The world's greatest basketball player is also one of its great brands.
What is his impact on the economy? by ROY S. JOHNSON special reporting
by ANN HARRINGTON
WORDS NO LONGER SUFFICE WHEN THE SUBJECT IS MICHAEL JORDAN. You need numbers.
Call him the very best basketball player who ever lived, and no one puts
up much of a fuss anymore: Five championship rings, five MVP trophies,
a record ten scoring titles-yeah, he's got more game than anybody. Ask
whether he's worth all that money he's paid by Chicago Bulls owner Jerry
Reinsdorf, and you're still not likely to start any bar fights. Sure, Jordan's
salary is some $34 million this season. But hey: Since Reinsdorf bought
56% of the Bulls for $9.2 million the year after Jordan arrived, his investment
has grown more than 1,000%-the team is now worth well over $200 million.
So here's a way to ignite a debate about Jordan: Ask the question, What
is the bottom-line value of the entire Jordan era?
Beyond his own vast (and growing) personal fortune, if you add up all the
Jordan-influenced business-the sneaker and apparel sales, the higher television
ratings, the increased game attendance, the endorsement value, the videos,
the cologne, and the rest of itwhat is his overall economic impact? What
is, in essence, the Jordan Effect?
It is 14 years since Jordan arrived in the pros as a skinny, tongue-wagging
kid out of North Carolina. Now, at age 35, the Chicago Bulls guard may
well be dribbling out the clock on one of the most astonishing reigns in
sports history. He said back in October that 1997-98 could be his final
season, and as the Bulls battled the stubborn Indiana Pacers late last
month in the Eastern Conference finals, the notion of basketball without
Michael Jordan loomed larger than it has since, ah, that baseball thing
a while back.
During his time in the NBA, Jordan has parlayed his breathtaking skills
and overwhelming cross-cultural appeal into an industry, and he's done
it more effectively than any sportsman before him. The man has his own
line of underwear, for heaven's sake. He virtually created the sports video
market. His movie vehicle, Space Jam, has grossed $230 million worldwide.
There's no arguing that Jordan was in the right place at the right time.
The entire sports industry enjoyed exponential growth on his watch. What
was once a clubby, parochial business with relatively narrow appeal is
today a thriving, global, high-tech industry that attracts fans of all
ages, ethnic groups, and cultures. Stadiums are multimedia marketing platforms.
Games are valuable programming, fought over by broadcasters around the
world as networks and cable channels proliferate. And Jordan is at the
center of it all. The NBA compiles a 40-game package for satellite distribution
to foreign markets. NBA Entertainment President Adam Silver says that if
the international broadcasters were allowed to select the games, the package
would contain only Bulls games. "And the Bulls would be playing the Bulls,"
Silver quips.
There is also no arguing that Jordan has built on the achievements of some
great players before him, particularly Julius Erving, Larry Bird, Magic
Johnson, and the others who ignited the league's turnaround in the 1980s.
"They paved the road for me," Jordan says. "Doctor J was ahead of everybody
in bringing business to pro basketball. Then the personas that Magic and
Bird carried onto the court-their smile, their competitiveness-changed
the way the game was perceived even more. They also began to explore deals
with the businesses surrounding the game, not just traditional sports businesses.
I just took it another step."
That is a bit of an understatement, characteristic of a guy who had an
oldschool upbringing with an emphasis on respect, humility, and a strong
work ethic. Those attributes, too, are part of what makes Jordan such an
engaging superstar. As is the simple fact that at 6-foot-6, he's a person
of relatively normal staturenot one of those mastodons who play center,
but Everyman.
And Superman. "His contribution has been a big lift for everybody," says
Stephen Greyser, professor of marketing at Harvard Business School. "He
was like the rising tide raising all boats." Rick Welts, the NBA's executive
vice president and chief marketer, puts it differently: "If Michael leaves,
he leaves having changed the public's view of what role athletes can play
in society-how they can be viewed, how they can be used by corporations,
how they can be social icons. He also leaves [the sports business] a fundamentally
different industry from the one he came into. How you figure out what he
benefited from based on the industry's growth and what he contributed to
the growth of the industry is a question for the ages."
