In what has been one of the most exciting sporting events in recent memory, the 2014 FIFA World Cup has captivated audiences around the world. Even in the United States, where soccer is vastly overshadowed by most other professional sports, the World Cup has become the second most-watched televised sporting event, behind only the Super Bowl. Aside from a showcase of international soccer superstars, the World Cup has also become a battleground between two of the world’s largest sportswear companies, Nike (NKE) and Adidas (ADS.DE).
Traditionally, Adidas is thought of as the indisputable international soccer brand. An official sponsor of the World Cup since the 1970s, Adidas’ soccer foothold is solid and continues to grow through new sponsorships. Teams like Real Madrid, and phenomenal players like Lionel Messi, drive its brand presence. On the other hand, Nike is somewhat of a newcomer into the realm of soccer. However, this does not mean that the company has not found ways to display its name on pitches the world over. Nike is the official sponsor of soccer’s most visible team, Manchester United (MANU), as well as superstars like Cristiano Ronaldo and Neymar.
Of the 32 teams in the 2014 FIFA World Cup, Nike sponsors 10, compared to Adidas’ 9. Nike’s premiere teams include the home favorite, Brazil, as well as the Netherlands and USA. Adidas on the other hand, sponsors Spain (victors of the last World Cup), in addition to perennial contenders Germany, Argentina, and Mexico. Prior to Brazil’s disastrous defeat, the two companies were tied, each with two teams remaining in the tournament: Brazil and the Netherlands for Nike, Argentina and Germany for Adidas.
For potential investors, the World Cup presents an attractive incentive for buying shares of either Nike or Adidas; however, prior to purchasing, investors must first analyze the financial information regarding both companies. Nike is clearly the larger of the two, with a market capitalization of $68.9 billion, compared to Adidas’ $15.5 billion valuation. It is also growing faster. Last year, Nike’s annual revenue increased nearly 10%, while Adidas’ increased a mere 3%. Moreover, Nike issues a dividend (with a 1.22% yield), while Adidas does not. Both companies are relatively expensive, from a price-to-earnings (P/E) standpoint, with Nike at 26.4 and Adidas at 22.76 (the S&P 500 average P/E ratio is 19.69). Nike is also approaching its 52-week high of $80.26, and currently sits at $77.67. In contrast, Adidas, which last finished at $72.93, is falling towards its 52-week low of $72.02. Although Adidas is currently the less expensive stock, I believe that Nike is a better investment option. Not only does Nike have financial superiority, but the company has also shown its impressive ability to quickly place itself into the forefront of soccer, despite its extremely late entry. Furthermore, as an American company, Nike has yet another advantage over its German counterpart: it can more easily capitalize from the rise of soccer within the United States.
Regardless of its newcomer approach, Nike will benefit the most from the 2014 World Cup due to its strong brand awareness, limited capital restraints, and popularity.