Nike's Armstrong breakup is more than just business

Nike's Armstrong breakup is more than just business
In this Aug. 25, 2009, file photo, cyclist Lance Armstrong signs autographs as he arrives to cycle around Phoenix Park in Dublin, Ireland.

A week ago, as the doping evidence against Lance Armstrong reached its summit, Nike Inc. remained steadfast in its support for the cycling legend.

On Wednesday, it changed its mind.

What happened in the last week remains an open question. But it would be easy to make a business case that Nike could have dumped Armstrong months, if not years, ago.

Cycling isn’t one of the brand’s major sports categories — being just a fraction of the size of, say, football — nor should it be. Cycling apparel and footwear, according to analysts, don’t generate enough revenue to justify the high production cost.

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Armstrong’s value to the brand was in his prowess.

Nike cultivates athletes it believes are at the pinnacle of their sport — the best of the best. Its ties to cycling, therefore, were predicated not on the sport, but Armstrong’s status as a seven-time Tour de France winner and cycling’s most dominant athlete.

Once he was retired, though, Armstrong became a symbol of past greatness.

“As he gets older, Lance isn’t worth much in the future,” said Paul Swinand, an analyst with Morningstar and an avid cyclist. “He’s worth more in the past.”

But if anything has become apparent in the last several months, it’s that these aren’t strictly business decisions for Nike.

Nike’s dedication to its celebrity athlete endorsers has been well documented, with golfer Tiger Woods, who received Nike’s unbending support as infidelity sunk his marriage, his reputation and his game, as the most notable example.

With the exception of quarterback Michael Vick — who Nike cut ties with as he faced dog-fighting charges — the company sticks behind its embattled stars until it no longer can. And sometimes that takes a while.

Look at what happened with Joe Paterno.

The Penn State coach had been linked to the Nike brand for more than 20 years before he was accused of covering up the child sex-abuse scandal of assistant coach Jerry Sandusky.

That’s a lot of years in the regular company of Phil Knight, the Nike co-founder and chairman who stood out as one of Paterno’s most vocal defenders, drawing a standing ovation at a memorial service where he referred to the coach as a personal hero.

Six months later, though, Nike pulled Paterno’s name from the child development center at its Washington County campus, prompting Knight to issue a statement steeped in sadness: “It appears Joe made missteps that led to heartbreaking consequences. I missed that Joe missed it, and I am extremely saddened on this day.”

It was personal, not business.

Armstrong, too, had a personal relationship with Knight and has arguably been one of Nike's most versatile athletes.

He’s made appearances at annual stockholder meetings. He was a surprise guest during Knight’s appearance on the Oprah Winfrey Show. He not only promotes Nike’s Livestrong products, but he’s used throughout several product categories. In January he joined NBA star Kevin Durant and Olympic sprinter Carmelita Jeter in promoting the Nike+ FuelBand, the brand’s signature digital product.

And as with Knight's Paterno statement, Nike’s statement Tuesday carried a tone of betrayal.

“Due to the seemingly insurmountable evidence that Lance Armstrong participated in doping and misled Nike for more than a decade, it is with great sadness that we have terminated our contract with him,” the company said. “Nike does not condone the use of illegal performance enhancing drugs in any manner.”

And Nike certainly hung on to Armstrong as long as it could.

“Clearly, it’s a very stark admission that Nike believed that its brand would be harmed. I think they may have pulled the ripcord at the last possible minute before their brand suffered any damage,” said David Carter, a sports business professor and executive director of the University of Southern California’s Sports Business Institute. “Clearly, when you see what has happened the last week or so with Armstrong, I’m sure it just became untenable for them to defend him from a marketing standpoint.”

There’s also evidence that Nike has long been planning for this eventuality in a way that would limit the impact on the brand.

It’s as if Nike has created two Lance Armstrong personas: The dominant athlete and the cancer survivor. And it’s the cancer survivor — and the accompanying story of grit, determination and guile — that seems to have come to the fore in recent years.

In losing Armstrong the athlete, Nike doesn’t give up any signature product lines like it would with Tiger Woods or LeBron James.

Nike on Tuesday said it will continue to support the Livestrong Foundation, the cancer-fighting nonprofit created by Armstrong. That includes its line of footwear, apparel, wristband and other Livestrong branded gear it distributes online and through Dick’s Sporting Goods stores.

Nike doesn’t release exact figures for Livestrong sales, but Swinand figures the business — in which the profits are directed to the foundation — isn’t one of the company’s bigger product lines, but remains vibrant even with Armstrong out of picture.

The impact of losing Armstrong on the business, then, would appear to be nil. The company’s stock price actually gained 0.34 percent Tuesday to close at $97.57.

Swinand believes Nike has been developing a plan around Armstrong for the past five years.

“Even in the comeback years I think they were already sort of thinking about what the strategy would be if there were some kind of problem,” he said. “They knew that Livestrong had legs and they knew it didn’t need Lance to continue.”

That leads Swinand to a different question: Did Nike know about any doping activity?

“Maybe they didn’t know like Reagan didn’t know about Iran-Contra,” Swindand said. “But they still took precautions to make the brand viable.”