A Blog by Jonathan Low

 

Oct 10, 2020

How the Pandemic Is Changing Nike's Running Business

As with many other companies, the pandemic has accelerated trends already affecting performance, such as increasing digital sales direct to consumers. JL

Rick Maese reports in the Washington Post:

Even before the coronavirus pandemic forced Nike to temporarily close its retail stores, the company was trying to emerge from a tumultuous period: the company has shifted its business model, hired a new chief executive and shaken up staff. The company is positioning itself as a technology company as much as a shoe or sportswear entity. It has pulled out of some brick-and-mortar retailers and made an aggressive push to sell directly to consumers online. In its most recent quarter, digital sales were up 82%.

With a long list of superstar athletes, deep coffers built largely on high-priced sneakers and a logo recognized around the world, no sports dynasty has been as consistently dominant as Nike.

Nowhere is the company’s influence more pronounced than in running. For Nike, that has always meant a deep relationship with track and field, where the company’s largesse supports athletes, funds events and helps keep afloat a sport struggling to maintain mainstream interest outside of Olympic years.

“It is essential to their DNA,” said Matt Hart, author of a new book called “Win At All Costs: Inside Nike Running and Its Culture of Deception.” “It’s the founding sport of the company.”

But the company’s relationship with track has reached an inflection point. Scandals involving high-profile running coach Alberto Salazar, accused of both doping and mistreating athletes, cast a dark cloud over Nike’s distance-running efforts. Top executives who were also its major track boosters have recently stepped aside, stirring uncertainty throughout the track world about Nike’s future support.


“There’s speculation that the last of the true track men at Nike are gone,” Hart said. “And that leads to speculation about how much this all actually benefits them. They pour quite a bit of money into track and field.”

Even before the coronavirus pandemic forced Nike to temporarily close its retail stores, the company was trying to emerge from a tumultuous period that saw employees protest on its campus, former female executives file a discrimination lawsuit and athletes draw attention to complaints about company policies that penalized women for getting pregnant.

Amid that turmoil, things are quickly and dramatically changing at the company’s Beaverton, Ore., campus. Even as running continues to serve as one of Nike’s biggest sources of revenue, the company has shifted its business model, hired a new chief executive and shaken up staff — including the team devoted to its track and field efforts.


Craig Masback, a former executive from USA Track and Field, and Tim Phelan, who had spent more than two decades at Nike, left the company recently. But it was the departure of vice president John Capriotti, the company’s global director of running track and field and long considered one of the most powerful figures in the sport, that caused the biggest shock waves. He had worked at Nike since 1992 and controlled the company’s track and field purse strings. The Oregonian once reported that he had “likely dispensed more money to more runners, jumpers and throwers than anyone else in history.”

Aggressive and colorful, Capriotti had no shortage of friends and enemies in track. (He made headlines in 2015 for threatening to kill a running coach sponsored by another shoe company.) After Capriotti’s departure was announced, Sally Bergesen, chief executive of Oiselle, a women’s sports apparel company, tweeted that “his reign was defined by exploiting pro women athletes who became pregnant, and abusive contract maneuvers to pro runners of all kinds. May T&F start healing and see better days.” Capriotti has not spoken publicly since his departure and did not respond to messages seeking comment.

In a statement, the company said Capriotti “has retired from Nike but will consult and continue to play an important role in our relationship with athletes.” It did not respond to several follow-up questions about its investment in track.


But the tumult already appears to have shaken up Nike’s priorities. In October 2019, a month after Salazar was slapped with a four-year suspension, chief executive Mark Parker announced he would step down. As the company began to chart a new course, it was suddenly being led by a boss who didn’t have the running pedigree shared by Parker and co-founder Phil Knight.

“You look at who they hired — John Donahoe is a former CEO at eBay, has a Silicon Valley background. He’s not a ‘shoe dog,’ not a typical Nike hire,” said David Swartz, a financial analyst for Morningstar. “That tells you where the focus is at the company. They took on an outsider, and that can only mean some things are changing at Nike.”

