🏀 Air Jordans: How MJ's Mom Made the Deal of the Century | 9

Summary

The Best Idea Yet: Air Jordans – How MJ's Mom Made the Deal of the Century | Episode 9

Released on December 10, 2024

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Introduction

In this enthralling episode of The Best Idea Yet, hosts Nick Martell and Jack Crivici-Kramer delve deep into the iconic story of Air Jordans—from their precarious inception to their meteoric rise as a cultural phenomenon. This episode unpacks the audacious strategies, bold risks, and unsung heroes, notably Michael Jordan's mother, Dolores Jordan, who played a pivotal role in shaping one of the most lucrative endorsement deals in history.

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Nike's Pre-Air Jordan Struggles

The episode opens by setting the stage in May 1984, highlighting Nike's dire situation. Despite dominating the running shoe market with their swoosh logo present on half of all running shoes sold in America by 1984, Nike faced significant challenges:

• Financial Strain: The company was experiencing bloated spending post-IPO, with new product lines failing to perform. This led to layoffs, with 400 employees being let go, and Nike reported its first quarterly loss.

• Missed Trends: Nike missed the booming aerobics craze, temporarily losing momentum as competitors like Converse and Adidas thrived by anchoring their brands with basketball legends such as Magic Johnson and Larry Bird.

Notable Quote:

“The Air Jordan name was created to win Nike a place in the hearts, the minds and the shoe racks of basketball fans. Success would be an understatement.” – Nick Martell [02:10]

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Sonny Vaquero's Discovery of Michael Jordan

Enter Sonny Vaquero, Nike's basketball division head, whose relentless scouting led him to a high-stakes decision: signing a then-19-year-old Michael Jordan, a promising college freshman from North Carolina. Vaquero was captivated not just by Jordan's on-court performance but by his poise and confidence under pressure—qualities that Vaquero believed could transform Nike's fortunes.

Notable Quote:

“This kid is only 19 years old. He's a teenager. He's a great untapped player.” – Jack Crivici-Kramer [10:12]

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The Groundbreaking Endorsement Deal

Nike's pursuit of Jordan culminated in an unprecedented endorsement deal:

• Financial Commitment: Nike proposed a deal worth $2.5 million over five years, significantly higher than what established stars like Magic and Bird were earning with Converse and Adidas.

• Royalties Negotiated by Dolores Jordan: In a visionary move, Dolores Jordan negotiated for Michael to receive 5% royalties on every pair of Air Jordans sold—a clause that would ultimately net Michael Jordan an eye-popping $1.5 billion.

Notable Quote:

“Salaries are stable, but equity is exciting.” – Jack Crivici-Kramer [43:23]

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Launch and Initial Success of Air Jordans

The debut of Air Jordans on April 1, 1985, was met with explosive demand:

• Unforeseen Popularity: While Nike projected sales of 100,000 pairs in the first year, they astonishingly sold 1.5 million pairs within six weeks, generating $126 million in revenue.

• NBA Ban Strategy: The NBA deemed Air Jordans illegal for their color scheme, fining Jordan $5,000 per game. Instead of complying, Nike embraced the controversy, turning fines into a marketing expense that amplified the brand's rebellious image.

Notable Quote:

“Nike categorized this fine as a cost of doing business. Or here's another way to think of it. The fines were a marketing expense.” – Nick Martell [30:06]

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Challenges and Pivot: The Air Jordan 2 and Arrival of Tinker Hatfield

Despite initial success, the release of the Air Jordan 2 nearly jeopardized the entire line due to misjudged pricing and design choices. This flop led to the departure of key figures Peter Moore and Rob Strasser, threatening the future of the partnership with Jordan.

Enter Tinker Hatfield, an architect-turned-shoe-designer, whose innovative approach revitalized the Air Jordan brand:

• Air Jordan 3 Transformation: Hatfield's collaboration resulted in the Air Jordan 3, featuring the now-iconic Jumpman logo and elephant print detailing, which resonated deeply with both Michael Jordan and consumers.

• Reinforcing Brand Identity: By shifting the swoosh to the back and introducing a standalone Jumpman logo, Hatfield ensured that Air Jordans maintained a distinct identity separate from Nike's core branding.

Notable Quote:

“The Jumpman has arrived. A silhouette of Michael Jordan with his leg stretched out executing a trademark gravity-defying jump.” – Jack Crivici-Kramer [36:32]

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Cultural Impact and Legacy

Air Jordans revolutionized the sneaker industry, setting the standard for celebrity endorsements and revenue-sharing deals:

• Precedent for Endorsements: Michael Jordan's deal paved the way for athletes like LeBron James and Steph Curry to secure multi-million dollar, royalty-inclusive contracts with major brands.

• Fashion and Pop Culture: Beyond the courts, Air Jordans became a staple in fashion, influenced hip-hop culture, and solidified Michael Jordan's status as a global icon.

• Economic Significance: By 2023, Air Jordan revenue soared to $7 billion, outperforming giants like Ralph Lauren and Mattel, and contributing significantly to Nike's overall success.

Notable Quote:

“Nike has opened retail stores dedicated to the Jordan brand under the name World of Flight...” – Jack Crivici-Kramer [40:57]

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Key Business Takeaways

The episode distills several critical lessons for businesses and entrepreneurs:

1. Embrace Equity Over Salaries: Nike's investment in Michael Jordan demonstrated the immense potential of equity-based deals, offering exponential returns compared to traditional salary structures.

2. Cousin vs. Sibling Branding: Treating multiple brands as cousins—similar yet distinct—prevents internal competition and brand cannibalization, a strategy Nike successfully adopted with Air Jordans operating independently from Nike's main line.

3. Risk and Innovation: Nike's willingness to defy NBA regulations and invest heavily in an unproven athlete underscores the importance of bold, calculated risks in achieving breakthrough success.

4. Long-term Vision and Negotiation: Dolores Jordan's foresight in securing royalties illustrates the value of negotiating for long-term benefits, ensuring sustained income beyond initial deals.