Where to begin? With the easy stuff-the revenue attributable to the Jordan
"brand." His sports videos have sold over four million copies-including
the all-time No. 1, Michael Jordan: Come Fly With Me. Together, they have
generated revenue of $80 million. Jordan has inspired about 70 books-Rare
Air, The Jordan Rules, Hang Time, and I Can't Accept Not Trying are foremost
among them. Publishing industry executives estimate that together, those
four books generated nearly $17 million in sales. Michael Jordan cologne,
created by the designer Bijan, has so far had sales of $155 million worldwide,
according to the designer's company. Hanes expects sales of Michael Jordan
underwear to exceed $10 million annually. Add those figures to Space Jam
($230 million at the box office and another $209 million in video sales),
and we've got $701 million in revenues, not including shoes and sports
apparel, which we'll get to shortly. Write it down. Not a bad start.
What the Jordan Effect has meant for the NBA is a far trickier question,
but fortunately we can call on some erudition here, in the persons of two
respected economists, professor Jerry A. Hausman of MIT and Gregory K.
Leonard, director of the consulting firm Cambridge Economics. Last year
they reported the findings of an exhaustive study designed to determine
the economic value of superstars to the league-including, of course, Jordan.
The research duo's econometric analysis, published in the Journal of Labor
Economics, painstakingly charted and analyzed the league's television ratings
and attendance records, controlling for such factors as the time and day
of the telecasts, and the quality of the opponent. For their Jordan calculations,
they obtained the reported gate receipts for every team and compared revenues
generated when the Bulls came to town with the teams' average gate vs.
other opponents. For licensed products, they used industry estimates that
Jordan and the Bulls accounted for almost half of all gross retail sales,
then separated the portion of sales attributed to Jordan and not the rest
of the team by using a formula you have no desire to know (trust us). What
did they learn? Basically, that Jordan is the NBA's Pied Piper-he puts
fannies in the seats and in front of the tube, and drags them into stores
around the world. The study showed that Jordan generated $53.2 million
for the league during the 1991-92 season.
Thanks, fellas. We'll take it from here.
We borrowed from their methodology to put a value on attendance data for
Jordan's entire career. Interestingly, his impact on ticket sales throughout
the league was immediate, though the Bulls were still misera-bull (38-44)
when he was a rookie. Boosted attendance at Bulls road games resulted in
a net gain of $2 million over the previous season. By comparing the league's
average attendance (excluding the Bulls) each season with Chicago's road
averages, then multiplying the difference by an estimated average ticket
price and the number of games, we determined the Jordan Effect on road
gate receipts to be $30.5 million during his career
The impact was even more dramatic at Chicago Stadium, where Bulls games
had been lonely affairs before Jordan arrived as the third pick in the
college draft. Local attorney Peter Bynoe, a longtime season-ticket holder,
says, "You could shoot a cannon though the place and not hit anybody."
In 1984-85, you would at least graze someone. Attendance soared 87% that
season. By the 1988-89 season, the Bulls were selling out every night.
Talented forward Scottie Pippen had arrived the previous season in a draft-day
trade with Seattle that would be considered larceny in most states (Remember
Olden Polynice? We didn't think so), and the Bulls reached the conference
finals for the first time in 14 years. We gave Jordan full credit for any
home attendance above the average for the season before he was drafted-minus
2,ZOO fans per game for the arrival of Pippen, who became an eight-time
all-star and the team's second-most-vital player, and the 4,000 per game
gained by the team's move into the United Center, which occurred during
Jordan's absence. (We also deleted from the equation the two years when
he played for the Birmingham Barons in baseball's minor leagues.) Thus,
our total for Jordan's impact on home gate receipts is $135 million. Added
to the road figure, Jordan's overall impact on NBA attendance is $165.5
million. Write it down. (Subtotal: $866.5 million.)
We strayed somewhat from the Hausman-Leonard formula to determine Jordan's
impact on the league's television revenues. Why? We couldn't stomach charting
millions of hours of games, okay? Instead we opted to award a percentage
of cable and broadcast rights fees paid to the NBA in the '90s to the Jordan
Effect (in this category, we ceded the '80s to Bird and Magic, then worked
from a baseline season, 1989-90). We arrived at the percentage by comparing
the average ratings of the five NBA finals in the decade in which the Bulls
were participants (16.3) with the three series in which they weren't (12.9).
