- Sports industry is the second fastest growing sector for brands
- China, Latin America and Central and Eastern Europe are prime markets
- Move to digital media means chance for brands to build own sporting audiences
From today, World Trademark Review will be producing a new series of industry-specific data reports. We will be looking at a select industry’s performance in recent years and its outlook for the future, consider key areas of concern and opportunities, and provide insight into the trademark and brand-related activities of the leading companies in the field. We start with a deep dive into sports and sporting goods.
The second fastest growing sector for brands
By all accounts, the sports industry has enjoyed prolific growth in the last decade. KPMG notes that the entire global sports market – including infrastructure, events, training and sports goods – is estimated to be worth between $600-700 billion year and its growth outpaces the GDP growth of most countries. Meanwhile, the global sporting goods market, valued at roughly $318 billion by the NPD Group in 2014, has experienced annual sales increases of roughly 4.3% between 2005 and 2014 – a rate 1.5 times greater than the broader consumer sector – according to Macquarie Research. And, it is on course to continue growing by up to 5.6% until 2020.
In the branding sphere, the sports sector shows equally remarkable progress: in its Best Global Brands 2017 report, Interbrand notes that it is the second fastest growing sector, with brand values having grown by over 10% compared to the previous year.
The industry’s huge year-on-year increases in revenue can mostly be attributed to the rise of televised broadcasting of sporting events over the last two decades – which has, in turn, led to an upsurge in advertising and merchandising sales and brand sponsorship deals. In the North American sports market, it is predicted that media rights and sponsorship fees will experience the sharpest increases in revenue generation by 2020 (see graph below).
Growth of the North American sports market by segment – 2011-2020 (view full-size here):
For corporate trademark and brand professionals, with growth driven by media rights and sponsorships, one result could be more policing around ambush marketing, in a bid to protect the value afforded to official sponsors of events. Clearly, for non-sponsors, not stepping over the line will become more challenging. For law firm practitioners, the takeaway is that licensing and sponsorship work is likely to provide a steady source or work.
It’s worth noting that – despite the growth of media rights revenue – TV viewership, although still significant, is on the decline. The focus has instead been slowly shifting to other broadcasting media, and tech brands such as Facebook, Twitter and YouTube have made a concerted push to become the go-to platforms for sports fans. For example, Twitter recently struck a live-streaming deal with the NFL, while YouTube locked a similar agreement in place with BT Sport to stream the final of the UEFA Champions League. While traditional media will remain vital for the foreseeable future, there is clearly an expanding opportunity for brands to build and maintain their own audiences for sporting events.
A market dominated by two brands
As reflected by the escalation of sponsorship fees, the association of particular brands with specific athletes, teams and events has become ubiquitous and more important than ever before. Notwithstanding this, though, the sports market is one of the toughest sectors for new brands to break into. When it comes to brand association, the sporting world is dominated by apparel and footwear companies – it is estimated that the athletic footwear market alone will be worth $84 billion by 2018. This in turn is ruled by only a small handful of rights holders. In fact, there are only five predominantly sports-related brands that feature in Brand Finance’s 500 most valuable brands of 2017 (excluding sports brands that principally focus on another industry, such as Sky and Red Bull), three of which are apparel brands.
Top 5 sports-dedicated brands by brand value – 2012-2017 (view full-size here):
Nike and Adidas control the majority of the market share, although Under Armour has demonstrated impressive growth. Adidas may have struggled in recent years in the face of Nike’s dominance and Under Armour’s rapid expansion, but in 2016 it revitalised its brand image with its ‘Creating the new’ business plan. Focusing on speed, advertising in six key cities and a closer relationship with celebrities, the German sports giant managed to reclaim its title as the second biggest selling sports brand from Under Armour. It also had the top-selling sneaker in the United States in 2016 – the first time in over ten years that the title didn’t go to Nike. The Adidas turnaround made it the fastest growing sportswear brand in 2016 and there are no signs that its growth will be slowing; meanwhile analysts have shown concern about Nike’s prospects. Thus, there is reason to believe that the gap between the two sporting giants will continue to narrow.