Notable Quote:

“Air Jordans salaries are stable, but equity is exciting... If you're looking for big upside and you're in a position where a risk is acceptable, then you should look for equity instead of a salary.” – Jack Crivici-Kramer [43:23]

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Conclusion

The Air Jordans story is a testament to visionary leadership, strategic risk-taking, and the profound impact of influential negotiations. From Nike's brinkmanship in 1984 to the enduring legacy of the Jumpman brand, this episode encapsulates how a single product line can redefine industry standards and create lasting cultural landmarks. Michael Jordan's partnership with Nike not only salvaged a struggling company but also set a blueprint for future athlete endorsements and brand collaborations.

Takeaway for Listeners:

• Strategic Risk-Taking: Sometimes, embracing significant risks can lead to extraordinary rewards, as demonstrated by Nike's gamble on Michael Jordan.
• Innovative Deal Structures: Incorporating equity and royalties can transform standard endorsement deals into mutually beneficial partnerships.
• Brand Differentiation: Maintaining distinct brand identities within a larger corporate structure can prevent internal conflicts and promote sustained growth.

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Notable Quotes with Timestamps

• Nick Martell [02:10]:

  “The Air Jordan name was created to win Nike a place in the hearts, the minds and the shoe racks of basketball fans. Success would be an understatement.”

• Jack Crivici-Kramer [10:12]:

  “This kid is only 19 years old. He's a teenager. He's a great untapped player.”

• Jack Crivici-Kramer [43:23]:

  “Salaries are stable, but equity is exciting.”

• Nick Martell [30:06]:

  “Nike categorized this fine as a cost of doing business. Or here's another way to think of it. The fines were a marketing expense.”

• Jack Crivici-Kramer [36:32]:

  “The Jumpman has arrived. A silhouette of Michael Jordan with his leg stretched out executing a trademark gravity-defying jump.”

• Jack Crivici-Kramer [40:57]:

  “Nike has opened retail stores dedicated to the Jordan brand under the name World of Flight...”

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Personal Reflections and Business Insights

By unpacking the Air Jordans saga, Nick and Jack offer invaluable insights into how audacious ideas, when coupled with strategic planning and negotiation, can revolutionize industries. Listeners are encouraged to ponder the balance between stability and potential upside, the importance of brand identity, and the enduring value of visionary partnerships.

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This summary captures the essence of Episode 9, providing a comprehensive overview of the Air Jordans story, complete with key discussions, insights, quotes, and business lessons, making it informative for both avid listeners and newcomers alike.

Transcript

[A]

Wondery subscribers can listen to the best idea yet, early and ad free right now.

[B]

Join Wondery plus in the Wonder app or on Apple Podcasts.

[A]

Wondery.

[B]

As a child, I actually whipped up a will for myself.

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Legally binding. Well, tuck's getting my MMS.

[B]

Dude, this is 11 year old me.

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Yeah, this is impressive.

[B]

I'm not sure I got a notary. So I had like seven assets, a few baseball cards, a blankie, classics. But my most cherished asset was my Mariano Rivera baseball glove.

[A]

Oh, well, that's an institution, Jack. I mean, you could retire on that.

[B]

It was the mint Mariano war on the mound for all those World series in the 90s.

[A]

And I know why you bought that mitt, Jack. And it wasn't for the smell and it wasn't for the fit, was it?

[B]

It's because it was Mariano's glove. Yeah, and I saw him on TV using the same mitt that I had, and that just made me feel like a million bucks.

[A]

Jack, that is exactly why I bought Marc Messier's ice hockey helmet when I was six. It's why I drank Coca Cola after a Wayne Gretzky ad. And I'm pretty sure that's why I enjoyed Ritz crackers when I saw some New York giant in a commercial.

[B]

Nick, my Mariano glove and your Marc Messier helmet. Those were 90s products. But neither would have existed without the shoe that broke the mold from a decade earlier. The original 1985 Air Jordans.

[A]

The phenomenon that is Air Jordan transformed the sports apparel industry in so many ways that we take for granted today. I mean, marketing, celebrity endorsements, team branded merchandise. It has all been affected by the groundbreaking deal at the heart of today's story. Yo, Mike, what makes you the best player in the universe? Money's gotta be the shoes.

[B]

Since their initial release, There have been 39 editions of Air Jordan sneakers, plus re releases of retro classics from the line.

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In fact, get this. An incredible 25% of sneaker owners in the United States own a pair of Air Jordans.

[B]

The Jordan brand revenue for 2023 was $7 billion. And it was the strongest performer in all of Nike's brand portfolio.

[A]

I mean, not too shabby for a middle aged 40 year old shoe. Jack, could you sprinkle on a little more context for us, please?

[B]

That makes Air Jordan bigger than Ralph Lauren, Hyatt hotels or Mattel.

[A]

And get this. Air Jordan sales are, and I hate to say this because I wore them just the other day to our podcast studio. 28 times bigger than all birds. The Air Jordan name was created to win Nike a place in the hearts, the minds and the shoe racks of basketball fans. Success would be an understatement.

[B]

In the 202022 to 2023 basketball season, 65% of NBA players wore Nike.

[A]

They dunked on their next biggest competitor because Adidas has only 11% of NBA players.

[B]

And it's all thanks to a deal struck in the early 80s between a soon to be NBA rookie on the rise named Michael Jordan and a struggling shoemaker named Nike. A deal that almost never happened, a shoe that was initially banned by the NBA and a partnership that teetered on the edge of collapse.

[A]

More this story is so compelling it was turned into a Hollywood movie with Ben Affleck, Viola Davis and Matt Damon.

[B]

Air it was an amazing flick I watched on the airplane.

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Great airplane movie.

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But we're gonna be forging our own path to uncover the business takeaways from the most expensive endorsement deal of all time. But one that still paid for itself a hundred times over.

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And we're gonna explore why you should never, ever, ever settle for a standard deal if you want a big payday.

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And why sibling rivalry can sink even.

[A]

Jack, are you laced up and taped up on those ankles, man?

[B]

Let's go Nick. It's game time.

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This is why Air Jordans is the best idea yet from Wondery and T Boy. I'm Nick Martell.

[B]

And I'm Jack Crevici Kramer.

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And this is the best idea yet. The untold origin stories of the products you're obsessed with and the Boulderist takers that brought them to life.

