Playing Footsie With Nike
ASU plays footsie with Nike
By John Dougherty
published: March 12, 1998
Arizona State University interim basketball coach Don Newman is swept out of Tempe as suddenly as he arrived, blown to points unknown by a dust devil of dollars, courtesy of sports-apparel marketing mogul Phil Knight, chairman of Nike Incorporated.
In comes Rick Majerus, plucked from the University of Utah, where he pockets more than $1 million a year and enjoys godlike status at the helm of the Running Utes, a highly successful basketball team.
Knight steals Majerus from Nike's archrival, Reebok, which is said to pay Majerus more than $500,000 annually as its chief collegiate spokesman.
Knight increases his exposure in the Valley's booming market by signing a nine-year contract with ASU worth more than $5 million while affixing the Nike logo to what could be the nation's largest university within a decade.
Such are the dreams of influential ASU athletic boosters who are tired of playing second fiddle to the University of Arizona's powerhouse basketball program.
It's no secret that ASU athletic director Kevin White wants a "big-name" coach to lead ASU's basketball program into the top 10 in the country, and White has his eye on Majerus. But ASU can't match Majerus' salary at Utah without substantial help.
But from whom?
The most likely source is Nike, a company that each year throws tens of millions of dollars in cash and merchandise at university athletic departments to promote its latest lines.
For more than a year, ASU and Nike have engaged in unorthodox contract negotiations that fall outside the university's normal procurement policy.
A December draft contract calls for Nike to provide sports apparel worth more than $400,000 a year to nearly all of ASU's sports teams, and to contribute $125,000 to the salary of the men's basketball coach.
But that contract hasn't been signed, and Nike could up the ante, especially if ASU lands a coach of Majerus' stature. ASU is expected to name a permanent head coach soon after the NCAA basketball tournament ends later this month.
ASU's negotiations with Nike are expected to continue for at least another 60 days.
How important is the pending Nike contract?
"It obviously is the main player because it would take well over a million a year to attract a Rick Majerus," says a prominent ASU booster and director of the Sun Angel Foundation, an ASU athletic fund-raising arm.
"And there is no way ASU coffers can do that," the booster, who asked not to be identified, continues.
ASU paid former hoops coach Bill Frieder a base salary of $165,000 a year. Other benefits, including a shoe contract with Nike, pushed Frieder's package to more than $600,000.
But that's a far cry from the $1 million-plus commanded by Majerus.
Nike, the booster says, would have to pony up more than $125,000 for Majerus before the deal could fly.
"It would take extreme cooperation with Phil Knight of Nike and Majerus," the booster says.
While it is unknown how friendly Knight and Majerus have become, there is no doubt that ASU's White is willing to move mountains to land an "all-school" deal with Nike, including painting a giant Nike symbol--it's called the Swoosh--on the roof of the University Activity Center, and a couple more on the track at Sun Angel Stadium.
The sun is creeping over the Superstition Mountains, casting a glare across a table in the clubhouse at ASU's Karsten Golf Course.
Athletic director Kevin White sips his morning coffee and scans the paper. It's 6:45 a.m., and White, nattily attired in suit and tie, is ready for the first of many meetings that fill his day.
He's a salesman and promoter. He knows how to raise money. And White loves what he sells--ASU sports.
"My job is to market and sell our school," White, a former track star and coach, says.
Judging him on that basis, White seems to be going gangbusters. Since he left an identical post at Tulane University less than two years ago, White has erased a budget deficit of nearly $3 million and revamped the athletic department, adding personnel and boosting salaries.
His top marketing goal is to convince Nike to sign an agreement that would put ASU in the company of 18 other universities that have all-school agreements with one of three major sports-apparel manufacturers--Nike, Reebok and Adidas.
If it struck such a pact with Nike, ASU would join the ranks of universities known for powerhouse athletic programs, including Michigan, Ohio State, Stanford, Penn State, Alabama, Georgia, Miami, Florida, Colorado, North Carolina, Southern California and Oregon.
While Nike already provides shoes and apparel to ASU's men's basketball and football teams and women's tennis, White says securing an all-school Nike sponsorship is essential if Arizona State wants to consistently field athletic teams ranked in the top three in the Pacific 10 Conference and the top 10 nationally.
That goal requires ASU to lure the nation's top athletes. The best way to promote the school to young athletes, White says, is to allow Nike or another company to market ASU sports apparel.
"Nike prints an excessive amount of what you would need and they take it to every Niketown and every mall in America," White says.
"That raises the level of awareness of your program in the marketplace in a way that you can't do as an institution."
White says many high school athletes prefer Nike apparel.
"The kids today are driven by brand identification, and it's only going to become more and more prevalent in that regard, in our view," says White.
Nike's marketing expertise and recruiting hook make the company irresistible to White and other ASU administrators.
So much so, the university has embarked on a path that essentially excludes any of Nike's competitors from continuing to supply athletic apparel to ASU teams.
White knew where to turn when it came time to secure an all-school apparel sponsor--to his old friend, Steve Miller, global director, corporate relations for Nike Incorporated.
The two, both former track coaches, have known each other for years.