The dominance of Nike and Adidas in this space also extends to US litigation. Nike is listed among the top parties by damages won from cases filed between 2005 and 2016, as well as among defendants with the highest number of cases filed in the same period. Meanwhile, Adidas is one of the top plaintiffs by cases filed between 2015-2016 and has had a significant number of cases with grant of relinquishment of domain names over the last decade. These two brand heavyweights show no sign of slowing down as they bid to maintain their dominance, but success brings infringement - and as more sports brands (whether from traditional or evolving industries like eSports) manage to increase their value and profile, increased litigation can be expected.
The market share control of Adidas and Nike is due, in large part, to the fact that both brands extend their reach beyond sports: they are also entwined with fashion, music and lifestyle, and have consequently become entrenched in pop culture more widely. They also operate at the cutting edge of technology. Nike’s new NBA Connected Jersey is a prime example of how the brand has become intimately linked with celebrities and technology. As such, compared to other sectors, it is more challenging for competitors to establish similar levels of international traction. However, even a sporting giant such as Nike has had difficulties maintaining its complete grasp over the market and there are still plenty of opportunities abound for businesses of all sizes as the sporting world continues to expand in emerging markets. For law firms that are able to cultivate a client base in this sector, the multi-industry, multi-right work that results can be a significant revenue contributor.
Key battlegrounds – China, Latin America and Central and Eastern Europe
Emerging markets are increasingly playing a bigger role in the professional sporting landscape and should be firmly on the radar of all rights holders in this field (whether sports brands, or those supporting them via sponsorships and marketing activities): the next three Olympic Games will be held in Asia, while Russia and Qatar are next in line to host the FIFA World Cup. South America is another region that brand owners should bear in mind; while Brazil’s turn at hosting the Olympic Games has passed, the area is still rife with opportunity. For example, Mexico continues to be a substantial and growing market for an array of sports-related goods and events. Indeed, Brazil, Mexico, Colombia and Peru feature prominently among Adidas and Nike’s trademark filings over the last few years, stressing the importance of Latin America as a target market – and the benefits of law firms looking to such companies for filing and enforcement work. The below charts illustrate where Nike and adidas have filed trademarks between 2012 and 2016, but only includes information from participating IP offices of TMview:
Nike filings by participating IP offices of TMview – 2012-2016 (view full-size here):
Adidas filings by participating IP offices of TMview – 2012-2016 (view full-size here):
However, Asia – and China in particular – continues to be a core focus. Although not included in the above filing data (as China’s IP office is not a participating office of TMview), the country is the second largest sportswear market after the United States and harbours arguably the greatest potential for new and established sporting brands alike. China has an incredibly large and booming middle class with a growing appreciation for health and fitness, and in turn a strong demand for foreign sportswear brands. The country will also be hosting the 2022 Winter Olympic Games and its government is aiming to establish an $813 billion sports industry by 2025, in addition to investments to promote fitness across the country. The goal is to boost domestic consumption in this new economy.
This creates opportunities for Western sports brands but also the spectre of increased competition for domestic spend. With the sector is a core focus of the Chinese government – in tandem with the ‘Made In China 2025’ initiative – there will likely be a significant focus on domestic brand creation and growth. Good news for those looking to expand their Chinese company client base, but clear competition for international companies in the sports sector eyeing Chinese expansion.
Back in Europe, while many countries already have a mature sports market, the majority of countries on the continent still show demonstrable growth in the trade of sporting goods both within and without Europe:
Average annual growth rate by exports of sporting goods – 2005-2015 (view full-size here):
Average annual growth rate by imports of sporting goods – 2005-2015 (view full-size here):
Of particular note is the impressive growth of Central and Eastern European countries: Hungary, Latvia, Croatia, Slovakia, Bulgaria and Poland were the only countries to record annual growth rates for exports above 10%. Poland and Slovakia are also the only countries to record annual growth rates above 10% between 2005 and 2015 for both imports and exports. Malta takes the lead for imports though; its 51% annual growth rate can be attributed to its significant trade of boats and water sports equipment.