[B]

I got that feeling again Something familiar but new. We got it coming to you. I got that feeling again they changed the game in one move. It's how they broke all the rules. This episode is sponsored by Abbott. Let's talk about a small thing that can make a big difference if you have diabetes. The Freestyle Libre 3 sensor. It's amazing how the sensor gives you real time glucose readings so you can see the impact of every meal and every activity to make better choices. The Freestyle Libre 3 sensor can help you live life with diabetes on your terms. You can try it free at FreestyleLibre US offer available for people who qualify. Visit MyFreestyle US to see all terms and conditions. Certain exclusions apply for prescription only. Safe info found @freestylelibre US.

[A]

Nike's CEO Phil Knight stands at the open window of his spacious wood paneled office. His eyes are closed, but the rest of his senses are on high alert. It's May 1984 and as the light spring breeze strikes his face. He takes some deep, controlled breaths. Each one carries the calming fragrance of cottonwood trees that surround the concrete and glass Nike campus in the sleepy suburb of Beaverton, Oregon. I am water, I am air, Knight silently repeats to himself.

[B]

Phil was known to drop some Eastern philosophy from time to time.

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Yeah, he was. It's actually a passion he picked up on a trip to Japan, hiking Mount Fuji 20 years before that. In fact, it was the same trip that inspired him to start importing Japanese running shoes.

[B]

Yeah, before Nike was Nike, it was Blue Ribbon.

[A]

Blue Ribbon.

[B]

In 1971, Blue Ribbon became Nike. But here's the wildest part. Phil Knight very nearly named his company Dimension 6.

[A]

Dimension 6. Sounds like a movie Vin Diesel would pass on, Jack.

[B]

Well, in 1971, Nike began making its own shoes instead of just importing them from Japan.

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And just two years later, it was making over $28 million in revenue on those shoes, or over 200 million bucks in revenue in today's money. Now, Nike at the time was primarily known as a running shoe. By 1984, their famous swoosh logo appeared on half of all running shoes sold in America. Nike had half the running shoe market.

[B]

But they'd also expanded into other sports apparel and accessories, with annual revenue closing in on $1 billion.

[A]

I mean, no idea what took them so long to get into lacrosse, but that's a story for another project.

[B]

Not bad for a business. Phil started by selling shoes from the trunk of his car at track meets.

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But right now in our story, it's 1984, and Phil needs all the Zen he can get. Since Phil took the company public in the 1980s, spending at Nike has bloated, and new product lines had just tanked. Over on Wall Street, Nike stock is looking more like your aunt's old Skechers.

[B]

Nike also missed out on the new craze for aerobics that took over the nation. Thanks to Jane Fonda's workout tapes, Nike was feeling the burn in a bad way. And no amount of Spandex could save their earnings.

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In fact, things got so bad at Nike in 1984 that they axed 10% of their staff, around 400 people. And the company posted its first ever quarterly loss. The early 1980s. Bad time for hair, worst time for Nike.

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But the actual problem crushing Nike, it was still seen as a shoe for runners. They needed to break into other sports to keep their momentum.

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And there was one sport in particular that Phil really, really, really wanted to crack.

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Not lacrosse.

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Oh, my God, you breaking my heart. Man.

[B]

Sorry, Nick. But it wasn't lacrosse, just like it wasn't badminton. And it wasn't horseshoes either.

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All right, Yeti see what it was. It was basketball.

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Basketball, the one sport where the shoes make more noise on the court than the players did.

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Now, Nike, they'd already tried to grow their slice of the basketball pie. Nike had been paying college teams to wear their Nike shoes. But players that made it through to the NBA, they tended to drop Nikes in favor of Nike's top competitors, Converse and Adidas.

[B]

Why? Because Converse and Adidas are what the cool kids wear.

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Converse had a market share of 54% and was worn by legends like Magic Johnson and Larry Bird, who Converse paid handsomely, up to $100,000 a year to wear those Converses.

[B]

$100,000 for bird and Magic to wear Converses. That's only about $300,000 in today's money. But these were huge deals for that era.

[A]

Now, Adidas lagged behind Converse with one third of the basketball market. But Adidas did have the cool factor because rappers and breakdancers loved rapping and breakdancing in Adidas.

[B]

Those shell toes on Adidas are an absolute classic still today.

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But then there was Nike. With only 17% share of the basketball market, Nike, it was stuck on the bench. And if there's one thing that Phil Knight cannot stand in this world, it is being sidelined.

[B]

Phil needed to tap into the old Nike magic that made the upstart company take off against the odds. He needed to come up with an audacious new play. One that would expose his competition as lumbering has beens.

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Meanwhile, in a darkened room on the ground floor of Nike headquarters, a guy named Sonny Vaquero stares at a flickering screen. His face is a combination of awe and concentration. A basketball game is frozen amid the shimmering static of a paused VHS tape. For the 20th time in a row, he rewinds a few seconds and then hits play. His focus is on an unassuming player. The game is the 1982 NCAA championship between North Carolina and Georgetown. And that player's name is Michael Jordan.

[B]

Now, Sonny was Nike's guy when it came to basketball.

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He's the guy.

[B]

He previously set up the first All Star High School league, a proving ground for the NBA's biggest names. And he built up an impressive roster of college coaches who, in return, for a fee, made sure their teams wore Nikes on the court.

[A]

But at this point in 1984, Sonny's job is actually on the line. His deals with college coaches, they just haven't converted into a big share of the hoops market. So Sonny is searching this tape archive for prospects to help turn around his and Nike's fortunes. What he's seeing in Michael Jordan is opening his mind to even bigger possibilities. With just 15 seconds left, North Carolina has the ball and they need a basket to win the game. Does North Carolina give the ball to the team's leading score, the first team All American and soon to be number one NBA draft pick, James Worthy? No. North Carolina gives the ball to a freshman Michael Jordan. And as cool as the other side of the pillow, he drains a basket to win the game. The more Sonny watches and rewatches and rewatches it, the more impressed he becomes. Not so much by the shot itself, but by Jordan's confidence and his poise at such a crucial moment. This kid is only 19 years old. He's a teenager. It's the kind of relaxed self assuredness you only see in the greatest players. And a great untapped player is exactly what Sonny needs right now.

[B]

In fact, Sonny believes that Nike needs to get Michael Jordan at all costs. And he's prepared to bet his reputation, his whole marketing budget and Nike's entire basketball division on this one 19 year old college freshman.

