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Nike Inc (NKE) and Under Armour Inc (UA) Both Can Benefit From Durant’s Move to Warriors

To say the past three weeks have wild ones for the NBA would be an understatement. In late June the Golden State Warriors — once favored as the league’s 2016 champs — fell short against the Cleveland Cavaliers in game 7 of the finals thanks to a fairytale-like return of Lebron James.

Nike Inc (NKE) and Under Armour Inc (UA) Both Can Benefit From Durant's Move to WarriorsIt is, of course, the kind of drama that sports apparel makers like Under Armour Inc (NYSE:UA) and Nike Inc (NYSE:NKE) love to see. Anything that turns a fan into a jersey-wearing or shoe-buying consumer is a good thing for the industry, and there’s little doubt this year’s NBA action created an anxiety-driven adrenaline rush that sent people right out of stadiums and down to their nearest sports-oriented store so they could dress like their favorite player.

This week, however, one of the NBA’s biggest stars threw a proverbial curveball, giving pause to owners of UA as well as NKE. Oklahoma City Thunder’s forward Kevin Durant has joined the Golden State Warriors, where he joins superstar Stephen Curry … arguably the best player in the league right now.

Why would that concern owners of Nike stock and Under Armour stock? Because, Durant is a Nike guy, and Curry is part of the Under Armour family. A fan can only wear one jersey and one pair of shoes at a time, which means sports-loving consumers may have a tough either/or choice to make that could prove to be a drag on one company or the other.

Well, good news for worried NKE and UA shareholders — there’s plenty of room for both companies in this market.

Not Only Is it Not Bad, It’s Good

How do we know Nike and Under Armour aren’t going to partially cannibalize one another once Curry and Durant are on the same popular team (a team which is merchandising gold, by the way)? Because, it has never been a problem in the past.

Take jerseys, for instance … possibly the quintessential yardstick for measuring the marketability of a particular player. Last year, two of the top selling jerseys of Major League Baseball players were Anthony Rizzo and Kris Bryant, both of whom play for the Chicago Cubs. Two more of the top selling jerseys of MLB players in 2015 were those of Hunter Pence and Buster Posey, who both played for the Giants.

It’s not just baseball either. Last year, of the 10 best-selling jerseys of NFL players, two of them belonged to New England Patriots’ teammates, and two more of them belonged to Carolina Panther players.

Point being, there’s room for more than one marquis player when it comes to a team’s branded (or even non-team-licensed) merchandise. In fact …

While the odds are good that Durant and Curry will be in something of a competition on and off the court, for Nike and Under Armour, they may both be better off if the Golden State Warriors not only continue winning, but actually take a home a championship. With Durant on board, that feat just become much more likely.

As was noted above, of the top ten NFL jerseys last year, two of them were Patriots jerseys, and two more were Panthers players. Last year, the Patriots were 12-4 in regular season play, while the Panthers went an impressive 15-1. Both were legitimate Super Bowl contenders, going deep into the playoffs.

By that same token, last year, the Chicago Cubs were 97-65, making it all the way to the National League’s championship series. The San Francisco Giants didn’t do quite as well, missing postseason play. But, they reported a winning season, and drew crowds all the same.

Perhaps a winning team makes a star far more marketable than he might be were he on a subpar club. Perhaps a winning team is half the marketing battle. From that perspective, Nike and Under Armour stock may both benefit from Durant’s move to the Warriors.

Bottom Line for UA and NKE

While jerseys were the proxy used above, it’s not just about team-based memorabilia. The shoes Durant wears, the socks Curry wears, the endorsements each of them make … they all feed into one another rather than cannibalizing one another.

And if Golden State Warriors do end up bringing home the title (as they’re expected to do), there’ll be plenty of money to go around for everyone.

So no, the news doesn’t make NKE or UA any less ownable.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/07/nike-nke-stock-ua-under-armour-durant/.

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