NEW YORK (CNN/Money) -
Athletic shoe and apparel maker Nike Inc. has seen the value of its endorsement contracts increase almost $350 million, or nearly a third of their total value, during the last year, according to a recent filing by the company with the Securities and Exchange Commission.
Nike's 10K filing last week puts the value of its deals with athletic stars and teams at $1.44 billion for the fiscal year that ended May 31, up from the $1.09 billion it reported in its previous fiscal year's 10K report. It dwarfs the endorsement deals by its next largest U.S. competitor, Reebok (RBK: Research, Estimates), which had endorsement deals worth $196.3 million in its filing for the period through Dec. 31.
A spokesman with Beaverton, Ore.-based Nike (NKE: Research, Estimates) would not give details about the increased spending, but said the company is confident it will see an adequate return on its investment. The numbers were first reported by Street & Smith's SportsBusiness Journal this week.
Nike spokesman Scott Reames said that the company's recent endorsement deals with leading European soccer teams such as England's Manchester United and Italy's Juventus was the largest contributor to the increase. But he said that's in keeping with Nike's greater focus on overseas sales. In the company's recent third quarter, it had more sales outside the United States than domestically for the first time in the company's history, a trend Reames said is expected to continue going forward.
Reames would not give details of those two deals, but Manchester United's deal has been reported at £300 million, or about $484 million, over 13 years.
In addition there were some high-profile deals for individual athletes. LeBron James, the recent National Basketball Association No. 1 draft pick, is responsible for much of the increase. The recent high-school graduate, drafted by the Cleveland Cavaliers, signed a deal reported to be worth $90 million over seven years.
Embattled Los Angeles Lakers star Kobe Bryant also reportedly signed a $40 million, five-year deal with Nike shortly before he was charged with sexual assault in Colorado.
Despite rising endorsement payments, analysts surveyed by earnings tracker First Call expect Nike to post improved earnings during the current fiscal year as well as into the future. The First Call consensus forecast is for earnings of $3.14 a share for the fiscal year ending next May, up from the $2.77 a share, or $474 million, it earned in the just-completed fiscal year.
Earnings are expected to rise to $3.56 a share in the fiscal year that ends in May 2005, and $4.20 a share in the following year. Nike (NKE: down $0.08 to $55.17, Research, Estimates) had revenue of $10.7 billion in its just-concluded fiscal year.
"That [increase in endorsements] doesn't surprise me. It's part of their business strategy," said R.J. Jones, analyst with Seattle-based investment firm Delafield Hambrecht Inc. "Whether it will result in shareholder return has yet to be seen, but if any company has shown they know how to make these deals work, they've done it."
Jones has a "hold" recommendation on Nike and does not own any of its shares, nor does his firm do any investment banking for it.
The value of the long-term portions of the Nike endorsement deals, those payments due five years and beyond, are about the same as a year ago – about $200 million in each year's 10K report.
It's the nearer-term payments that have seen the significant increases. For example, the company says it now owes $230 million in the fiscal year ending May 31, 2007, which is up 72 percent from what last year's 10K said it owed for the previous fiscal year, and up 140 percent from what it owed for the same fiscal year in last year's filing.