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So it's August and it's the annual gathering of Nike's top management. At the head of the conference sits Phil Knight. He's heard Sonny Vaccaro make the pitch for Jordan multiple, multiple, multiple times. And Phil Knight, he has thoughts. Honestly, he's probably doing his breathing exercises, Jack. But now Phil Knight wants to let the rest of his trusted team weigh into this big decision. Sonny, he's pushing for Nike to go all in on Jordan.

[B]

How big is all in?

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He wants Nike to spend its entire basketball sponsorship budget for the next five years on this one. Dude, that is two. And million dollars all going to mj. They want to make MJ their star.

[B]

Remember the very biggest basketball stars, Magic Johnson and Larry Bird? They were getting $100,000 per year tops. They're talking about five times more than that for a guy who's never stepped foot on the basketball court in the NBA. And even the most promising prospects, they go bust all the time. One twisted ankle could erase Nike's $2.5 million investment. But with Nike's finances on the ropes, signing Jordan might be the last desperate hurrah of a dying company.

[A]

This is exactly the kind of wild gambit that Nike's marketing director, Rob Strasser lived for. Strasser was Knight's five star General, they actually nicknamed this guy Rolling Thunder. A loud, brash deal maker. He's the kind of guy who just like never backed down. And he's the kind of guy whose voice you could hear bellowing all the way down from the break room.

[B]

In reality, this guy's very different from Jason Bateman's gentle portrayal of him in the movie.

[A]

Jason Bateman wouldn't hurt a fly. But Strasser in real life, he's been pushing for this kind of play at night Nike since at least 1983. And he even said in an internal memo back then, individual athletes, even more than teams, will be the heroes, symbols more and more of what real people can't do anymore. Risk and win. So Strasser, he backs Sonny all the way. He thinks now is the time MJ's profile is on the rise and he just helped the US Team win gold at the Olympics in Los Angeles. And Strasser also knows from his network that Jordan already in talks with Adidas and Converse.

[B]

So with Strasser back in the plan, it looks like it's a go. But Sonny has one more bomb to drop. He wants to make Michael a special shoe just for him now.

[A]

Yet, as we should point out, signature shoes, they weren't entirely a new idea in 1984, like they'd been around since the 1950s. But there was a big expense around designing a new shoe and then building and then promoting that entire new shoe product. And to do all of that for a 21 year old who hadn't scored any NBA points yet, that was unprecedented.

[B]

So to make this kind of move work, you really have to do the unexpected, the unprecedented, the unbelievable. And that's what Sonny Vaccaro was pushing for. By building a shoe around Michael Jordan.

[A]

And Phil Knight, he sold on the idea. Two and a half million sign that check. But there was just one more person left to convince. And that person was Michael Jordan. This episode is sponsored by Abbott. Let's talk about a small thing that can make a big difference if you have diabetes. The Freestyle Libre 3 Plus sensor. It's amazing to see how the sensor gives you real time glucose readings so you can see the impact of every meal and activity to make better choices. The Freestyle Libre 3 Plus sensor can help you live life with diabetes on your terms. You can try it for free at FreestyleLibre US offer available for people who qualify. Visit MyFreestyle US to see all terms and conditions. Certain exclusions apply for prescription only. Safety info found @freestylelibre us 40,000ft above the Rockies Michael Jordan shifts his 6 foot 6 inch frame side to side just trying to get comfortable. He's squashed into like one of those plush beige seats of a private jet. And across from him is his mom Dolores, and his dad James. Up front next to the pilot, that's his agent, David Falk. And all of them together are en route to lovely Portland, Oregon. Now, mj, he glances across at his mom and she looks back at him. She holds up her hand and she uses her outstretched finger to paint an oversized smile across her face. And the message is clear. Mikey, cheer up. Jordan rolls his eyes and he turns like look out the window again. But he can't help smiling at his mom's goofy little mime. He only got on the plane because of her in the first place. You may not like it, she told him, but you are going to get on that plane and you are going to listen. And through his entire life, Michael's learned that she's usually right and that you always has his best interests at heart. Still, MJ would rather be back at home training on the court than trying to get comfortable with Biscoff cookie crumbs all over his shirt.

[B]

Now, Yetis, you know Michael Jordan's pro career, but what about before he turned pro? That's the moment we're at in this story. Here's his LinkedIn athlete resume before the NBA.

[A]

What are you gonna endorse him for, Jack?

[B]

Michael started out shooting hoops in the backyard with his brothers. He didn't make varsity until junior year. Then, working harder than anyone else, he averaged 25 points per game and won a scholarship to North Carolina where he made the game winning shot in the 1982 NCAA championship game. You know the play that Sonny Vaccara was watching over and over again on that vhs?

[A]

Oh yeah, I know.

[B]

He was also named the NCAA college Player of the year in 1984.

[A]

Now at this point he is not a household name yet, but as hoops.

[B]

Prospects go, so he is hot.

[A]

And Michael is also on the verge of signing a $100,000 per year sponsorship deal with Adidas, which happens to be MJ's favorite sneakers. Get this. Michael Jordan never even put on a pair of Nikes in his entire life. At this point he's on Nike's corporate airplane, but he's never touched Nike shoes.

[B]

He was a three stripe guy through and through. Good luck trying to change his mind.

[A]

But. But there is one person who pushed him to take this surprise meeting with Nike. Mrs. Dolores Jordan. Mikey's mom had a different perspective that he should hear every offer before committing to any deal. Oh, mom, Fine.

[B]

I'll go to the Million Dollar Shoe meeting.

[A]

Well, two hours later, that plane, it finally lands and a cool black limo is waiting to whisk Michael and his entourage over to Nike headquarters. For Michael, this reeks of desperation. He's not impressed. Sonny Vaquero and Rob Strasser, they can see the disdain in his face when they go up to greet him as limo pulls around to Nike hq.

[B]

Okay, now not everyone agrees on how that epic meeting went down. But one thing is certain. This was a high stakes meeting for Nike. In the movie it's portrayed as awkward and it almost ends in disaster before Vaquero gives a stirring off the cuff speech about why Nike was the best choice for mj.

[A]

But Jack, what actually happened outside of Hollywood for that movie scene?

[B]

That's disputed to say the least. Yeah, both Michael Jordan and Phil Knight, they say that Vaquero exaggerates his role in closing the deal. But the important thing is what Nike offered.

