Under Armour is seeking to terminate its record-breaking $280 million contract with UCLA just three years into their 15-year deal, an unprecedented move that speaks to the state of Bruins athletics — and says even more about the state of Under Armour.
Why it matters: Once heralded as the next Nike, Under Armour has seen its sales — and its stock price — plummet over the last four years, leading some to believe the company's best days are behind it. Terminating a historic deal only adds to the "struggling brand" narrative.
- UCLA's athletic struggles aside, backing out of this agreement reeks of desperation, especially amid reports that Under Armour is asking its athlete endorsers to renegotiate contracts and postpone payments as a way to to cut costs.
- This isn't the first time Under Armour has backed out of a major deal, either. In 2016, it signed on to become MLB's on-field jersey supplier by 2020. But when the deal fell apart in 2018 due to money concerns, Nike swooped in.
What they're saying: Under Armour says it's terminating the contract because it has not received certain marketing benefits from UCLA to which it is owed.
- It's unclear what those benefits are, or if this is related to coronavirus (i.e. perhaps the agreement required a certain number of games to be played, and spring sports cancellations resulted in a breach of contract).
- The UCLA athletic department, which was already facing a huge budget deficit before the pandemic arrived, says it will "explore all our options to resist Under Armour's actions."
The backdrop: Under Armour was founded in 1996 by Kevin Plank. By 2015, it had overtaken Adidas as the second-largest sports apparel company in the U.S, and by 2016, it was challenging Adidas and Nike's dominance in college athletics with the UCLA deal and others (Notre Dame, Auburn, Wisconsin, etc).
- Four years later, the company's stock price has plunged from around $40 a share when the UCLA deal was announced to $8.26 a share, as it attempts to rebuild under Patrik Frisk, who replaced Plank as CEO in January.
The big picture: In interviews with the New York Times, current and former Under Armour employees painted a picture of a company that tried to do too much too fast.
- In 2015, for example, it spent $700 million acquiring apps like MyFitnessPal, with unrealized visions of becoming a tech company.
- But Under Armour's biggest misstep was almost certainly eschewing the athleisure trend, which helped Nike and Adidas widen their lead and saw new brands like Lululemon capture market share.
"Mid-2015 was the last time we saw any growth in performance shoes, and we've been in an athleisure trend ever since. Brands that remained focused on performance have struggled, and Under Armour is one of them."— Matt Powell, analyst at NPD Group
The bottom line: When Under Armour backed out of the MLB deal in 2018, two years after signing, it was reportedly because they could no longer afford the costs. "They were a different company when they did the deal," one source said.
- It appears history is now repeating itself. In 2016, Under Armour committed $280 million to UCLA in hopes of building a West Coast empire. Now, they'd like to pretend that never happened.
- Why? Because they were a different company when they did the deal.