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Woods And Gatorade: Both Can Drink Up The Profits

Wednesday, 17 Oct 2007 | 9:13 AM ET

Gatorade, which is owned by Pepsi , confirmed today that it signed a licensing deal with Tiger Woods. Last month, Golfweek Magazine reported that it was a five-year deal and that it could be worth up to $100 million.

At the time, I dismissed the dollar figure because I know that Gatorade doesn't typically pay more $1 million per year to its endorsers. But now I'm understanding why this could be a very big number.

It's a licensing deal, not an endorsement deal. That means that instead of receiving a one-time straight-up fee, Woods--like Michael Jordan's deal with Nike --will get a piece of sales in exchange for being able to use his name and image on the product.

The Gatorade Tiger Woods Thirst Quencher will be launched in March of next year in three flavors--cherry blend, citrus blend and grape.

Let's say in the first year the Tiger drink does $150 million in retail sales. We'll cut that half to determine what it did on a gross basis ($75 million) since the royalty will be based on that number. Then I'll give Woods a 15 percent royalty, which means from March 2008 to March 2009, he'll make more than $11 million on licensing alone.

Expect in the following years for Gatorade to do more with Tiger, which could obviously increase that licensing royalty significantly. And I have no clue how much Woods is making up front, which is also part of a standard licensing royalty agreement.

It's worth noting that this deal likely came about as a licensing deal because of the pressure put on by Vitaminwater, which--before being bought out by Coke --was offering athletes shares in the company as part of the deal. That made it harder for Gatorade to win the battle here with straight up money.

While Woods is considered one of the best athletes of all time, it will be interesting to see how much of a pull he'll have on a product like Gatorade. I'm betting he can have a greater effect on sales with this brand that he had with Buick and American Express --which might be written off in the annals of endorsement history as failures.

Said John Sicher, editor of Beverage Digest: "Even if this deal approaches the rumored $100 million, it's going to be worth every cent to PepsiCo.

Gatorade Tiger
Tiger Woods teams up with Gatorade, with Todd Magazine, Gatorade president and CNBC's Darren Rovell

Questions? Comments? SportsBiz@cnbc.com

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