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Nike Pulls Out of Olympic Swimwear Battle

In a somewhat surprising move, Nike has pulled out of the Olympic swimwear market.

Sources told CNBC that, last week, officials with the world's largest shoe and apparel maker told college swim coaches who they have contracts with, that the company would no longer be developing the latest and greatest for championship swimmers. Those suits, for obvious reasons, are used by swimmers at the majority of top programs whose coaches have a Nike contract.

While Nike had its expected share of disappointments at the Summer Olympics in Beijing (given the sheer amount of athletes and countries they sponsor) -- most notably, American track stars Bernard Lagat, Asafa Powell and Chinese hurdler Liu Xiang -- Nike's biggest disappointment just might have been the fact that it couldn't make a competitive swimsuit to compare to the Speedo Fastskin LZR Racer. Nike insiders have always contended that the company has prided itself on making the best for elite athletes.

Instead, Nike told its endorsed Olympic swimmers, including Cullen Jones, Jason Lezak, Aaron Piersol and Brendan Hansen, that they wouldn't be penalized if they wore Speedos during the Olympics and all of them did. Other swimwear brands, including Tyr, Mizuno, Arena and Adidas, also had their problems with contracted swimmers -- who felt they couldn't break world records without wearing the Speedo suits. In the end, more than 90 percent of swimmers who picked up a gold medal in the pool in Beijing wore a Speedo suit.

Nike unveiled its Swift swimsuit line before the games in Athens and released the Nike Swift Amp'd this spring before Beijing. But it now appears like that will be the last effort in what is termed the championship space unless top officials in certain areas of Nike's footprint around the world decide that it's worth it for them to override Nike's decision in Beaverton, Ore., and devote their research and development and marketing budget towards continuing to evolve the swimsuit in Nike's name.

What is clear is that it is unlikely that Nike will sign any new swimmers once most of their deals run out at the end of 2008. That's disconcerting to both athletes and their agents. With Nike out of the game, their negotiating leverage is significantly reduced.

"Nike getting out of the championship swimming market is the death of American elite swimming as we know it," said Olympic superagent Evan Morgenstein, who represents almost every elite swimmer under contract with Nike. "Some swimmers make 95 percent of their income in non-Olympic years from these apparel deals. If one of only three major players is out (Nike) and the market leader (Speedo) feels its in a position where they don't have to pay much as long as they have the best suit, the financial model that most Olympic swimmers have lived by since 2000 is over."

Speedo
Speedo

Morgenstein said that if the money isn't there for American swimmers through these apparel contracts, USA Swimming and the United States Olympic Committee have to, for the first time, be fully engaged in the responsibility of funding these athletes.

"Who's going to come out early from college with this new reality?" Morgenstein asked. "It's not so cool traveling the world representing your country if you can't support yourself. We're going to have trouble at the World Championships in 2009 and the Olympics in 2012 if this isn't addressed immediately."

For what it's worth, Nike is not completely out of the swimsuit game. Sources say the company will continue to license the Nike name and familiar swoosh to Perry Ellis International, which has had a deal with the company for the past six years, through at least 2009. The deal includes selling non-Olympic performance and casual swimwear and products in the United States and Canada.

Maybe, in the end, Nike's decision to cut off its elite swimming spend is a good one as it drives towards its goal of generating $23 billion in revenues by 2011. In what is considered to be the competitive swimwear market -- elite suits as well as suits worn by anyone who uses the suits to race -- Nike branded suits have suffered this year. Nike's market share, which includes what is made by Perry Ellis, is down almost 7 percent from a year ago, dropping from 18.2 percent of the market to 12.6 percent today, according to SportsOneSource, a market tracking firm.

Speedo's market share of the $200 million competitive swimwear space is now better than 60 percent, according to SportsOneSource. Joe Gromek, president of Warnaco , the parent company of Speedo, told CNBC five weeks ago that he'd be disappointed if he didn't sell10,000 to 15,000 Fastskin Speedo LZR Racer suits by Christmas. The suit hits stores in a couple weeks and retails for $550.

Nike might have realized that it is already getting a great bang for its buck. Despite not having much of a presence in Beijing due to swimmers swimming in their suits, Nike actually got more exposure from Michael Phelps, who it doesn't pay a dime, than his official sponsor (Speedo) during NBC's airing of the games.

Through a contract with the United States Olympic Committee, Nike had podium rights to the Beijing Games, so for each of Phelps' eight gold medals, the out-of-pool exposure came with the games' biggest star wearing a Nike warmup. Phelps gave Nike the equivalent of $13.1 million in television and print and Internet exposure.

Speedo, who paid Phelps an additional $1 million for tying Mark Spitz' seven golds in a single games, only received $9.96 million in total exposure, according to sponsorship evaluation company, Joyce Julius & Associates. Nike will have those podium rights again in 2010 in Vancouver and for the 2012 games in London.

Update: Nike announced that its board of directors has approved a four-year, $5 billion program to repurchase shares today. Earnings will be released on Wednesday.

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