Applying the difference (27%) to the $1.3 billion in rights fees the NBA
earned above our baseline season, the Jordan Effect in this category is
worth $366 million. (Subtotal: $1.23 billion.)
The league derives about 20% of its revenue from licensing fees (usually
7% of wholesale) for NBA merchandise, which includes everything from "official"
caps, shirts, jerseys, and jackets to decorative plates. The rest of the
money goes to wholesalers and retailers, so we'll include their revenue
in the Jordan equation.
In 1983, the year before Jordan entered the league, gross retail sales
of merchandise were relatively tiny at $44 million. Over the next eight
seasons-during the peak of the BirdMagic era-sales grew quicker than a
no-look pass. By the time Chicago won its first championship in 1990-91,
merchandising sales had reached $1.56 billion-and Jordan and the Bulls
were the darling of the retail industry. Gross retail sales peaked at $3.1
billion in 1995-96 (Jordan's first full season after baseball). The league
says sales have hovered around $3 billion ever since, largely because of
a softening in the domestic market.
Except during Jordan's baseball blip, Bulls apparel has been the league's
top seller since 1989-90. NBA and retailing sources estimate that Jordan's
jerseys account for nearly a quarter of all sales through the 1990s. Hausman
and Leonard figured that Jordan was responsible for 20% of the league's
gross retail sales. We granted Jordan the same percentage of gross retail
sales for the years he played in since 1989-90 but smaller percentages
for his first five seasons. Over his entire career, that works out to $3.1
billion. Write it down. (Subtotal: $4.33 billion.)
When Jordan signed on as a celebrity endorser for Nike in 1984, one of
his first questions was, "Who's my designer?" The inquiry signaled something
new for the sneaker folks, who thought their new spokesman might be another
passive jock waiting for free shoes and a check. Wrong. "It told us we
had someone truly committed to the process," says Erin Patton, marketing
director for the Jordan brand.
Together, Nike and Jordan, along with David Falk, Jordan's agent, developed
a strategy that would let consumers get to know the rising star. Falk even
persuaded Nike to spend at least $1 million marketing Jordan, a gargantuan
sum at the time. The player's first commercial performances projected a
personality that was still a work in progress. He didn't say a word in
an early Nike commercial, in fact. (The phrase "Who said man wasn't meant
to fly?" flashed onto the screen after a simple slow-motion clip of Jordan
soaring toward the rim.) "I didn't really understand where I was at the
time," Jordan says, "not until the experiences became an integral part
of my life and people began to help educate me on various aspects of the
game and the economics."
One of those teachers was Phil Knight, Nike's eccentric CEO. Knight and
his crew were just far enough outside the marketing mainstream to use the
Portland, Ore., ad agency Wieden & Kennedy-about as far from Madison Avenue
as you can get. Unless you're from Brooklyn: The agency hired an edgy young
filmmaker named Spike Lee to shoot the commercials they conceived for Jordan.
Turned out to be genius. Lee recreated his own portrayal of a quirky character
from one of his movies-a bicycle messenger named Mars Blackmon-as the centerpiece
of a campaign ("It's gotta be the shoes!") that not only gave Jordan an
engaging persona but also infused urban culture into advertising years
before hip-hop and rap pulsed through commercials.
Carefully crafted as it was, the commercial image might not have taken
flight had it not been underscored by the drama that took place on a weekend
in February 1987, when Jordan won the NBA's Slam-Dunk contest with a jam
for the ages on his final attempt. Check out the grainy, slow-motion footage.
It's all there. The style, the flair, the tongue-flashbulbs sparkling like
starlight as he twisted and leaned and thrust the ball through the rim.
>From that day forward, it was the shoes. America had to have 'em.
Air Jordans had already jolted the sports shoe industry, selling $130 million
in the brand's first year. (There was a drop-off in year two when Jordan
missed 62 games with a broken foot.) By 1990, Jordan products-shoes and
apparel-were generating about $200 million annually for Nike. Overall,
Jordan products have grossed about $2.6 billion for Nike.