[A]

Now this is where things get wild. Half a million dollars per year for five years. That blew all the other offers right out of the water. That is an unprecedented sum in the history of athletics. That is $7.33 million in today's money. And three times more than any of the next biggest NBA sneaker sponsorship deals at the time.

[B]

Now stay with us yetis, because here comes the truly transformative part of the deal.

[A]

And it's largely thanks to his mom, Dolores Jordan and his agent, David Falk. Because those two were thinking long term and they pushed for royalties. Now nobody believed in Michael more than his mom did. So she got Nike to agree to give her son a 5% cut of every sneaker sold under his brand. And this part of the deal, this part was really unheard of. This structure was unprecedented and it transformed the entire landscape of sponsorship deals forever.

[B]

Never before had an athlete had the opportunity for upside. Yeah, they were getting paid what they were paid no matter what. There was no chance that if the thing went well, they could get paid even more.

[A]

MJ was getting equity like Andreessen Horowitz. And this would also net Michael Jordan and eye popping $1.5 billion. Yes, that is billion with a B baby. Between 1986 and 2023 and still today. What's the crazy part about this deal, Jack?

[B]

That little carrot that Michael's mom negotiated for him, it's still valid. So each time a Jordan product is sold, 5% of that sale goes directly to Michael Jordan's bank account. Yeah.

[A]

If you want to know why every photo you see of Jordan today is with a cigar, it's because of this little detail in that contract.

[B]

And this is a prime example of how salaries are stable, but equity is exciting. If you're prepared to bet on yourself and risk getting nothing, then you could end up with huge upside by hitching your fortune to the success of a product or a company.

[A]

Then Jack, there's another great example of how equity is exciting, but salaries are stable with like, I know your favorite thing.

[B]

A little project called Star Wars. George Lucas believed his Jedi had huge commercial potential. So he accepted tiny upfront fees from movie distributors so he could keep full ownership of the Force. And that equity turned out to be real exciting for George, netting him billions when he eventually sold all the IP to Disney.

[A]

It's no guarantee that echoes equity turns into billions, but when it works, it works big. Whether it's Star wars or Michael Jordan. And you cannot overstate the role that Michael Jordan's mom played in making this deal. In fact, when Ben Affleck met with Michael Jordan to get his blessing for the air movie, one of Michael Jordan's few stipulations was that they would highlight the role his mother played. And he also, no joke, get this, he insisted that his mom be played by the legendary Oscar winning actor Viola Davis. But aside from the money that they were offering, Nike spun the fact that they weren't as big as Adidas or Converse as an advantage. They turned a weakness into a strength. Yes, Michael Jordan would be their one and only star, not just another name on the roster.

[B]

Now that's actually a smart negotiated strategy. They're appealing to Michael's ego.

[A]

Good move.

[B]

Few things can convince the other side to agree with you like playing to their vanity. Whether it's a million dollar shoe deal or your internship salary. Discussion. And one last point. When you're making a new marketing play against established interests, go big or go home. Nike took option one.

[A]

Yeah, they really did. And the risk for Nike was huge because on top of what they were paying Michael, Nike was committed to spending millions more on promotions and advertising and of course production of this brand new shoe that has not even been made yet.

[B]

But Nike did put some protection for themselves into this contract.

[A]

Yeah, interesting fine print here, Yetis. But Michael, he only gets paid if he fulfills at least one of these insanely big accomplishments in his first year. Be NBA Rookie of the Year, average 20 points per game, be an All Star or sell $4 million of sneakers.

[B]

Those are four extremely ambitious goals. The fact that Michael agreed to this agreement speaks to his self confidence. He's a 21 year old kid about to embark on an NBA career. On top of all that pressure, he also gives himself a contract where he doesn't get fully paid unless he performs.

[A]

Let's remember this deal, it wasn't signed on the same day as that meeting at Nike headquarters. It actually took weeks of back and forth talks. In fact, Michael was still holding out for a deal with Adidas. He even told Adidas that he would sign with them instead of Nike if they matched Nike's deal. But Adidas refused.

[B]

Now there's one thing we're missing from this scene, Nick. In fact, it's the most important part of the entire story. It's why we're doing this episode in the first place.

[A]

The shoes don't just picture this scene, smell this scene. Because Strasser and Sonny Vaquero are out of their element. They're in a workshop in the basement of Nike headquarters with rubber pipes and electrical wires snaking across the walls. In the center of that room there's a square design table. Its glass surface is glowing with fluorescent lighting. And on the table is a shoe shaped mass. A black cloth is draped over it and smells like rubber, leather and like a hint of sweaty feet. On the other side of the table stands Peter Moore, Nike's balding 40 year old creative director. And he's wearing a gray turtleneck and a wide smile. With a flourish, Moore whips away the black cloth to reveal a single basketball sneaker. Jack, what are we staring at right now?

[B]

These are red, white and black high top sneakers. And as the first Air Jordans, it matches the color of the NBA team that drafted Michael. The Chicago Bulls.

[A]

Now Moore asked Jordan to contribute to the shoe's design. But Jordan, he didn't really show much interest in it. Shockingly, I mean, I guess MJ's a player, he's not Jimmy Choo. All he said was that he wanted something low to the ground because Michael wanted to feel the court under his feet.

[B]

Hmm, not a lot to go on, Mike.

[A]

No, it's not man. No it's not.

[B]

Well, the shoes, they did have some sweet features though, like air pockets in the soles. And don't sleep on the Air Jordan wings. On the ankle of the shoe, this is a black logo with a basketball between two wings with the words Air Jordan written above it.

[A]

Interesting detail, Yetis. But Peter Moore actually came up with this entire original Air Jordan brand theme on a flight he's on an airplane. And he saw one of those airline pilot badges that, like, the flight attendants and the captains wear.

[B]

Like the ones they give kids when they're on a Delta flight.

[A]

Totally. And the reason you give it to kids, too, is it has a brand equity. Those flying logos, like, there is value way outside the airplane industry. He gives the shoes their own logo, which was a statement of intent that the Air Jordan brand was a big deal.

[B]

So let's recap here. Nick. Nike has spent their entire endorsement budget on a single player who has yet to step foot on an NBA court. They've given him an unprecedented cut of future sales. And they've designed a signature shoe for him. So what is Michael's reaction to this Herculean effort?

