Under Armour's cost-cutting is being felt by even its biggest athletes. After first-quarter sales plummeted 23%, the apparel maker said the company is negotiating sports marketing contracts to defer payment with some of its athletes.
"We've been negotiating and working with them and we've been able to get some extended payment terms there, which are helpful just in general with our overall capital preservation efforts," Under Armour CFO Dave Bergman said on Monday's conference call.
The Baltimore-based brand represents many of the biggest names in sports, with a portfolio that includes Tom Brady, Steph Curry, Joel Embiid, Bryce Harper, Clayton Kershaw, Jordan Spieth, Misty Copeland, and retired athletes Michael Phelps and Lindsey Vonn. The company did not say which contracts it has renegotiated.
"I've never seen this happen before," Bob Dorfman, a sports marketing executive at Baker Street Advertising. "It's obviously not a desirable situation for companies and their athletes, but these are unprecedented times and call for unprecedented tactics," he added.
Dorfman said assuming Under Armour has strong relationships with its athletes and there's confidence that business will eventually turn around, he believes athletes would be willing to accept an extended payment option.
"Perhaps they could negotiate an alternative solution, such as accepting stock options in lieu of cash," he added.
"I think it is in the athlete's best interest to ensure the long-term health of the brands they endorse," said Matt Powell, an analyst at market researcher The NPD Group.
Under Armour said Monday it plans to cut $325 million in operating costs to help weather the crisis. Slashing marketing budgets are included in those cuts.
"Relative to the marketing, with limited visibility into the larger impact of the virus on consumer demand and
behavior, we are reducing certain marketing efforts during this interim period and focusing funds predominantly on digital activations," Bergman said on the call.
"Sponsorships and endorsements are the largest sunk costs in marketing," said Powell.
In an interview on CNBC's "Squawk on the Street" Tuesday, CEO Patrik Frisk said that while sports are on hiatus, more than 60% of their athletes have been active helping people get fit through Under Armour's digital apps.
"All of our athletes have been phenomenal during this period with how they have helped their communities and how they have helped Under Armour," he said.