Global Game

By Sean Gregory

No way. No expletive-of-choice way. Those are the only possible human reactions to viewing Ping Pong, the underground Nike soccer ad that has dribbled around the Web faster than Pele in his prime. In the spot, Ronaldinho, a Brazilian considered the world's best soccer player, laces up his new Nike cleats, the Swoosh as golden as his game, and then, from the top of the 18-yd. box, fires a soccer ball off the 4-in. crossbar. Before the ball touches the ground, he corrals the rebound on his chest, juggles the ball with his feet and repeats the feat three more times. It's the soccer equivalent of hitting four straight half-court hook shots in basketball or knocking four pitches off the top of the right-field scoreboard in baseball. Just Can't Do It.

To Nike, it's even better that--as many have suspected--the spot is digitally altered. It turns out Ronaldinho is somewhat mortal, even in his new boots. Fans have debated the clip endlessly, and Ping Pong has been viewed 12 million times since its October Web-only release, one of the most popular viral videos on the Internet today. Even for a company known for its winning, edgy marketing, that is a hat trick. By creating a youth-driven buzz so crucial to its leadership in the multibillion-dollar sneaker wars, Nike, based in Beaverton, Ore.the largest sporting-goods company in the world, with $14.7 billion in annual revenueshas kicked its $9.5 billion German rival, Adidas, in the shins.

Think the World Cup is contested just on the pitch? With the finals less than a month away--on Adidas' German front lawn no less--Nike and Adidas have launched their broadest, most expensive marketing campaigns in the history of sport, all tied to a single event. (Nike is spending more than $100 million, Adidas closer to $200 million.) Some 32 billion cumulative viewers are expected to tune in to the World Cup, and an additional 3 million people will be taking in the tournament in 12 German cities. For both companies, it is the setting for another epic chapter in their ferocious rivalry.

Neither outfit is running up the score. Nike's uebercool jock culture, led by its monklike chairman, Phil Knight, just spit out another CEO, William Perez, who lasted only 13 months. Net income rose 21%, to $1.4 billion, for the full year ending Feb. 28, but Nike's stock has slipped 5.3% in 2006. Adidas, which nearly imploded in the 1990s, is working through another restructuring. The company last year spun out its ill-fitting Salomon ski business and bought Reebok, the perennial No. 3 brand. Adidas profits rose 25%, to $537 million, over the past year, but its stock has slipped 1.4% off its 52-week high of 175 euros ($223) a share in late January.

Nike leads Adidas in every major sport, except the one that matters the most to the planet. So the Oregonians are obsessed with claiming one last victory, in the beautiful game. For Adidas, a company started nearly 60 years ago by fussball fanatic Adi Dassler, a Nike victory on its home turf would be like the Swoosh-clad U.S. team knocking off Adidas-draped Germany in the finals. "Soccer is the lifeblood and the backbone of our brand," says Adidas brand president Erich Stamminger. "It's very, very emotional for us."

Adidas is defending its soccer business the way the Italians do their goalmouth--tenaciously. "I don't think it's a question of whether we have to win this battle," says Guenter Weigl, Adidas' global soccer chief. "We can comfortably say that we are going to win this battle." Besides having home turf, the company is an official World Cup sponsor and will pay $350 million over the next eight years to extend that privilege to the 2010 and 2014 World Cups. Those billions of eyeballs will see only Adidas signage in the stadiums, and the company's black-and-gold Teamgeist (Team Spirit) match ball will be passed around the pitch. What kind of revenue can official sponsorship deliver? One example: the company says it has already sold 10 million World Cup balls, priced from $15 to $130, since December, and expects to ship an additional 5 million by year's end.

Should Adidas get a yellow-card warning for being cocky? Well, it's not as if Nike has ever finished second in arrogance. In July 2005, the American marketing machine sent a rosy letter to retailers worldwide that read, in part, "The new season for Spring 06 will serve as the platform for launching Nike into the number one soccer brand in the U.S. and the globe ... Prepare yourself and your business for a historic ride."

The scoreboard shows the Swoosh still trailing, though. Nike lost global soccer market share in 2005 and now has a 31% share, compared with 38% for Adidas, according to NPD Sports Tracking Europe. Historic hubris, maybe. "In 1998, they publicly said they wanted to be No. 1," Weigl says of Nike. "In 2002, 'We want to be No. 1.' I can tell you right now, they will again fail to achieve that goal." And you thought Argentina vs. England was a grudge match?