Of course, Jordan's value to Nike goes beyond just sneaker and apparel
sales. A former company executive describes him as the embodiment of Nike's
image. What is that worth? Footwear analyst Jennifer Black believes Jordan's
impact on Nike's overall image-and thus on how consumers feel about the
stuff they produce-is almost incalculable. "I've been doing this for 18
years, and I have not seen anything like the power of the name, the ties
to the consumer, and the sales generated by him," she says. "Is it worth
double the number he's done in sales? Maybe." Okay, let's go with it. That
multiple places the Jordan Effect on Nike at $5.2 billion. (Subtotal: $9.53
billion.)
Bill Schmidt can actually laugh about it now, but the Gatorade marketing
executive nearly committed a flagrant foul on Jordan's endorsement career
seven years ago. He asked the company's new spokesman to star in a commercial
for a ready-to-heat beans-and-franks dish called Beanie Weanies. Honest.
The logic? Well, the product was largely distributed in the South, and
Jordan was from North Carolina and ... hey, it sounded good at the time.
"Michael looked at me and said, 'I don't think so,' " Schmidt says with
a laugh. "He's still rolling his eyes."
Jordan's Beanie Weanies gig would have made for great viewing on the Not-So-Classic
Sports Network, but it would have been an ignominious beginning for the
man who became corporate America's most valuable endorser ever. "There's
no one like him in endorsements, period," says Bob Williams, president
of Burns Sports, a sports marketing firm. Yet evaluating the Jordan as
Pitchman Effect is maybe the diciest aspect of our exercise. How to measure
the impact of a famous face on the consumer's desire to buy your product?
Marketing experts say celebrity endorsers can do any of three things for
a company: increase sales, boost awareness, or improve its image. Jordan
has accomplished at least one of these for each of the companies he has
been aligned with: Coke, General Mills (Wheaties), Wilson, McDonald's,
Sara Lee (Hanes, Ball Park franks), Upper Deck, WorldCom, CBS SportsLine
(Website), Quaker Oats (Gatorade), Oakley (sunglasses), and Rayovac. Aligning
Jordan with such solid companies was another integral part of the strategy
devised by Jordan and Falk. "We didn't just pick up every deal we could,"
says Jordan. "We tried to be selective because we wanted to project a certain
image, a positive outlook." Still, Jordan is a little mystified by how
it all worked out. "I never really envisioned myself having any kind of
major impact on people," he says. "I never really thought I could persuade
them to pursue something I was involved with or buy a product just because
I talked about it. Even now, when I see kids wearing my shoes, it's kind
of wild. Sometimes I still feel shocked. It's fun, but it's also a lot
of responsibility, and I don't take that lightly."
Neither do the companies. They typically pay Jordan between $2 million
and $5 million annually and boost their marketing budget to take advantage
of Jordan's broad appeal. Have the investments paid off? We heard absolutely
no complaints. Gatorade, having come to its senses and aligned Jordan with
its flagship sports drink, controls 80% of the market, with $1.5 billion
in revenues. That's more than twice the $681 million in sales it recorded
for 1990, the year before Jordan signed a ten-year deal with the company
paying $5 million annually. Jordan's impact is most apparent when Gatorade
enters new markets overseas. "We've gone into countries where they don't
have a clue about what a sports beverage is, but they know Michael," says
Schmidt. "He's instant validation. He's a property much like the NBA, NFL,
or any other property. We manage him as if he were a brand."
WorldCom hitched itself to Jordan in 1995, two years before its stunning
$41.9 billion bid for MCI. At the time the company was a little-known telecom
outfit. It needed a well-recognized endorser with a strong image and high
credibility. The list of possibilities was short. Today, WorldCom uses
Jordan in 80% of its campaigns.
Oakley, the sunglasses maker, has Jordan as a board member. The company
pays him only $500,000 to endorse its products, one of his smallest deals,
but it also includes stock options. Jordan currently owns 204,296 shares,
making him the company's fifth-largest shareholder. With the sunglasses
industry struggling, Oakley hasn't exactly reaped huge dividends from its
relationship with Jordan. His true value to them: He has increased awareness
of the company in a crowded field. "Our relationship with Michael has already
improved our business," says Jim Jannard, the company's founder and chairman.
