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Under Armour makes rare bet on baseball

Bryce Harper, #34 of the Washington Nationals
Getty Images

Under Armour is betting big on baseball. The athletic-apparel maker extended the contract of Washington Nationals' Bryce Harper Tuesday in what ESPN says is the largest endorsement deal in history for a baseball player.

Harper has endorsed the company since 2011, months after the Nationals chose the 23-year-old right fielder in the first round of the Major League Baseball draft. Under Armour would not disclose the length of the deal or compensation amount, but according to ESPN, Harper signed for 10 years.

The former Rookie of the Year and 2015 MVP will join top athletes including Stephen Curry, Jordan Spieth and Tom Brady as a potential sales driver for the company. Harper's extended contract kicks off with the "Harper One" baseball cleats, available for sale July 15.

Under Armour also announced less optimistic news Tuesday. Chief Merchandising Officer Henry Stafford and Chief Digital Officer Robin Thurston are leaving the company effective this July. The company's CFO and COO also stepped down last October. Under Armour shares fell more than 7.5 percent Wednesday.

Brean Capital downgraded Under Armour from "buy" to "hold" Wednesday, citing "heightened risks," including the prominent departures in recent months, competition, customer concentration and shifts in the fashion cycle.

"While we remain believers in the UA story, we view risk/reward as relatively neutralized at current levels," the Brean Capital note said. "The current premium valuation leaves little room for error, in our view."

Brean highlighted possibilities of the brand "losing authenticity" despite the retention of high-profile athletes. The performance element of Under Armour products, the note said, helped establish its authenticity as a brand. But should athletes' preferences shift to competing brands, appeal could decrease and weaken the brand's visibility in a "detrimental" way.

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Susan Anderson, senior equity research analyst at FBR Capital Markets, is bullish despite the string of departures and Wednesday's stock price dip.

"It's a very tough culture and maybe not for everyone, maybe some people get burnt out, it's somewhat concerning," Anderson said.

But on the flip side, she added, it's probably a key reason for Under Armour's success.

"Without that drive and that push, they may not be where they're at now," she said. "But I don't think there's a lack of talent there right now."

She cautioned that Harper's extension won't be nearly as lucrative for the company as its high-profile contract with hoops star Stephen Curry.

"Basketball culture that sells so much product around the players and the games," Anderson said. "I don't see as much of that with baseball."

Stephen Curry has been a money-maker for the Baltimore-based company, driving Under Armour's shoe business in 2016. Footwear for the company grew 64 percent in the first quarter of the year, helped by strong running and basketball sales. Two weeks before Harper's shoe debuts, Under Armour will release the "Curry 2.5," the shoe he wore during the Golden State Warriors' record-setting season.