The strange world of Chinese sneaker endorsements.
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July 25, 2007 in News

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, Odd tidbits
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Illustration by Mark Alan Stamaty. Click image to expand.

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It’s been a tough year for the basketball-shoe business. Domestic television ratings for the NBA Finals have reached record lows
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. According to Business Week, sales of basketball sneakers fell 16 percent in 2006
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, and retail outlets like Foot Locker
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are seeing big declines in foot traffic. But all is not lost for the sneaker-industrial complex. Nike projects that China, a source of much of the company’s recent growth, will soon represent its second-largest market
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. Last year, Adidas announced plans to double its number of retail stores in China
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to 5,000 in the next four years.

With the world’s sneaker giants fixated on conquering East Asia, you’d think China’s domestic shoe producers might be feeling the pinch. But remarkably, local manufacturers have more than held their own. Even as Nike and Adidas have become the two largest sports brands in China, they still account for no more than a third of the sports-shoe market. Li Ning, which first found success in the 1990s through the popularity of its namesake founder

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, an Olympic champion gymnast, now earns $400 million a year in revenues. Anta, another leading local brand, saw its sales increase by 87 percent
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last year.

The success of local companies is due in part to the relative cheapness of their products. China may have far lower income levels than the United States, but Air Jordans

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cost just about the same in Beijing as they do in Brooklyn. Still, among China’s prime sneaker-buying population—young men in cities, many of them an only child with their parents’ money to burn—low prices aren’t necessarily a strong selling point. Li Ning, Anta, and other Chinese companies have come up with another way to level the playing field: endorsement deals—some quirky, some brilliant, and a few morally questionable.

Chinese companies can’t compete with the world powers when it comes to locking up megastars. Olympic gold-medalist hurdler Liu Xiang, who will likely emerge as the biggest Chinese star of the Beijing games

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, has a deal with Nike
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. One of China’s leading sports-marketing consultants told me that every starter on the national basketball team has a deal with a foreign brand. Yi Jianlian, whom the Milwaukee Bucks selected with the sixth pick of the NBA draft, had a Nike contract by the time he was 16
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.

Since the superstars have already been spoken for, Chinese companies have to get creative. When Li Ning was outbid by Adidas for the right to sponsor the Chinese team for next year’s Beijing Olympics, it arranged to outfit every presenter on CCTV5

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—the TV network that will broadcast the Summer Games to hundreds of millions of Chinese viewers. Can’t compete with Reebok’s $100 million contract with Yao Ming? Li Ning signed his little-known Houston Rockets teammate Chuck Hayes
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. Erke’s deal with the women’s 48-kilogram weightlifting team might not seem very glamorous—until you realize that the squad is the odds-on favorite to produce China’s first gold medalist in Beijing
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.

In a few cases, the sponsorship choices are downright brilliant. Take Li Ning’s deals with the Spanish and Argentinean basketball teams, which won the 2006 World Championships

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and the 2004 Olympic gold medal
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, respectively, amid the wreckage of USA Basketball. Li Ning won’t make its fortune in Buenos Aires or Barcelona. But sponsoring a championship team in a marquee sport sends a powerful signal to Chinese consumers that the brand is legit.

At the same time, Chinese shoe companies’ Billy Beane-like quest

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for hidden value has led to a few questionable decisions. Most sneaker companies would shy away from sponsoring the North Korean Olympic team. At the 2004 Summer Games in Athens, the DPRK won a grand total of five medals, none of them gold. Besides, the Hermit Kingdom doesn’t exactly conjure up the kind of brand associations most shoe companies are looking for. But Erke’s sponsorship of North Korea
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has a simple explanation. North Korea’s strongest sports include gymnastics, table tennis, and diving, all of which draw huge support and TV audiences in China.

Li Ning’s decision to sponsor the Sudan track and field team

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is even harder to defend from a moral, athletic, or economic perspective—after all, Sudan has never won a single Olympic medal. For anti-genocide activists, the deal may not have the same significance as, say, PetroChina’s investment in Sudan’s oil fields
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. But Sweden’s Olympic Committee
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, Shaquille O’Neal
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, and the NBA itself
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—all of whom have their own contracts with Li Ning—might each be asked how they feel about having the Sudanese government on the company’s endorsement roster.

Sudan and North Korea aside, these endorsement deals show that the hype about China as the next big market for basketball might actually be justified. Consider that Shane Battier, another of Yao’s teammates, has a seven-figure deal

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to wear sneakers made by Peak, which has virtually no business outside of China
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and won’t anytime soon. (As Battier’s name surfaced in trade rumors this summer, a Peak executive reportedly flew to Houston to meet with the team about the prospect he would be sent beyond Yao’s orbit.) When Kobe Bryant’s Nike contract expired earlier this year, Li Ning—which doesn’t even sell shoes in the United States—was mentioned as a serious contender
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for his next deal.

Of course, Nike and Adidas shouldn’t be so surprised that they’ve spawned imitators—right down to the faux

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Swooshes
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. Given the nature of Chinese contracting, the domestic companies’ sneakers are often made in the same towns and the same factories as the foreign brands. Global sneaker outfits have long realized that it’s not about the shoes, it’s about the branding. That means signing big sponsorship deals, sponsoring basketball camps, and lobbying NBA owners when an endorser’s future is in question. For Nike and Adidas, those may be lessons their Chinese competitors are learning all too well.

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