Nike
Nike — it’s perhaps the most iconic and most prolific brand of the modern era. On any given day, swooshes adorn the feet of more people on earth than any other footwear company — by a long shot.
Nike — it’s perhaps the most iconic and most prolific brand of the modern era. On any given day, swooshes adorn the feet of more people on earth than any other footwear company — by a long shot.
If you read Shoe Dog or watched Air, you may think you know its history. But Shoe Dog ends in 1980, and Air… well let’s just say it’s an enjoyable piece of fiction. And it turns out (as always) that the real story is filled with far more drama, twists and business lessons than either of those works.
So lace up your Vaporflys, Air Maxes, Dunks or Jordans (or your Monarchs, hey we don’t judge), head out for a long run or walk and enjoy!
Kyle’s Rating: 9/10
Ben and David deliver masterful storytelling in this deep dive into Nike's complete history, transforming what could be dry corporate strategy into edge-of-your-seat drama. What absolutely captivated me was learning how Nike's "break the rules, fight the law" philosophy wasn't just marketing—it was codified into their actual operating principles, from Phil Knight stealing documents to the "banned" Air Jordan campaign that turned NBA pushback into marketing gold. This episode brilliantly reveals the real story behind one of the world's most iconic brands, filled with more twists and business lessons than either "Shoe Dog" or "Air" could capture.
Company Overview
Company Name: Nike, Inc. (originally Blue Ribbon Sports)
Founding Year: 1964 (as Blue Ribbon Sports; renamed Nike in 1976)
Headquarters Location: Beaverton, Oregon
Core Business and Significance: Nike is the world’s largest athletic footwear and apparel company, renowned for its iconic swoosh logo and marketing that transformed sneakers into cultural symbols. Generating over $50 billion annually, Nike’s dominance in sports marketing and global scale shapes fitness culture and consumer identity.
Timeline
1963: Knight visits Onitsuka in Japan, securing a deal to import Tiger shoes.
1964: Blue Ribbon Sports is founded by Knight and Bowerman, each investing $500; first-year revenue is $8,000.
1971: Blue Ribbon ends its Onitsuka relationship, creating Nike, Inc.; Carolyn Davidson designs the swoosh for $35; the Nike brand is named after the Greek goddess of victory.
1972: Nike’s first full-year sales reach $3.2 million; the waffle trainer, inspired by Bowerman’s waffle iron, becomes a hit; Steve Prefontaine is “sponsored” as a Nike employee.
1976: Blue Ribbon becomes Nike, Inc.; revenue reaches $14 million.
1977: Revenue grows to $70 million; Nike signs John McEnroe, employs over 1,000; Frank Rudy introduces air sole technology; Rob Strasser writes the “10 Principles” memo.
1980: Nike’s IPO raises $22 million with a $400 million market cap; Phil Knight owns 46%.
1984: Nike signs Michael Jordan to a $2.5 million, five-year deal with a 5% royalty, generating $126 million in first-year Air Jordan sales.
1988: The “Just Do It” campaign launches with Wieden+Kennedy; market cap hits $1 billion.
1996: Market cap hits $10 billion.
2018: The “Dream Crazy” campaign with Colin Kaepernick redefines Nike’s social stance.
2022: Jordan brand generates $6.6 billion, growing 35% annually; Nike’s total revenue reaches $51 billion.
Narrative
Nike’s story, is a saga of relentless ambition, strategic audacity, and cultural transformation, narrated with enthusiasm for its triumphs and critique of its flaws. It begins with Phil Knight, an introverted yet fiercely driven University of Oregon runner under coach Bill Bowerman. In 1962, inspired by Japanese cameras disrupting German brands, Knight’s Stanford GSB business plan proposed importing affordable Japanese track shoes to challenge Adidas and Puma. This vision birthed Blue Ribbon Sports in 1964, with Bowerman’s $500 investment and coaching clout. Selling Onitsuka Tiger shoes from Knight’s car, Blue Ribbon leveraged Bowerman’s reputation. By 1967, Bowerman’s book Jogging and the Cortez shoe ignited a fitness revolution, redefining running as mainstream. Knight’s quote about whether they created the running craze, “We were at least right there, and we sure rode it for one hell of a ride.”