It is worth pointing out that Greece, Spain and France have suffered from a decreasing annual rate of growth in both categories, with France showing some of the largest drops. Despite this, Europe’s sporting market is in good shape; as noted by Eurostat, there have been setbacks (especially immediately after the 2008 financial crisis) but the total monetary value of trade of sporting goods has continued to grow in recent years and was significantly boosted in absolute and relative terms in 2014 and 2015. Expect related filing and enforcement work to continue to be a focus for sports-related brands.
Counterfeiting in abundance but mainly for footwear
Given the significant size of the sports sector, as well as its reach into emerging markets, it comes as no surprise that brands in this domain have to contend with swathes of counterfeiters. A European IP Office (EUIPO) report on the economic cost of IP rights infringements in sports goods estimates that the legitimate industry loses roughly €500 million of revenue due to counterfeit products in the EU marketplace (and this figure relates to equipment, and excludes sporting apparel, meaning that the real toll is significantly higher).
To illustrate this, in the US, IP rights seizure statistics by the US Customs and Border Protection show a steady decline of the number of sporting goods seized since 2012. On the other hand, footwear – a significant product class for sports-related companies – has experienced rising seizure levels (see graph below).
US Customs and Border Protection IPR seizures for footwear – 2011-2016 (view full-size here):
Though not specified in the report, there is reason to believe that the majority of seized footwear are those produced by sports brands. Europol and the EUIPO’s joint 2017 report on counterfeiting states that – by caseload – sports shoes are the most counterfeited products, while counterfeit sportswear in general is reported in relatively high volumes. Moreover, the OECD notes that Nike is more intensely targeted by counterfeiters, which supports the World Customs Organisation’s Illicit Trade Report in 2014, which named Nike as the most counterfeited brand in the world.
Opportunities with technology and eSports
Sports brands should have their eyes peeled for new technologies as well. The digital generation has brought in wave after wave of new apps and analytic tools that allow users to monitor, track and share their fitness-related activities. The market for wearable technologies is highly competitive, but it continues to rapidly expand, and it is predicted that the market will double in sales by 2021. In the same way that brand owners can now utilise digital media to tailor the watching experience for sports fans, new technologies can help brands differentiate themselves and make it a more personalised experience. Exemplifying this approach is Adidas: its recent partnership with Carbon, a 3D printing company, may prove to be the start of a revolution how athletic footwear is manufactured.
The traditional sports industry now also needs to account for the rising popularity of eSports, which has developed at an exponential rate, with year-on-year growth of over 41%, according to research firm Newzoo. In 2016 it made its first appearance on major American cable networks and it is expected to generate revenues of $1.5 billion by 2020. The likes of ESPN and the NBA have already made a push to be more involved in the eSports world. The latter has teamed up with video game developer and publisher Take-Two Interactive to develop a new professional competition, the NBA 2K eLeague. This will certainly be an area for sports brands to keep watch of, especially as the rising prevalence of digital media has allowed brands greater control than ever before over sporting events and their own audiences.
With sports being deeply embedded into the culture of most countries, brands have the unique opportunity to associate themselves with not just sports, but also deeper cultural identities. Hence, there is a need for brands to embrace their connections with celebrities (including those outside of the sports industry) and technology. As noted, Nike and Adidas lead the way on these fronts, with Under Armour also showing strong, consistent growth.
There is little doubt that the dynamic and vigorous sports industry will continue to gain pace across the globe, especially in the emerging markets highlighted above. Though it is a field dominated by a small group of trademark owners, the market is full of opportunities for rights holders of all sizes – and should continue to drive demand for legal services across the globe.
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