Retail

China's battle with the NBA could hurt Nike

Key Points
  • Nike's Greater China business could be at risk because of a spat between the NBA and China over a tweet by the Houston Rockets' general manager supporting Hong Kong protesters.
  • Nike did more than $6.2 billion in sales in Greater China last year.
  • Other brands, including Vans and Tiffany, are also trying to balance their business interests in China with the U.S. principle of free expression.
An employee works next to shoes on display inside the flagship store of sporting-goods giant Nike in Shanghai on March 16, 2017.
Johannes Eisele | AFP | Getty Images

An ongoing spat between the NBA and China could end up hurting Nike, which has ties to both the basketball organization and the region.

Greater China, which is a term generally used to refer to mainland China, Hong Kong, Macao and Taiwan, has been Nike's fastest-growing region for over a year now, with the sneaker maker continuing to cite heightened momentum overseas for its Jordan brand and other gear.

Nike did $6.21 billion in sales in Greater China in fiscal 2019, up 24%, excluding currency, from the prior year, according to financial reports.

These fears have bubbled up as Chinese state media and Tencent have now said they will be suspending broadcast of NBA preseason games in China, following a tweet made by Houston Rockets general manager Daryl Morey, in which he showed support for the anti-government protests in Hong Kong. The tweet, which was later deleted, drew strong criticism in the world's second-largest economy.

NBA Commissioner Adam Silver later defended Morey, fueling the fire.

A representative from Nike wasn't immediately available to respond to CNBC's request for comment.

Nike is the exclusive on-court apparel provider for the NBA. It signed the eight-year deal in the 2017-18 season, taking over from Adidas.

At least one analyst has already issued a note to clients saying he doesn't expect there will be any adverse impact for Nike because of the spat, calling any concerns "overblown."

"Proprietary checks indicate that the Nike brand in China remains exceptionally strong; Chinese consumers perceive Nike as a global athletic brand, not associated with any country or part of the world," Susquehanna Financial Group analyst Sam Poser said Tuesday afternoon.

"Management has noted in the past that the philosophy since Nike began selling product in China has been to be 'of China, for China' vs. strictly being a U.S. brand looking to capitalize on the growth of the Chinese consumer," Poser said. "The philosophy has worked, as Nike has continued to thrive in China."

Other brands, including Vans and Tiffany, have been proceeding with caution as China has been upset over the Hong Kong protests — each trying to balance their business interests in China with the U.S. principle of free expression.

For Nike, the fear now is that Chinese consumers might be encouraged by the government to not purchase NBA-branded or basketball-related merchandise. Or they might not want to be seen wearing that gear.

Nike shares fell more than 1.5% Tuesday afternoon, having climbed about 24% this year and recently hitting an all-time high of $94.75.

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