Nike simply touts its momentum. A dozen years ago, the company registered a paltry $40 million in annual soccer-related sales. That figure is approaching $1.5 billion, according to Nike. "We're very happy with our position," says Don Remlinger, Nike's global soccer chief. "If it's making others uncomfortable, that's not our issue." Some of that business came from Adidas; a lot came from Puma, once a dominant soccer brand (started by Dassler's brother) and now enjoying its own renaissance. Smaller brands were crushed under the weight of the marketing spending by the two big guys.

Nike's soccer standing is impressive because, for the company's first 27 years, it basically ignored the sport. Nike built itself into the world's top sports brand by capitalizing on the 1970s jogging boom and the growing global infatuation with basketball in the 1980s and 1990s, headlined by the most valuable endorser in corporate history, Michael Jordan. Adidas seemed invincible in soccer because the sport put the company on the map. For the 1954 World Cup in Bern, Switzerland, Dassler had designed the first soccer shoe with replaceable cleats, or screw-in studs, at the bottom. An hour before the final between heavily favored Hungary and Germany, Dassler surveyed the muddy field and figured his German team needed longer studs to improve traction. Germany upset Hungary 3-2 in the slop, and the "Miracle of Bern" established Adidas as the unquestioned soccer leader.

By the time the World Cup rolled into the U.S. in 1994, however, Nike sensed a chance to expand its global profile. "Phil [Knight] realized that to be relevant and leading in the world of sport, not just in the United States, you have to be a leading brand in the world's most popular game," says Remlinger. And of course, the company wanted to crush a stumbling Adidas--which had lost $100 million in 1992--for good. By 1997, in true Nike fashion, the company signed an iconic endorser--the Brazilian national team, fresh off its '94 World Cup victory--to a 10-year, $200 million contract. "Football is dance," says Remlinger. "And Brazil dances magnificently."

Nike also scooped up such world-class stars as Brazilians Ronaldinho and Ronaldo, British sensation Wayne Rooney and American Landon Donovan to wear the company's boots. It paid marquee European clubs--Manchester United and Arsenal in England, Juventus in Italy and FC Barcelona in Spain--to wear the Swoosh on their kits.

Although Adidas has doled out millions to be the official sponsor at each World Cup since '94, Nike crashes the gate every time. In 1994, an unmarked van pulled up to the Citrus Bowl in Orlando, Fla., before a match, recalls Jeffrey Bliss, chief marketing officer for World Cup '94. The driver dropped off about 150 free Nike caps--JUST DO IT, BRASIL, they read--which soon became one of the hottest items at the event. In France, Nike's "Tour de Foot" caravan brought free clinics to some 50,000 kids around the country, and the company set up a 70,000-sq.-ft. interactive "Nikepark" in northwest Paris. British Marketer OMD found that after the '02 World Cup in South Korea and Japan, more British consumers thought Nike was the official sponsor than thought Adidas was. "You've got to admire Nike," says Bliss, now president of Javelin Group, a sports-marketing firm in Alexandria, Va. "They're very creative, and they know what works."

Nike is keeping its ambush plans for Germany under wraps, but Adidas has already manned the ramparts. The company is building a 10,000-seat stadium near the Reichstag, Germany's parliament, in downtown Berlin to attract fans during the Cup. For a 1-euro ($1.25) entrance fee, spectators will be able to watch games on a big screen, test their skills at soccer stations and attend concerts. On the airways, Adidas scored a major coup by shutting out Nike ads on U.S. English-language broadcasts of the games. The company will also be the sole footwear sponsor on three popular soccer sites: ESPN Soccernet, Soccer on Yahoo! and FIFAWorldcup.com the official site. With the U.S. six to nine hours behind German prime time, distracted workers will flock online for the latest scores. Boasts Simon Atkins, director of marketing communications for Adidas America: "We're heading Nike off at the pass everywhere it turns."

Not quite, Simon. Nike has taken an early lead in reaching the all-important youth consumers who live and breathe the game in the digital world. In mid-February, with little mainstream fanfare, Nike partnered with Google to launch joga.com a global social-networking site for soccer fans that mimics MySpace.com the networking juggernaut that Rupert Murdoch recently purchased for $580 million. The most innovative aspect of Nike's broad Joga Bonito (Portuguese for Play Beautiful) World Cup marketing campaign, joga.com has about 800,000 members from Chile, Afghanistan, Malaysia, New Zealand--you name it. The company says it adds a new member every eight seconds.

For young futbol freaks, joga.com is a powerful tool. Users can view and debate the Ronaldinho ad ("Ronaldinho is the best player but that 4 times on the crossbar no way," writes Raymond from the Hague, Netherlands, on one board), organize pickup games and rant against the most severe problem facing the sport: racism. Members can blog, upload their own soccer video or view thousands of other clips, from the latest Arsenal highlights to Nikola from Bulgaria juggling the ball--in slow motion, no less--in his bedroom. "Some Tricks I Make!" reads the title.

