Lance Armstrong’s legacy of seven Tour de France championships from 1999 to 2005 is under siege by contentions that he excelled because of advanced performance-enhancing doping techniques.
The latest cracked pedestal belongs to Penn State’s Joe Paterno, the venerable 84-year old football coach with the most wins in Division I college football history. Paterno was fired for failing to adequately address pedophilia charges against a former assistant. After Paterno’s recent ouster, The Wall Street Journal subtly exposed Nike’s vulnerability with this comment:
"Joe Paterno’s ouster at Penn State on Wednesday added another name to a unique list: embattled sports icons who are so closely associated with Nike that the company has named buildings after them. Nike said Thursday it has no current plans to change the name of the Joe Paterno Child Development Center."
Nike is irrevocably tied to the rising trend in social mood. When social mood was on the ascent, a Penn State vice president tried to intervene against Paterno and was told, “You can’t expect to change the culture.” At this point, it is precisely culture that is changing, and Nike is too wedded to the images and icons of the old bull-market trend to change with it....
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