[A]

Jack, Michael is seeing all this, and he is not happy. In fact, Michael said the shoes were the devil's colors. Apparently, Michael wanted these shoes to be blue, like his university and North Carolina college team.

[B]

But Nike ignored his request.

[A]

Yeah, although they'd later add a dozen or so more color schemes or more colorways for the sneakerheads out there. But at this point, MJ was signed up. So when his rookie season starts in October of that year, he wore the devil's shoes on the court.

[B]

Good evening, ladies and gentlemen, and welcome.

[A]

To Madison Square Garden, the world's most famous career. It's November, 1984, two weeks since Michael Jordan made his NBA debut. And already MJ is the hottest star of the season. Now, with the Bulls facing the Knicks at msg, he's about to take Jordan mania to new heights. The garden erupts as 19,000 people leap from their seats. Even the New Yorkers in the crowd, they just can't resist mj. The chanting, Jordan. Jordan. Jordan. It takes a full minute for things to settle down. It's already clear this big Nike gamble is paying off.

[B]

Right, man, but there was a big problem, wasn't there?

[A]

Oh, there was one huge problem.

[B]

Yeah, the shoes.

[A]

They were illegal.

[B]

More specifically, the shoes were illegally too colorful for the NBA.

[A]

Jack, can you please whip out the NBA's official rule book and go to legislation number 323-43529?

[B]

NBA rules state that any shoes worn on the court must be at least 51% white. And that meant that NJ would be fined $5,000 for each game that he wore his new signature Nikes.

[A]

Yetis, these shoes, they weren't due to go on sale until April of 1985. So if Jordan stopped wearing them at this point, that would have been five months of hype lost. And that's the kind of hype that money can't buy or can't.

[B]

This yetis is where we come to one of the most masterful marketing moves in history. Nike could have followed the rules, changed out the shoes that Michael wore, compromising their vision and avoiding that $5,000 per game fine. But if they had done that, Air Jordan's may have never been a huge hit. Michael Jordan may have turned to Adidas, and the world would be robbed of this iconic brand and all of its influence.

[A]

More importantly, maybe we would never have.

[B]

Gotten Space Jam or Space Jam too.

[A]

But luckily, Nike told Jordan this. They said, mike, keep wearing those shoes and we'll keep keep paying the fines.

[B]

Then they doubled down with a commercial that played into the renegade image that Nike had just created. And they drummed up even more demand for their shoes. Nike created a revolutionary new basketball shoe. The NBA threw them out of the game. Fortunately, the NBA can't stop you from wearing them. Air Jordans from Nike.

[A]

Now, Nike's strategy here, it's actually very calculated. Literally, because the NBA wasn't going to ban the shoes. They were just going to fine the shoes. So essentially, Nike categorized this fine as a cost of doing business. Or here's another way to think of it. The fines were a marketing expense. It's a great example how marketing spending does not have to be traditional at all.

[B]

Like we say, marketing is what you pay for, publicity is what you pray for.

[A]

And courting controversy, that certainly worked for Nike with the Air Jordans. Even Nike was not prepared for how effective this wild pay the NBA fine strategy would actually be. Because when they launched Air Jordans for sale to the General Public on the 1st of April, 1985 for $64.99, they were expecting to ship 100,000 pairs in their first year. But Jack, how many Air Jordans did Nike actually ship?

[B]

They sold one and a half million pairs in the first six weeks.

[A]

Nike's projections were for $3 million in sales in the first year. They actually sold a staggering $126 million of the air Jordan ones.

[B]

They underestimated sales by like 50 times. Yeah, Nike stock nearly doubled that year, thanks to this one sneaker, which the NBA deemed illegal. So Air Jordans not only made Nike a series contender in the basketball market, but they also gave the company breakout success as general everyday sneakers and fashion icons. Now, Nikes weren't just for runners. They were going toe to toe with Adidas and Converse on the courts, in the streets, and in the clubs.

[A]

And remember those conditions that Nike Built into that crazy, unprecedented contract with MJ.

[B]

He smashed all of them.

[A]

That's right. MJ won rookie of the year. He averaged 28.2 points per game. He was named named an All Star to the NBA. And he sold not $4 million worth of sneakers, but $126 million worth of sneakers in that very first year.

[B]

So Nike was saved.

[A]

Not exactly. Because in the fickle world of fashion, Nike knew they had to get to work on their next iteration of Air Jordans. But rather than build on the Momentum, the Air Jordan 2 shoe nearly tanked the entire line. The devil resurrected the high end styling with the faux lizard leather. It fel the price tag of $100 for a shoe. Or 280 bucks in today's money. That put these Air Jordan Twos out of reach of many fans. Nike misjudged the customer. And at the same time, Nike had just released their new Air Max line. Which sold for just $74. And those shoes had a huge marketing push behind them. So their success ate into the potential sales of the new Air Jordans.

[B]

This is why when you have multiple brands, you got to keep them separate. We call it cousins versus siblings. Treat your brands like siblings and they'll poke each other in the eye and fight all the way to the store. Instead, treat them like cousins. Yeah, they're a little better behaved. They play better together. There's a little distance between the two.

[A]

Those Air Jordan 2s, they got beat up on badly. Sales were disappointing. So much so that designer Peter Moore and marketing guy Rob Strasser jumped ship to start their own company separate from Nike. And get this, they wanted to poach Michael Jordan.

[B]

Michael's mother would not approve of this paper.

[A]

No, she wouldn't, Jack. Well, Phil Knight, he knew that this whole situation would be a disaster. And he had to do something drastic to save that relationship with mj, Reinvigorate the Air Jordan brand and keep up the momentum of Nike's recovery. It was time to go back to the drawing board with a new shoe and a new designer. Breathe in, Phil. Breathe out. Well, just two short years after the release of the first Air Jordan, Nike is once again back in crisis mode. In the summer of 1987, the Air Jordan Twos were a flop. Two key people, the chief designer, Peter Moore, and the marketing director, Rob Strasser, they've left Nike and Nike star signing Michael Jordan. He is not happy with his signature shoes. So the pressure is on. And that's when we get to meet a guy named Tinker Hatfield.

[B]

Is he going to tinker with the shoe?