The Swoosh sits atop the page, reminding kids that Nike lets you wish happy birthday to your "Joga Friend" from Sweden. "That goes way beyond somebody saying, 'Oh, yeah, I saw a commercial,'" says Trevor Edwards, Nike's vice president for global brand marketing. "Gone are the days where you can put an ad out and hope people see it. Anyone who doesn't understand the change in the landscape does so at their own peril," he adds. Adidas will unveil a dedicated soccer network on MySpace.com by the end of May.

On the field, though, Adidas has scored with product innovation, and after all, it's the boots that boost the bottom line. In March the company launched the +F-50 Tunit, a soccer shoe that allows players to mix and match three different components--the main body, or upper; the insole; and the cleats, or studs--to adapt to different playing conditions. (Most serious players buy several pairs of soccer shoes for that purpose.) Want a red, lightweight boot for playing on a soft surface? Use a wrench to replace the short studs with long ones, slide in a lighter sock liner, and exchange the black upper for a red one. Adidas executives see the Tunit as the footwear iPod. "I want my music now, and this is how I want it, where I want it," explains Antonio Zea, head of U.S. product marketing for Adidas Soccer. "We've done the same thing here. Customization will make this product cool."

The early returns are positive. In the U.S., Adidas' soccer-footwear sales are up 23% over last year. Globally, Adidas "has production problems right now, demand [for the Tunit] is so high," says Klaus Filbry, head of soccer for Adidas America. A starter kit, including one set of uppers, an insole and three sets of studs, costs $170, but the real revenue potential for Adidas, and retailers, lies in the add-ons: $80 for each extra upper and $40 for an additional insole. Adidas is about to launch 32 new uppers, with the colors and imprints of each World Cup nation--bright orange for the Netherlands, green and white for Iran--in the hope that they become collector's items. "There are endless opportunities for upsell," says Dan Manson, president of Soccer Post, a U.S. specialty soccer retailer. Manson calls the Tunit his hottest product.

Although the Tunit should help Adidas, some investors fear that getting a much larger shoe to fit could distract the company from pressing the advantage in soccer: its $3.8 billion purchase of Reebok, the struggling Canton, Mass., sporting-goods company. Although the merger helps Adidas gain market share and nudge closer to Nike overall, right now it's a drag on earnings: Reebok's orders declined 22% in the fourth quarter of 2005 owing to weak products and anxiety about Adidas' strategy for the brand. "Mind boggling," says John Shanley, an analyst at Susquehanna Financial Group.

Turning Reebok (2005 sales: $3.8 billion) around is a daunting task, one that some feel Adidas shouldn't have taken on. "Reebok is a brand you can probably develop, but it's going to cost time, and it's going to cost money," says Joerg-Philipp Frey, an analyst at Bank Sal. Oppenheim in Frankfurt. "Why should Adidas have to do that? They're better off concentrating on their own brand." To Adidas' Stamminger, two brands offer more leverage than one. Reebok also gives Adidas another weapon that Nike has to fend off. "There's a potential in this market that we are not utilizing at the moment," he says. "And just bringing Reebok back, with the strength they had, that's a huge potential." The company is forecasting $223 million in cost savings and $636 million in additional revenues by 2009.

Reebok has already scored for Adidas in soccer. In April the company signed French superstar Thierry Henry, a veteran Nike pitchman, to an endorsement deal.

Adidas has drawn the battle lines; now it's up to the consumers to decide. Not that the companies will quiet the trash talk. For example, Adidas puts the boot to Nike's worldwide youth "futsal" tournament, which features the smaller soccer ball that many great players, like Ronaldinho, grew up dribbling. "It's three on three in a cage," says Filbry. "That's not soccer." Edwards, Nike's marketing guru, guffaws. "I'm happy they would dismiss something that millions of people around the world are playing," he says. On the eve of the World Cup, jawing between the world's top players has begun. May the best brand win. Adidas vs. Nike

Revenue, 12 months Adidas - $9.5 billion Nike - $14.7 billion Net income, 12 months Adidas - $537 million Nike - $1.4 billion

Market capitalization* Adidas - $11.2 billion Nike - $21.3 billion

One-tear change in stock price* Adidas - up 34% Nike - up 5.9%

Share of soccer market** Adidas - 38% Nike - 31% *As of May 9 **Source: NPD Sports Tracking Europe

With reporting by William Boston/ Herzogenaurach