Financial precarity defined early years, with Oregon banks capping loans at book value, forcing Knight’s 100% debt-to-assets strategy. This “betting the farm” approach drove growth but risked collapse, with bounced payroll checks and FBI probes. The 1971 break with Onitsuka, spurred by Nissho Iwai’s financing, led to Nike, Inc. and the $35 swoosh by Carolyn Davidson. Knight’s questionable tactics—stealing documents, hiring spies—embodied a “break the rules, fight the law” ethos, later codified by Rob Strasser. Nissho’s support enabled manufacturing in Japan, with the waffle trainer, born from Bowerman’s waffle iron experiment, becoming a hit. By 1972, Nike’s $3.2 million sales proved its brand’s strength.
The 1980 IPO, raising $22 million, ended debt reliance, with Knight’s 46% stake valued at $178 million. Hubris followed, as Nike missed the aerobics boom, losing to Reebok by 1988. The 1984 Michael Jordan deal, with its 5% royalty on Air Jordan and Nike basketball sales, saved Nike, generating $126 million in first-year sales and making sneakers cultural icons. The 1990s labor scandal exposed outsourcing flaws, with reforms under Mark Parker. The 2000s saw recovery via Converse acquisition and digital innovations like Nike+iPod, driven by Tim Cook. The 2013–2014 direct-to-consumer shift and 2018 Kaepernick campaign solidified Nike’s dominance. With $51 billion in 2022 revenue, Nike’s story is one of surviving crises through competitiveness and cultural insight, though aggressive tactics remain a double-edged sword.
Nike Principles
Story Behind the Principles: In 1977, Rob Strasser, Nike’s first in-house counsel and marketing head, wrote the “10 Principles” memo, a raw, typed document posted around Nike’s offices during its $70 million revenue year. Ben and David describe Strasser’s frustration with new employees taking success for granted, reflecting Nike’s scrappy roots against banks and Onitsuka. Mistakenly attributed to Phil Knight in some sources, the principles crystallized Nike’s competitive culture, foreshadowing Strasser’s clash with Knight and defection to Adidas. Here are the principles:
Our business is change.
We are on offense all the time.
Perfect results count, not a perfect process. Break the rules, fight the law.
This is as much about battle as about business.
Assume nothing. Make sure people keep their promises. Push yourselves, push others, stretch the possible.
Live off the land.
Your job isn’t done until the job is done.
Dangers: bureaucracy, personal ambition, energy takers vs. energy givers, knowing our weaknesses, don’t get too many things on the platter.
It won’t be pretty.
If we do the right things, we’ll make money damn near automatic.
Sweatshop Scandal
In the 1990s Nike had it’s first scandal related to sweatshops in Asia, exposing the risks of its outsourcing strategy. Rooted in Knight’s 1962 plan to arbitrage cheap labor, Nike scaled production across Asia (Taiwan, South Korea, China, Indonesia, Vietnam). By the 1990s, media revealed dire conditions: child labor stitching soccer balls, extreme heat, and toxic glues causing health issues. Ben and David critique Nike’s initial denial, “We don’t make shoes,” as tone-deaf, given their supplier control. David notes, “People loved Nike so much… this was a huge disappointment,” as the scandal betrayed its inspirational brand. Nike’s scale made it a target, despite industry-wide practices. Public outcry forced reforms under Mark Parker, who stated, “Ignorance is not bliss,” implementing factory audits, supplier transparency, and non-toxic glues shared with competitors. Ben questions ethical boundaries, noting ambiguities like $3 wages versus $2 local averages. The scandal was a turning point, aligning operations with Nike’s brand, but a cautionary tale of prioritizing margins over ethics.