[A]

I think he literally tinkers with the shoe. It's great when your name is the verb of your occupation, Jack. Nothing better than that. Yeah. What's fascinating about Tinker is that he's an architect by training. And Tinker's first shoe at Nike, the Air max, released in March 1987 was an astounding success.

[B]

That's an incredible debut shoe for your resume.

[A]

Now for the air Jordan 3. Tinker tinkered and approached this project the same way an architect approaches building a house by asking questions. An architect asks the future inhabitants what they need and desire from their new home. He is trying to become the Frank Lloyd write of feet.

[B]

This is where the genius of Tinker Hatfield comes into full force. In the unveiling meeting, he asked Michael to think back to their early conversations about about the design. He then pulls out his sketches of the new design. This makes it crystal clear to MJ that Hatfield was listening. It made Michael feel like the most important guy in the process. And guess what? He was.

[A]

And as a result of this conversation, we get the beautiful Air Jordan three shoe. And you know what? It's all there. This is the quintessential Air Jordan. The mid top style, the exposed air bubble, even the elephant print detailing. It's all here. Because if Disney's Dumbo taught us anything, it's that elephants can fly. Here's what Jack and I find fascinating about this product. The most significant part of the company behind it is not on the shoe.

[B]

The side of the shoe has no swoosh.

[A]

The brand, the image that made Nike recognizable worldwide has been relegated to the back of the shoe.

[B]

Instead of a giant swoosh, there's a new logo. An air. Air Jordan logo. The Air Jordan logo. The Jumpman has arrived. A silhouette of Michael Jordan with his leg stretched out executing a trademark gravity defying jump as he reaches for the rim with his basketball in his hand.

[A]

I mean, Jack, it is like Da Vinci's Vitruvian Man. It is a perfect in every sense of balance and angle, spiritual geometry. There is a symmetry to this logo that has been reserved for the highest echelons of design.

[B]

I feel what you're saying, Nick. Yeah. Nowadays the Jumpman is on the shoes, the clothing, it's on posters, it's in commercials. And if you really feel it even on tattoos on your bicep. This is where that logo started with the Michael Jordan threes. And it stressed how the Jordan line was its own thing, separate to general Nike branding now hadfield he knew that.

[A]

MJ was fully on board when he started spitballing ideas for the different colorways and this potential potential for the new Jumpman logo. MJ was picturing not just the AJ3, but an entire future with Nike. Remember, before walking into this meeting, Michael was just about done with Nike.

[B]

Hats off to Tinker Hatfield for the smart play here. He understood that a lot of Michael's discontent from Nike was that they weren't listening to him. The Air Jordan 3s are the first shoes that truly felt like his own.

[A]

And getting MJ back on the team is a double win for Nike because they get more authenticity in the relationship and they get Jordan invested, not just financially, but emotionally, in seeing the product succeed.

[B]

So the Air Jordan 3s saved Nike again.

[A]

Now, in a big way, we see the financial results. Jack, can you whip out that annual report from Nike that came out the year we were born? 1980.

[B]

Nike's revenue blew through the billion dollar mark for the first time in 1988. $1.2 billion, thanks largely to those Air Jordan 3s.

[A]

And Nike stock topped $1 billion for the first time ever. Once again, thanks to an Air Jordan shoe. Now, Jack, growing up in New York City, there is one consistent thing from the Knicks besides not winning championships. And that consistency is Spike Lee, who's been sitting courtside from John Starks to Alan Houston till INSANITY.

[B]

And in 1988, the director had funded his first joint, the movie She's Gotta have It by maxing out his credit cards and selling socks on street corners.

[A]

Wow.

[B]

So when he first got the call from Nike offering $50,000 to do an ad with Michael Jordan, he thought it was a scam.

[A]

But thankfully for Spike Lee, it was not a scam. Do you know how I get up for my game? Do you know? Do you know? Do you know? That's right. Air Jordan.

[B]

Air Jordan.

[A]

Air Jordan.

[B]

It's gotta be the shoes.

[A]

Yeah.

[B]

Those ads were definitely a touch point of sneaker culture. And they're also important because they showcase Michael Jordan's charisma, his acting ability, and his humor.

[A]

Yeah.

[B]

Other brands would zero in on this to great effect. Like Gatorade with the classic Be Like Mike TV commercials. And they set Michael up for his starring role in Space Jam.

[A]

Now, the Air Jordan threes were where the concept of sneakers as fashion accessory really took off. But this Nike deal with MJ was also foundational to something far bigger and impactful. Celebrity endorsement deals.

[B]

Sure.

[A]

Celebrity endorsements existed before MJ ever slipped on his first pair of Nikes. But after Michael Jordan and everything changed.

[B]

Revenue sharing became a key part of the biggest endorsement deals. Just like Mike's mom wanted 5% for Michael, every player's mom started demanding cuts for their children as well.

[A]

Mom, get in here. Bring the lawyers.

[B]

Today we see it in LeBron James's $1 billion deal with Nike, Steph Curry's deal with Under Armour, and Lionel Messi's recent deal with Inter Miami.

[A]

Air Jordans also paved the way for celebrity apparently. Think Beyonce's Ivy park clothing line or Kanye's Yeezy with Adidas. Celebrities get a huge revenue share, plus the kudos of designing their own clothing. And the brands they get a main line to the celebrity's fans. But this MJ Nike deal is still the platinum standard both for how much it earned and for how long it lasted.

[B]

In 2023, Air Jordan revenue was $6.6 billion. That's more revenue for just Air Jordan than all of Ralph Lauren, all of Hyatt Hotels Corporation and all of Mattel.

[A]

And on top of it, Michael's earning as much as $400 million a year on that $6.6 billion in air Jordan revenue.

[B]

Nike has also opened retail stores dedicated to the Jordan brand under the name World of Flight. With branches in Milan, Tokyo, Seoul, Beijing, and soon the first US branch in Philadelphia.

[A]

What does Chicago gotta do to get a break? Well, as Alex Convey the air screenwriter told Time magazine, it's hard to imagine now a world where there was skepticism about how well Michael Jordan would transition into the NBA. Or a world in which Nike was destined to be just a running apparel company.

