Ohio State Signs 15-year Nike deal

Submitted by Maizen on

[ED: Covered on the front page:

Funny money. OSU announced a huge Nike contract that was a ton more than Michigan in the same way that NFL contracts have a huge headline number but are actually something less remarkable under the hood. The OSU edge is in apparel awarded, which the Buckeyes padded out for the shiny number. The actual details:

  • Both schools have a 15-year deal; Michigan has an opt-out after 11.
  • Michigan gets 12 million upfront; OSU gets 20.
  • OSU gets 3.44 million for the first 11 years and 4.44 for the last four.
  • M gets 4.82 million for the first ten years, 5.32 in 11, and 5.82 for the last four.
  • Total dough: Michigan, 88.8 million. Ohio State, 75.6 million.

OSU gets more upfront but inflation isn't sufficient to make up the deficit, especially since Michigan has an opt-out four years earlier. So OSU's "biggest ever contract" actually delivers 13 million fewer dollars than Michigan's. But OSU gets more Nike volleyballs so they've got that going for them.

OSU's deal is not better. Those who'd like to argue Hackett was "fleeced" (including the OP) please contact seth for a great deal on a bridge.]

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Maizen

January 14th, 2016 at 6:06 PM ^

I figured Texas would get the contract they got because of how much apprell they sell but I'm shocked at the OSU number. They lag behind schools like Michigan in merchandise sales and don't have the alumni/fan base Michigan does. 

Given that Michigan was Nike's highest paid school in the mid 2000's this is a number I'm surprised to see.

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UMxWolverines

January 15th, 2016 at 12:19 AM ^

What? OSU's fanbase is probably bigger than Michigan's and probably the biggest in the nation. They have the entire state of Ohio to themselves which in itself is more populated than Michigan and they have fans everywhere not to mention they just won the national title last year. They're also a much bigger school than Michigan so I'm sure the alumni numbers are close. I've always wondered that...Michigan claims to have the laegest living alumni base despite there being bigger schools...how can that be?

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2morrow

January 16th, 2016 at 10:44 AM ^

Even though OSU is a larger school now than Michigan, living alumni are both measured at around 550,000.  The New York times also did an article a couple of years ago about fan bases and again Michigan and OSU are very close. OSU was meaured at 3.2M and Michigan at 2.9M. Surprisingly, Penn State was 3rd at 2.6M, followed by Notre Dame in 4th and Texas in 5th. They also showed Auburn and Alabama to be nearly equal at about 1.9M each.

Merchandise sales are a lot harder to pin down, but both Michigan and Ohio State generally appear in the top 8 in any study done.

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Mr Miggle

January 14th, 2016 at 9:04 PM ^

One is this deal starts in 2018. These contracts are all structured with escalators. We can't just divide the total amount by the number of years to get a true picture of the relative contract values. Comparing the payouts for the same years will give a better picture. OSU will be getting paid under their old contract for the next two years at a much lower rate. This one will run six years past our option year. It also doesn't appear that OSU has an option clause.

We negotiated a very favorable royalty rate. It remains to be seen how OSU's deal compares.

$41M of the deal is for Nike internships and scholarships for non-athletes. I don't know how to calculate the value of a Nike internship. Companies offer internships everywhere. I never realized they could be considered payments to a school. 

Here's a link to the WSJ story http://www.wsj.com/articles/nike-reaches-252-million-deal-to-extend-spo…

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Maizen

January 14th, 2016 at 6:14 PM ^

No, we don't. 

According to a term sheet dated July 6, Michigan would receive $169 million over the 15-year agreement, with $12 million in upfront money, $76.8 million in additional cash over the course of the deal and $80.2 million in apparel for the school's 31 teams. That is an average of $11.3 million per year.

Michigan has the ability to opt out of the contract after 11 years. The deal, which starts next August, would be worth a total of $122.3 million if U-M declines the option years (2027-31).

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Everyone Murders

January 14th, 2016 at 6:14 PM ^

Please stop reading just the headlines if you want to argue these points.  Michigan has an 11 year contract with a four year extension option (exercisable by Michigan). 

Options are very valuable, putting market risk on Nike's shoulders and off of Michigan's.  Hackett did not get "fleeced" - he did well.

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TIMMMAAY

January 14th, 2016 at 6:32 PM ^

But the $169 million is with the extension to 15 years. It's in the very article you linked. 

Running from Aug. 1, 2016 through July 31, 2027, the deal comes with an option for Michigan to sign a four-year extension through 2031. Without the option years, U-M and Nike have agreed to an 11-year, $122.32 million deal, which includes $12 million upfront.

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Everyone Murders

January 14th, 2016 at 6:52 PM ^

I don't get the point of your reply.  I never said the correct numerator was $169M if the denominator is 11 years.  I was refuting the OP's continuing assertion that this is a 15 year contract.  It isn't, really (unless Michigan exercises its option to extend).

I didn't get into the contract value because the economics of these deals is much more complex than a simple matter of division.  You have to look at upfront money (money paid earlier is worth more than money paid later), how much of the value is paid in cash vs. equipment, whether there are additional revenue sharing opportunities, and a bunch of other factors.  Then you would do a present value analysis, allowing for any variable factors (like revenue sharing after certain target sales are hit).

I don't have the appetite to dive into a comparison of the three contracts, in part because I don't really care enough to put the energy into it.  I might be interested in reading someone else's analysis.  But whoever did it would have to understand that we're looking at an 11 year contract with a valuable option.  (I understand that you, TIMMMAAY, get that.  The OP?  Not so much - at least not at the get-go.)

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FreddieMercuryHayes

January 14th, 2016 at 6:01 PM ^

OSU and UT are the two programs valued as more than UM actually. Plus, I would blame the fan base; apparently UM passed on more money from other companies because UM fans and athletes wanted Nike so bad. Kind of kills your negotiating power there.



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Maizen

January 14th, 2016 at 6:09 PM ^

Michigan's deal is 15 years not 11.

According to a term sheet dated July 6, Michigan would receive $169 million over the 15-year agreement, with $12 million in upfront money, $76.8 million in additional cash over the course of the deal and $80.2 million in apparel for the school's 31 teams. That is an average of $11.3 million per year.

Michigan has the ability to opt out of the contract after 11 years. The deal, which starts next August, would be worth a total of $122.3 million if U-M declines the option years (2027-31).

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TIMMMAAY

January 14th, 2016 at 6:33 PM ^

Running from Aug. 1, 2016 through July 31, 2027, the deal comes with an option for Michigan to sign a four-year extension through 2031. Without the option years, U-M and Nike have agreed to an 11-year, $122.32 million deal, which includes $12 million upfront. 

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goblue224

January 14th, 2016 at 6:47 PM ^

They're not definitely going to go through with anything. I would imagine that if they feel the best move for the atheltic department is to opt out of the deal at the end of the 11 years, thats what they'll do. At no point did I bring up the monetary value, I simpy stated it was an 11 year deal with a 4 year option.

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Mr Miggle

January 14th, 2016 at 8:21 PM ^

But contract values have been rising briskly for some years. If we had signed a contract whose option came up any time in recent years, there is no chance we would renew it. That option is valuable precisely because there is no way to know whether we will want to exercise it or not.

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