Knight, a former middle-distance runner at the University of Oregon, founded Nike along with his legendary college coach, Bill Bowerman. They considered Hayward Field, the iconic university track stadium in Eugene, Ore., located 110 miles from Nike headquarters, to be the company’s true birthplace.


“You look around this place,” Knight told the Register-Guard in Eugene in 2018, “and it all began there. It’s a hugely emotional place for me.”

Knight and his company have helped bankroll the sport for four decades. They made under-the-table payments to amateur runners, including Olympian Steve Prefontaine, staged key races around the globe and sponsored athletes at all levels. Knight poured in more than $100 million of his own money, and Nike chipped in millions more, to rebuild Hayward Field in preparation for the world championships in 2022. Even when Knight stepped down and Parker took over as chief executive in 2006 and then company chairman 10 years later, track remained a priority.

“Track was just part of their heart,” said Doug Logan, chief executive of USA Track and Field from 2008 to 2010. “Phil had a little suite in an office building just off Hayward Field where he entertained. He had no more fun in his life than sitting up there on this little balcony of an academic building and watching track meets.”


Runners, agents and rival shoe companies often complained about the company’s outsize influence. But Logan insists the relationship is “symbiotic.”

“Did we do certain things with and for Nike because we were receiving a lot of gasoline for our gas tanks? Of course,” Logan said. “Was it inappropriate, nonethical, did we hurt ourselves by it? Absolutely not.”

In 2009, Logan negotiated a new contract with Nike worth more than $10 million annually to USATF, a reported increase of nearly 40 percent. In 2014, as Knight approached retirement, Nike extended its USATF sponsorship agreement, agreeing to pay the organization at least $400 million through 2040, an eye-popping 23-year commitment.

Nike also began pouring money into two long-distance running teams at its company headquarters. It wanted to return the United States to the top of the race podium. Instead, one of those teams, the Nike Oregon Project, would make the company a target for criticism across the running community.


‘Too incredible’

Nike’s roster of athletes has included some of sports’ most recognizable names: Jordan, LeBron, Tiger, Kobe. It’s also a who’s who of busted dopers and cheats: Barry Bonds, Marion Jones, Lance Armstrong, Justin Gatlin.


While some scandals generated bigger headlines, the Salazar affair led to the shuttering of Nike’s high-profile running club, exposed an insidious underbelly to the company’s role in the sport and tainted Parker, the chief executive and an avid runner himself.

In 2001, Nike executive Tom Clarke and Salazar lamented the performances of U.S. athletes at the Boston Marathon and made it a mission to cobble together Nike’s resources, technology and expertise to revolutionize the approach to running. The result: the Nike Oregon Project.

Hart documents the project’s rise and fall, detailing the corners Salazar cut in his search for an edge. The book draws heavily from the U.S. Anti-Doping Agency’s investigation into Salazar and casts suspicion on some of Salazar’s most accomplished runners, including Galen Rupp, the two-time Olympic medalist who began working with the coach as a teenager. Rupp has never tested positive for a banned substance and has praised Salazar’s coaching techniques.


Salazar’s coaching philosophy matched the company ethos, Hart said in an interview: Win at all costs, stay ahead of the competition, innovate. Salazar’s experimental nature was hardly a secret on the Nike campus. He had his sons, both of whom were also employed by Nike, apply a testosterone cream and run on a treadmill. “We are next going to determine the minimal amount of gel that would cause a problem,” Jeffrey Brown, a Texas-based endocrinologist who treated Salazar’s athletes, wrote to Parker, according to USADA.

Salazar also tested a supplement that turns fat into energy called L-carnitine, arranging for an assistant coach to receive an infusion of 1,000 mL, well over the permissible limit of 50 mL. In December 2011, he emailed Armstrong, the disgraced cyclist, saying: “Lance, call me asap! We have tested it and it’s amazing! You are the only athlete I’m going to tell the actual numbers to other than Galen Rupp. It’s too incredible. All completely legal and natural.”