Soon after White took the helm at ASU, he and Miller began discussing an all-school sponsorship from Nike. The talks evolved into a detailed plan that told ASU how it should prepare its formal request for proposals (RFPs). According to state contracting law, RFPs must be provided to all potential vendors.
The RFP was drafted to effectively exclude the dozen or so athletic supply companies that currently provide equipment and apparel to various ASU athletic teams, and none of those vendors responded to the proposal.
Only three companies--Nike, Reebok and Adidas--were capable of meeting the RFP's broad requirements to provide sports apparel ranging from football jerseys to women's volleyball shoes.
Of these three companies, Nike clearly had the advantage of having the RFP written to meet its requirements.
ASU records indicate that White carefully followed Miller's instructions, modeling ASU's RFP after a deal Nike had struck with the University of Virginia.
White laid out the ASU-Nike game plan in a March 17, 1997, letter to Kit Morris, Nike's NCAA relations director.
"Quite frankly, as you know, Steve [Miller] forwarded ASU the University of Virginia proposal which we were instructed to emulate," White wrote.
(In a taped interview with New Times, White denied ever reading the Virginia proposal and said, "I don't even know where it came from.")
White wrote that Miller "shared with me a Nike [office] computer printout" that showed Nike was paying from $700,000 to $1.4 million annually for all-school sponsorships.
White also wrote that "ASU was coached to pursue a financial package at approximately the mean ($1M) . . ."
Records show ASU issued its RFP on January 24, 1997.
The results of the RFP were not what White and ASU expected.
Champion Products, which supplies apparel to the football team, complained bitterly about the RFP--Champion believed it infringed on the company's existing contract with ASU.
"I would like to further express Champion's disappointment that as a long-term supporter and partner of Arizona State University that we were not given the courtesy of any verbal or written notice prior to receiving this proposal," Jeff Johnson of Champion wrote.
Only one manufacturer, Riddell All American, responded by ASU's February 13, 1997, deadline--and its response failed to meet ASU's goal of providing apparel for all its athletic teams and was rejected.
More significant, ASU administrators were shocked that Nike failed to respond to the RFP, which ASU had so carefully tailored to meet Nike's requirements.
White blamed Nike's inaction on the company's rapid growth, which he said made it difficult for anyone to make decisions. Another factor, White says, was that his primary contact, Miller, was transferred to Japan just before the RFP was issued.
"My reaction was that the company was so big, so cumbersome, and the one guy I felt was interested was no longer housed at their corporate headquarters," White says.
Despite Nike's failure to respond, White continued negotiations with Nike.
"Obviously, I was concerned that their interest in Arizona State University was waning and or would be reconsidered," says White.
But under state procurement law, White had no authority to continue negotiations with a potential vendor after an RFP failed to attract a suitable bidder, says ASU purchasing manager Ron Cantrell.
Instead, White should have asked the university's purchasing department to make revisions and reissue the RFP, Cantrell says.
"In this case, there was no [suitable] bid, so we rejected it," Cantrell says. "We got no further requests from the athletic department to bid it. So that's where we are at."
White, however, saw his opportunity to cut a deal with Nike slipping away, and he wasn't about to let that happen.
Within hours after the bids closed at 3 p.m. February 13, 1997, White was on the phone to Nike's Morris, and, according to White, engaged in a long and candid conversation about why Nike didn't respond to the RFP.
The next day, White wrote to his friend, Steve Miller, urging him to push Nike to reach an agreement with ASU.
"Steve, once again, per our many discussions, we felt that we were in great shape (in this regard)," White wrote in a February 14, 1997, letter which makes it clear that ASU had expected Nike to respond to its RFP.
A few days later, in what appears to be a halfhearted attempt by ASU to contact other possible vendors, White sent form letters to Reebok and Adidas, reminding the manufacturers that ASU was still seeking all-school shoe and apparel agreements.
Reebok again failed to respond to White's letter. Adidas, however, wrote ASU it wasn't interested in an all-school deal with ASU because it had just signed major deals with Notre Dame, the University of Tennessee and the University of Nebraska.
ASU purchasing manager Ray Jensen, Cantrell's boss, says that the negative responses from Reebok and Adidas gave White the green light to continue negotiations with Nike.
Taking a more liberal view of the state procurement code than Cantrell, Jensen says that since ASU had sought competitive bids but none was forthcoming, it was appropriate for the university to engage in direct negotiations with a single supplier.
"When you get to the place where you only have got one [viable supplier], and you have already gone through the competitive exercise, then, you know, common sense says get the best deal that you can with the one party that is showing interest," says Jensen.
ASU, Jensen says, briefed the Arizona Board of Regents on the unusual Nike negotiations.
Nevertheless, Jensen acknowledges that ASU is venturing into uncharted territory by continuing to negotiate with Nike after the company had failed to respond to the RFP.
"The [procurement] code is silent in terms of where we go from here," Jensen says.
Where ASU went was to Nike, on bended knee.
In his March 17 letter to Nike's Kit Morris, White made a generous offer.
"In order to further justify (from the Nike perspective) the enhanced relationship, ASU will consider several inordinately large (mammoth) and well-placed venue signage opportunities, i.e., the roof of the University Activity Center and on the respective straight-aways on our new track . . ."