"We've always been considered a garage company, very small. [Michael] helped
to legitimize our business, expose us to a broader audience."
But what's this all worth? To assign dollar figures to Jordan's endorsement
value, Greyser, the Harvard marketing expert, suggested that we apply a
multiple to Jordan's endorsement earnings, if only because companies wouldn't
hire him unless they expected a positive return. Fine. To settle on a reasonable
multiple, we used a formula similar to one used by companies looking to
determine the value of intangible assets: We looked at an average of the
change in market share for a range of companies during the years Jordan
endorsed their product, then applied the percentage to the companies' revenue
growth during the same period. That allowed us to compare the amount each
company spent on Jordan with the portion of revenue growth that matched
the growth in market share. At the end of it all, our multiple was 1.7-a
figure generally considered quite conservative. "It suggests that Jordan
was at least this valuable to the companies he represents," says a partner
at a major accounting firm. "It's a floor."
According to published estimates, Jordan has earned about $240 million
in endorsement money in the 1990s. Applying our multiple, the Jordan Effect
for endorsements is $408 million. (Subtotal: $9.94 billion.)
We'd be remiss if we didn't include a late addition to the tally: Falk
recently sold his agency, F.A.M.E., to SFX Entertainment in a cash and
incentive deal worth as much as $100 million to the agent and his partners.
Among its 40-odd clients, EA.M.E. boasts such all-stars as Knicks center
Patrick Ewing. But there's no doubt that SFX execs are counting on several
more years of Jordan earnings for much of their return on investment. What
portion of the sale price should be attributed to Jordan? "All of it,"
sniffs a Falk rival. Conservatively, let's figure half: $50 million.
So what's the overall value of the Jordan Effect? As a refresher: Our equation
includes Jordan "brand" products; ticket, merchandising, and television
revenues; Nike stuff; Falk's windfall; and Jordan's value as an endorser.
Add it all up, and what do you get?
Just about $10 billion-and still counting.
We know, we know. There are plenty of dollars we may have overlooked. But
isn't that the point? The Jordan Effect has been humongous but ultimately
immeasurable. Our economists often talked of Jordan as a "positive externality,"
which is just a geeky way of saying he also makes his "teammates" better
in the business arena.
For instance: Although Chicago is the league's third-largest market, the
Bulls' corporate sponsors generally pay a 20% premium over comparable packages
with the New York Knicks or Los Angeles Lakers, according to a Chicago-area
sports marketing expert. "Michael is certainly the catalyst for that,"
she said. What is Jordan's impact on the city of Chicago? The oncedilapidated
area around the $175 million United Center (built largely on the sweat
from his shiny dome) has improved dramatically. What of Jordan's impact
on golf, where he was the fresh face before that Woods guy showed up? The
second Michael Jordan Golf Center was recently constructed in Charlotte,
N.C., at a cost of $2.85 million. A third restaurant operating under Jordan's
name is expected to open soon in New York City. And just recently the NBA
signed a handful of television sponsors for the next four seasons at $90
million each, well above the $60 million price for the previous four seasons.
And who's to say whether Jordan will be around for even a single minute
of those deals?
Jordan says he is at a stage in life when he can make choices. He talks
of spending more time with his family-his sons are 9 and 7; his daughter
is 5-and of being able to someday go the movies, or to the grocery store,
without causing mass hysteria. He says he'll pare back some of his business
obligations. Not surprisingly, Jordan will probably focus on the sneaker
and apparel businesses when he leaves basketball. He'll also likely launch
a line of fashion accessories with Bijan. But not much else, for now. "When
people come to me with deals now, I've got no problem saying no," he says.
"I've got enough on my plate. I'm not greedy."
Last year Nike created a separate division for Jordan's sneaker and apparel
lines, which the company expects to generate about $300 million this year.
Jordan smiles at the number and says he wants to make the division a $1
billion business. The $10 billion man is not greedy, just fiercely competitive-in any arena.