After four years of investigating, USADA handed down four-year bans to Salazar and Brown. Two arbitration panels considered the case, ultimately finding Salazar guilty of administering a banned substance, tampering and/or attempted tampering with the doping control process and trafficking and/or attempted trafficking of testosterone.


Salazar has maintained his innocence. His attorney did not respond to requests seeking comment. The coach’s appeal is expected to be heard by the Swiss-based Court of Arbitration for Sport in March, according to a person familiar with the situation. Brown’s attorney did not respond to a message seeking comment.

When the punishment became public in September 2019, Nike put out a statement supporting Salazar. But days later, it shuttered the ambitious Oregon Project. (It’s unclear whether Salazar still works for the company.) Three weeks later, Parker announced he would be stepping down as chief executive. The company said Parker’s departure had nothing to do with the Salazar affair.

While the leadership change promised to usher in a new era, other issues continued to hang over the company. Several high-profile runners publicly criticized Nike for the way it treated pregnant athletes, penalizing them and suspending pay, a public-relations nightmare that prompted Nike to update its maternity policy. It also reworked its contracts with female athletes and recently launched a maternity line of activewear called Nike (M).

And the company is still facing a federal lawsuit over its treatment of female employees. Filed in 2018, the lawsuit likens Nike to an old boys’ club and says “for many women at Nike, the company hierarchy is an unclimbable pyramid.”

Ellen Schmidt-Devlin is a former track athlete at Oregon who worked as an executive at Nike for more than a quarter-century and considered Bowerman a personal mentor. She has watched the company grow and evolve, but always with track and field stitched indelibly into the corporate fabric.

“Track and field was their canvas,” said Schmidt-Devlin, now the executive director of the Sports Product Management Program at University of Oregon’s Lundquist College of Business. “That’s why the company exists. Without a doubt, though, the company is finding its next phase.”

Nike’s annual earnings report indicates running is still its biggest wholesale earner — $3.8 billion in the most recent fiscal year, which included a spring devastated by the pandemic, and $4.5 billion the fiscal year before that. In both years, running was bigger than every category except sportswear.

“That’s a lot of money, even for Nike,” said Swartz, the financial analyst. “Now whether that means they’ll need to support track and field as much as they did is an open question. But no doubt running is a huge market for Nike. That’s not changing.”

But supporting running is different from funding track and field. Nike’s high-tech Vaporfly shoes created a stir for aiding elite marathoners, but the company needs to sell them to a larger audience to make money. Sponsoring high-profile athletes is good for brand awareness when the Olympics come around, but it doesn’t always correlate to shoe sales. So Nike must decide whether it will continue bankrolling both elite athletes training for the Olympics and young runners in the early stages of their careers; whether it will continue funding community races and global events; and whether, post-Phil Knight, it will continue propping up an entire sport.

“If you look at just dollars, of course you’re not going to say, ‘Nike should be as invested,’ ” Schmidt-Devlin said. “The sport itself is difficult to make money on.”

Under Donahoe’s leadership, the company is positioning itself as a technology company as much as a shoe or sportswear entity. It has pulled out of some brick-and-mortar retailers and made an aggressive push to sell directly to consumers online. In its most recent quarter, digital sales were up 82 percent, and the company reported $10.6 billion in revenue, a strong rebound from the desolate early days of the pandemic. The news last month sent Nike stock soaring to a record high.

Before they left their day-to-day roles, Knight and Parker locked the company into several financial arrangements that will keep Nike as the dominant player in track and field for now. Nike reportedly pays USATF around $20 million annually, about double what the company paid under terms of the previous deal.

Knight, now chairman emeritus, and Parker, now executive chairman, probably still hold some sway, too. But by all accounts, it’s Donahoe’s vision that is now guiding Nike. His background is in finance and technology, not running, and on a recent call with investors, he made no mention of track and field.

“We’re getting stronger in the places that matter most,” Donahoe said on the call.

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