White also reiterated previous pledges that ASU would be a strong "political" friend of Nike's.
White's groveling strengthened Nike's hand.
Nike knew it had no competition, that neither Reebok nor Adidas had responded to ASU's RFP.
Instead of the $1 million-a-year deal ASU expected when it prepared the RFP under Nike's instructions, Nike offered a $565,000-a-year annual package for five years.
ASU countered, seeking $700,000 a year in products for all teams and cash for three men's coaches.
The negotiations stalled in March after Miller, who was still in the loop from his new post in Japan, became upset over White's aggressive approach with Nike.
White wrote Miller a three-page letter of apology on March 27, 1997, and offered to cease seeking an all-school agreement.
White also sent Nike chairman Phil Knight a kachina figurine to smooth ruffled corporate feathers. The apology and gift apparently worked.
By June, a tentative nine-year deal beginning in 1999 was hammered out; it called for ASU to receive $608,000 in apparel and cash a year during the first three years; $685,000 in years four through six; and $718,000 during the final three years. The contract also called for bonus payments of up to $50,000 for winning the national football or basketball championship.
In exchange, ASU athletes would wear Nike products and participate in certain promotional events. (The blueprint contained no mention of giant Swooshes on the Activity Center or track; ASU officials say those inducements no longer are being offered.)
ASU president Lattie Coor gave ASU formal approval to sign a contract with Nike on August 8, and ASU sent Nike a redlined copy of the proposed contract.
But negotiations stalled again.
Nike agreed in November to increase cash payments to ASU football coach Bruce Snyder from $7,500 a year to $30,000 annually. But there has been no formal action taken on the contract by ASU or Nike. Snyder said he preferred not to comment on ongoing negotiations.
Nike forwarded ASU another draft contract in late December that showed ASU receiving $140,000 in cash in addition to the $30,000 payment to Snyder. White says he expects $125,000 will go to the ASU basketball coach and $15,000 to the baseball coach.
The $125,000 earmarked for basketball is the same sum former basketball coach Bill Frieder got from Nike, and is much less than the $500,000 a year Utah's Majerus reportedly gets from Reebok.
The amount of cash Nike would provide down the road, however, steadily increases, according to the draft contract. The sum available for the basketball and baseball coaches would rise to $190,000 from 2000 through 2003 and to $250,000 from 2003 through 2008. The ASU athletic department would retain the right to allocate the money to coaches as it chooses, making it possible that a new basketball coach could receive all the money.
While White insists that the Nike negotiations are separate from ASU's search for a permanent head basketball coach, he acknowledges that Nike is a basketball-driven company.
White says that even with the successful team it fielded this year under Newman's direction, ASU's basketball program is in no position to squeeze more money out of Nike.
"We are not in a position to barter up," White says.
But that doesn't mean a topflight coach like Majerus, whose teams are consistently in the top 10, wouldn't increase ASU's leverage.
Whether ASU will ever sign an all-school contract with Nike remains to be seen.
Student protests over reported working conditions in Nike factories in Asia have caught the attention of the Arizona Board of Regents. The regents apparently instructed ASU president Coor to negotiate an escape clause that would allow ASU to void its contract if Nike or its subsidiaries violate labor laws abroad.
If ASU signs the December draft contract, it appears the university would be prevented from criticizing Nike for its labor practices. The draft contract contains language prohibiting the university from disparaging the Nike brand or taking any action "inconsistent with the endorsement of Nike products."
White says the situation has been discussed during executive sessions at two regents meetings.
Last month, Coor and University of Arizona president Peter Likins traveled to Beaverton, Oregon, and met with Knight to discuss the labor issues and the role they would play in any contracts signed between Nike and ASU and UofA.
"We have tried to create some verbiage for the contract that would give us an appropriate parachute in the event that we feel, the institution would feel, that there are some unacceptable labor practices," White says.
"That's a major issue for the Arizona Board of Regents and the two university presidents."
Another important factor is the sudden decline in Nike's financial fortunes. Nike's stock has fallen 40 percent in the past year, and the company has laid off thousands of workers as its inventory soars. Still, Nike has enjoyed phenomenal growth and controls about 40 percent of the U.S. athletic-shoe market. Nike reported net income of $795 million for the year ending May 1997 on revenue of $9.2 billion.
Also muddying the water is the fact that sports-apparel producers are moving away from all-school agreements. ASU clearly saw that Reebok and Adidas weren't interested in getting into a bidding war with Nike for an all-school deal with ASU.
"The growth has either slowed or stopped," White says. "I think you are going to see compression-state economics hit this thing."
That's one reason White says he's pushing hard to reach an agreement with Nike before it stops signing all-school deals.
White remains optimistic that ASU will sign such a deal with Nike soon.
"My job is to keep them interested, to keep on selling, to keep them believing we are a future stock," White says. "I think they have really come to appreciate the growth that is going on in this Valley," where Nike's Knight is a part owner of the Arizona Diamondbacks.
"We have become one of the more serious sports hubs in America," White says.
And serious sports hubs command attention.
Even from Nike.