Nike Technology: Evolution of Apps
Nike’s digital evolution, per the episode, began in 2006 with Nike+iPod, spurred by Tim Cook. The clunky insole device tracked running metrics via iPod, marking Nike’s digital entry. By 2010, the FuelBand wearable evolved into mobile apps—Run Club, Training Club, Sneakers, and the Nike store—with 500 million quarterly users by 2022. Ben and David highlight how these apps enable data-driven personalization (Nike By Me) and reduce retailer reliance, aligning with the 2013–2014 direct-to-consumer shift. Run Club fosters community, while Sneakers drives limited-edition sales. This strengthens brand loyalty and margins, though inventory challenges persist. Nike’s tech-savvy shift extends its athlete-centric ethos digitally.
Notable Facts
Swoosh Origin: Carolyn Davidson designed the swoosh for $35 in 1971, later receiving 500 shares worth $7 million today.
Waffle Trainer: Bowerman’s waffle iron experiment created a grip-revolutionizing sole.
Jordan’s Impact: Air Jordan 1 generated $126 million in first-year sales, exceeding Nike’s $3 million goal; Jordan earned $6.3 million in 1985, matching his Bulls contract.
Labor Reforms: Post-1990s, Nike’s audits and non-toxic glues set industry standards.
Women’s Sales: Nike’s $8.6 billion women’s revenue surpasses Lululemon’s total revenue, despite lagging in women’s product focus.
Jordan Brand Growth: In 2022, the Jordan brand generated $6.6 billion, growing 35%, with Jordan earning over $300 million yearly.
Financial Metrics
Revenue (2022): $51 billion, growing 10% year-over-year.
Jordan Brand Revenue (2022): $6.6 billion, growing 35% year-over-year.
Gross Margin: 44% (last four quarters).
Operating Income: $6.4 billion (12.5% operating margin).
Inventory: $8.5 billion.
Cash and Equivalents: $10.7 billion.
Digital App Users: 500 million quarterly active users across Run Club, Training Club, Sneakers, and Nike store.
Market Share: 86% in performance basketball shoes, 96% in lifestyle basketball shoes (pre-2020).
Demand Creation Spend: $4 billion annually on sports marketing.
Revenue Breakdown (Wholesale Equivalent): Men’s (51%), Women’s (21%), Kids’ (12%), Jordan Brand (16%).
Transaction
IPO Transaction:
Date: Second week of December 1980.
Parties: Nike, Inc. and public investors.
Deal Size: Raised $22 million.
Valuation: Market cap of $400 million.
Strategic Rationale: Provided capital to scale manufacturing and marketing, ending debt reliance.
Impact:
Short-Term: The $22 million enabled inventory and distribution growth; Knight’s 46% stake, valued at $178 million, made him one of America’s richest.
Long-Term: Fueled sponsorships (e.g., Jordan) and global expansion, but hubris led to missing the aerobics trend, allowing Reebok’s rise by 1988.
Analysis: Ben and David note the IPO’s role in stabilizing Nike, but critique its strategic blind spots.