[B]

The Michael Jordan deal changed everything in every industry. Phil Knight continued as the Nike CEO until 2004 before stepping down to focus on philanthropy. His net worth stands today around $40 billion. As for Michael Jordan, if you are a Knicks fan, you should plug your ears now. He became a six time NBA champion, earning five MVP awards and 14 All Star selections. He revolutionized the sport with his scoring ability, his athleticism and drive to win. And he became a global icon full stop. He's currently the richest athlete in the world with inflation adjusted earnings totaling 3.8.

[A]

Jack, who's even second to that? And what do they got?

[B]

It's Tiger woods who actually signed a not that different deal than Michael Jordan did with Nike. Thanks to the precedent that Michael set.

[A]

But how far is Tiger behind Jordan?

[B]

Over a billion dollars less.

[A]

And you know what? Jack doesn't get enough cultural or business recognition. You know, no one wore an earring quite like Michael Jordan did. It feels like MJ kind of missed out on a Tiffany's endorsement deal, too.

[B]

Yeah, or Nike missed out on a new jewelry lot.

[A]

Yeah, I mean, they weren't Air Jordans. Could have been Air Jordans. Yetis, you can now sit down in your seats. We learned how Nike spent more than any other company had ever spent on an athlete. How Nike took a giant risk on a rookie, and how it all paid off more than anyone could have ever imagined. And we also saw how Michael bet on himself to make this deal work. So, Jack, what are your takeaways from our time on the court with Nike?

[B]

Air Jordans salaries are stable, but equity is exciting. Yetis, if stability is your priority, then a salary is for you. It's reliable, it's secure. It's easy to sleep at night. But if you're looking for big upside and you're in a position where a risk is acceptable, then you should look.

[A]

For equity instead of a salary.

[B]

Maybe that means accepting stock instead of cash from your company.

[A]

Company.

[B]

Or signing a deal that has big potential instead of smaller guaranteed money.

[A]

Or checking founding a company instead of working for a company.

[B]

When we sold our startup, we did this. We accepted more equity instead of cash, and then we had to work crazy hours to make that equity worth something. But we were young. We took a risk together. And the company we took equity from eventually IPO'd, and the rest is history. Salaries are stable, but equal equity is exciting. What's your takeaway?

[A]

So my takeaway for the Air Jordans, Jack, is that the best advice for companies with multiple brands is to be cousins, not siblings.

[B]

Yes.

[A]

Look, we saw the dangers early on in the Air Jordan story. When you have brands that operate in the same space under one roof, it is all too easy for one of those brands to eat the other one's lunch. Nike learned from this mistake by making the Air Jordan brand brand more standalone, with its own logo and more recently, its own stores. Abercrombie is another example of this. It also owns the Hollister brand. And Abercrombie's found that right balance of being similar enough to be related but differentiated enough to not be duplicative.

[B]

When it comes to multiple brands, it's best for them to be cousins, not siblings.

[A]

Oh, Jack. One more Takeo I just thought of. You should always have your moment in your salary negotiations.

[B]

There's no better representative. Okay, what's the next part of the show?

[A]

Well, Jack, it's actually our favorite part of the show. The best facts yet, all the best.

[B]

Tidbits and fact Toys we couldn't fit into the story, but we couldn't leave.

[A]

You without Lace em up. What do we got, man?

[B]

In July 2003, Nike paid around $305 million to acquire Converse, Larry Bird and magic giant Johnson's old shoe company. They put an end to the rivalry once and for all if you can't beat them. Well, actually they did beat him, but then they bought them.

[A]

In 1997, Nike started selling Air Jordans in China. And soon after, a poll ranked MJ as the second most famous American in China behind Thomas Edison, which actually, I don't know what I'm more impressed by, Thomas Edison being number one or Michael Jordan being number two.

[B]

By 2021, the Greater China region represents almost 20% of Nike's global sales.

[A]

All right, Jack, we got a fact on Nike's deals and a fact on Nike abroad. What about Nike in the secondary market?

[B]

The most expensive sneaker auction sale ever was $8,032,800 in February 2024 for six unpaired individual air Jordan sneakers. It's known as the Dynasty collection. It's made up of one sneaker each from Michael Jordan's six championship clinching games. Are you kidding me?

[A]

Which leaves me wondering, Jack, what happened to the other six shoes that didn't make it to the auction?

[B]

John Stockton and Karl Malone got ahold of them for ritualistic burning. And that is why Nike's Air Jordans is the best idea yet.

[A]

Coming up on the next episode of the Best Idea yet, we introduce you to a shadowy figure called the PEZ Outlaw.

[B]

That's right. We're bringing you the sweet story of the PEZ dispenser.

[A]

The best idea yet is a production of Wondery, hosted by me, Nick Martel.

[B]

And me, Jack Kravitz Kramer.

[A]

If you know the best idea yet, leave it here in the comments. We want to hear it.

[B]

Oh, and by the way, we'd love your rating and review.

[A]

Yeah, the best way you can help grow the best idea yet is to drop down and give us a five star rating, a review and follow the show. Our senior producers are Matt Beagle and Chris Gauthier.

[B]

Matt Wise is our producer.

[A]

Our senior managing producer is Nick Ryan. And Taylor Sniffin is our managing producer.

[B]

H. Conley is our associate producer and researcher. This episode was written and produced by Adam Skuse.

[A]

We use many sources in our research. A few that were essential for this.

[B]

Episode episode were Kicks the Great American Story of Sneakers by Nicholas Smith, Shoe.

[A]

Dog, personal favorite by Phil Knight and.

[B]

The archive of the Willamette Week newspaper out of Portland, Oregon.

[A]

Sound design and mixing by Kelly Cremarek.

[B]

Fact checking by Molly Artwick Music supervision.

[A]

By Scott Velasquez and Jolina Garcia for Frisson Sync.

[B]

Our theme song is Got that Feeling Again by Blacklac.

[A]

Executive producers for Nick and Jack Studios.

[B]

Are me, Nick Martel and me, Jack Revici Kramer.

[A]

Executive producers are Dave Easton, Jenny lauer, Beckman, Erin O'Flaherty and Marshall Louis. For Wandering.

[B]

Follow the Best Idea yet on the Wondery App, Amazon Music or wherever you get your podcasts. You can listen to every episode of the Best Idea yet early and ad free right now. Now by joining Wondery plus in the Wondery App or on Apple Podcasts.

[A]

Before you go, tell us about yourself by filling out a short [e-mail] survey.