Michael Jordan Deal (1984):
The 1984 Michael Jordan deal was a desperate bet to save Nike from Reebok’s rise. Signed for $2.5 million over five years with a 5% royalty on Air Jordan and incremental Nike basketball shoe sales, the deal, crafted by Rob Strasser, was revolutionary. Unlike Converse’s $100,000 flat deals, Nike aligned Jordan’s incentives, offering a stake in the brand’s success. Ben and David highlight its counter-positioning, as competitors couldn’t match it without disrupting existing contracts. The Air Jordan 1 generated $126 million in first-year sales, surpassing Nike’s $3 million three-year goal, with Jordan earning $6.3 million in 1985, equaling his seven-year Bulls contract. Clauses required Jordan to achieve Rookie of the Year, All-Star status, or MVP (he achieved all), protecting Nike. The “banned” campaign, leveraging an NBA letter against black-and-red precursors, created a cultural phenomenon, though fines are unclear. However, the Air Jordan 2 flopped in 1986, costing $100 (versus $65 for Jordan 1) and using stiff Italian leather unsuitable for basketball. Jordan, unhappy with the shoes and Strasser’s 1987 departure to Adidas, nearly defected, shopping the deal to Adidas. Nike’s 1987 renegotiation, led by Phil Knight and Tinker Hatfield, saved the partnership, extending the deal for seven years at $18 million with the same 5% royalty, launching the Jordan brand with the Air Jordan 3 (soft leather, mid-cut, Jumpman logo). Short-term, it saved Nike; long-term, it birthed the $6.6 billion Jordan brand, transforming sneakers into culture, as David notes: “Jordan made sneakers into culture.”
Bear Case and Bull Case
Bear Case:
Leadership Transition: John Donahoe’s 2019 appointment after Me Too-related exits raises continuity concerns in Nike’s insular culture.
D2C Reversal: Increased wholesale inventory ($8.5 billion) at Macy’s and Foot Locker questions the 40% direct-to-consumer shift.
China Risks: Slowdown and shift to local brands, plus social stance tensions, threaten a key market.
Organizational Realignment: Shifting from sport-specific to category-based teams may weaken niche focus (e.g., running, where Brooks and Hoka gain).
Profitability: 44% gross margins lag luxury (LVMH at 68%) and software, limiting returns.
Bull Case:
Scale Economies: $51 billion revenue enables $4 billion sports marketing and exclusive deals (e.g., NFL/NBA/MLB), outpacing competitors.
Brand Durability: Swoosh’s cultural significance (e.g., tattoos) and Jordan’s 35% growth to $6.6 billion ensure relevance.
Digital Success: 500 million app users and 40% direct revenue highlight digital strength.
Global Reach: Focus on 12 key cities and local adaptability solidify dominance.
Basketball Dominance: 86% performance and 96% lifestyle basketball share, driven by Jordan, remains unassailable.
Good for the World vs. Bad for the World
Good for the World:
Cultural Impact: Nike made sneakers cultural symbols via “Just Do It” and “Dream Crazy.”
Athlete Empowerment: Pioneering sponsorships (e.g., Jordan’s royalties) enabled wealth creation.
Fitness Movement: Bowerman’s Jogging and innovations popularized fitness.
Labor Reforms: Post-1990s audits and non-toxic glues set standards.
Bad for the World:
Labor Controversies: 1990s child labor and factory conditions betrayed Nike’s brand.
Competitive Excesses: “Break the rules” tactics risked ethical normalization.
Environmental Impact: High inventory and manufacturing raise sustainability concerns (not discussed).
Value Creation vs. Value Capture Analysis
Value Creation:
Customers: Innovative products (e.g., Air Jordan) and marketing enable buying into the “dream.”
Athletes: Sponsorships (e.g., Jordan’s $300 million/year) provide platforms.
Society: Jogging movement and social campaigns foster health and dialogue.
Value Capture:
Profits: $6.4 billion operating income on $51 billion revenue; 44% margins lag luxury.
Secondary Market: Nike forgoes $2–6 billion resale value, selling limited editions at $150–$300 for accessibility.
Analysis: Nike creates value via athlete-driven halo effects, capturing it through volume, not premium pricing.
Powers
Scale Economies:
Definition: Explicitly cited by Ben and David, Nike’s $51 billion revenue enables superior sports marketing and manufacturing capacity, ensuring differential returns.
Market Share and Power Law: Nike leads with $51 billion, over twice Adidas ($25 billion, second place); Skechers ($8 billion, third) is less than half Adidas. This power law contrasts with apparel broadly, where brands like Zara or H&M compete more evenly. Nike’s scale funds $4 billion in marketing, securing deals (e.g., NFL/NBA/MLB) and factory capacity, unattainable for smaller players like Under Armour.
Application: Scale attracts top athletes (e.g., LeBron, Kobe), who prefer Nike’s platform, as seen in Kobe’s $8 million Adidas buyout. The Jordan brand’s $6.6 billion and 86% basketball share exemplify this.
Strengthening Position: Scale reinforces brand halo, linking to digital trends and athlete marketing, though inventory and China risks persist.
Brand:
Definition: Ben and David debate brand as a power, questioning its pricing impact per Hamilton Helmer’s 7 Powers. Nike’s swoosh, likely the most-tattooed logo, signals cultural strength, but lacks Tiffany-like pricing premiums.
Pricing Question: Nike’s 44% gross margins lag Adidas’ 46% (last 10 years), despite a stronger brand. Running shoes (e.g., Nike Vaporfly at $160–$180) match Adidas and New Balance prices. Ben and David suggest this is intentional, prioritizing volume and swoosh ubiquity over margins, unlike luxury brands (LVMH at 68%). Limited-edition Jordans sell for $150–$300, despite $5,000–$10,000 resale values, to remain accessible to tastemakers in 12 key cities (e.g., New York, Tokyo).
Analysis: Nike’s brand creates value via athlete-driven halo effects, but forgoes pricing power to maximize market presence, linking to scale economies. David argues durability (swoosh tattoos) ensures longevity, though Ben questions this, noting competitors’ pricing parity.
Playbook
Push the Limits (“Break the Rules, Fight the Law”): From Strasser’s 1977 memo, this drives audacious tactics like the Breaking2 marathon stunt, prioritizing media impact over official records, and Knight’s document theft or Prefontaine’s “sponsorship.”
Biggest Strengths as Weaknesses: Outsourcing strength led to the 1990s sweatshop scandal, exposing ethical blind spots. Nike’s denial was a failure to anticipate backlash, given its inspirational brand.
High Leverage: Nike’s 100% debt-to-assets ratio, risking Knight’s home, drove growth. The IPO and Jordan deal were high-leverage bets, yielding Knight’s $178 million and Jordan’s $300 million yearly earnings.
Pinnacle Products for Athletes: Nike designs for elite athletes (e.g., Vaporfly, Air Jordan 3), building brand with niche communities before extending to consumers.
Athletes as Billboards/Netflix Shows: Strasser’s 1983 memo, “Individual athletes…symbols of what real people can’t do anymore, risk and win,” and Knight’s quote, “If the general public could imagine great athletes as having implications of the very best that the human spirit had to offer, then those athletes would become like the heroes of old,” frame athletes as cultural icons. Nike sides with athletes to sell the dream, amplified by ESPN and social media (e.g., Jordan, LeBron).
Commodities and Brand: In commodity markets, brand differentiates, as with Nike Monarchs, a high-margin “dad shoe” worn ironically by Gen Z, despite no athletic use, contrasting with Vaporfly’s R&D-driven edge.
Analysis: These themes—pushing limits, leveraging strengths (and risks), high-stakes bets, athlete-focused products, and branding commodities—drive Nike’s strategy. They align incentives with athletes and create cultural resonance, but ethical risks (e.g., labor, doping)
Carveouts
Ben’s Carveout: Marc Andreessen’s Lex Fridman and Ben Thompson interviews for AI insights.
David’s Carveout: Speak Now (Taylor’s Version), a rediscovered album with strong tracks.
Additional Notes
Episode Metadata: Season 13, Episode 1, “The Complete History & Strategy of Nike,” 4:00:49, July 24, 2023.
Related Episodes:
The Complete History and Strategy of The NBA (September 30, 2020)
The Complete History & Strategy of the NFL (January 25, 2023)
Arena Show Part II: Brooks Running (with CEO Jim Weber) (May 15, 2022)