Nike Outfits The Field, But Adidas Is Likely to Outfit The Winner

UPDATE: With the Final Four now set, Adidas can be declared the likely winner of the NCAA Tournament apparel bracket. Two of 13 Adidas’ sponsored schools (Louisville and Michigan) are heading to Atlanta while only two of Nike’s 52 sponsored schools are traveling to the Georgia Dome. The news gets even better for Adidas as both of its teams are favored to win their national semifinal games. That means Adidas all in gamble on fewer schools in the NCAA Tournament could pay off with all Adidas national championship game.

UPDATE #2: As predicted, it's an all-Adidas championship. Michigan vs. Louisville. May the best stripes win.

March is the time of year when many people are betting on college basketball by filling out an NCAA bracket. It is also the time of year when many people lose money by filling out an NCAA bracket. Trying to predict the winners during “March Madness” has driven almost everyone, ranging from experts to casual fans, insane.

At first glance, it appears the only “sane” bet to make on the NCAA men’s basketball tournament might be that the winning team will have Nike’s fabled Swoosh on its uniform. 76 percent of the 68 teams in the NCAA tournament wear Nike apparel.

The smarter bet, though, is that an Adidas-clothed team will likely be featured during the “One Shining Moment” montage while reveling on the Georgia Dome floor in three weeks from now in Atlanta.

Correctly betting on the winning teams makes sense from an apparel sponsorship perspective. Millions of viewers -- and potential apparel customers -- watch each NCAA tournament game, with an increasing number watching the final rounds. For instance, 20.9 million people watched the 2012 national championship game and an average of 15.3 million people watched the semifinals. An average of only 10.9 million people watched each game in the preceding rounds.

If it is madness to try to pick an NCAA tournament bracket, then it would make sense to bet on the field. Nike has essentially done that by “investing” in the greatest number of teams to gain the most amount of exposure. More specifically, Nike has made smaller “bets” on a wider number of schools as compared with its primary competitor in the college athletics space: Adidas. The average Nike apparel deal for teams ranked in the top-50 of the RPI costs $1.67 million annually while the average Adidas apparel deal costs $3.23 million annually, according to SponsorPitch research. Nike essentially has diversified its apparel investment by clothing the vast majority of collegiate basketball teams in the tournament.

The problem with this analysis is that March Madness is actually far from being as chaotic as it appears. While upsets are what make the tournament so much fun to watch, they actually happen much less frequently than people think. In particular, the Final Four and championship games are actually fairly easy to predict. Over the past 30 years, the average seed of the teams in the Final Four has been 2.66 and the average seed of the eventual champion has been 2.03. This means that teams with higher seeds (i.e. the No. 1, 2, 3 or 4 seeds) are much more likely to advance to the final rounds of the tournament, playing more games with larger television audiences, and guaranteeing maximum exposure for their apparel partners.

While Nike sponsors more than three-quarters of the field, rival Adidas is the apparel company that sponsors three of the tournament’s four top seeds in the 2013 NCAA tournament: Louisville, Kansas and Indiana. And it is especially important to note that 18 of the past 30 NCAA champions have been a No. 1 seed. Using historical precedent and assuming that all No. 1 seeds have an equal probability of winning a title, Adidas actually has a 45 percent chance of winding up as the apparel sponsor of the eventual national champion. Moreover, if one assumes that Louisville, Kansas and Indiana have a better chance of winning the title because these schools each had a more difficult strength of schedule than fellow No. 1 seed Gonzaga (which wears Nike), then Adidas could very well have a greater than 50 percent chance of being the apparel sponsor of the ultimate winning school.

An additional benefit for Adidas is that all of its highly seeded schools (Louisville, Kansas, Indiana and Michigan) also have Football Bowl Subdivision teams. Apparel deals cover all clothing for a school -- not just clothing for the men’s basketball team. Yet football and men’s basketball are the two biggest drivers of collegiate sports revenue. Unfortunately for Nike, many of the highly-seeded teams it sponsors do not have Football Bowl Subdivision football teams, including Gonzaga, Georgetown, Marquette and Saint Louis. This means that Nike’s value from these partnerships primarily derives from college basketball teams. Therefore, these teams must do well in the NCAA tournament (when television ratings and overall exposure are much higher than during other parts of the year) for Nike to receive a full return on its investment (ROI).

Adidas does not face this challenge for its higher-seeded teams. Even though it pays more on a per school basis for apparel deals, it likely pays closer to (or even less than) what Nike pays for apparel deals for basketball-only schools for the basketball portion of these agreements. Thus, not only does Adidas have a better chance of increasing its brand exposure with highly-seeded schools, but it can also achieve this at a lower cost than Nike for at least some of the programs it sponsors.

This assessment does not mean that Nike has made a poor strategic move in clothing more schools. It would be impossible for any company to know exactly which schools would be high seeds in the NCAA Tournament. In addition, Nike has been the apparel sponsor for the past four national champions: Kentucky, Connecticut, Duke and North Carolina.

However, Adidas’ likelihood of realizing a higher ROI for its basketball spend this season demonstrates that diversification is not necessarily the best bet when it comes to maximizing brand exposure in college basketball. Having fewer but more expensive deals could actually wind up delivering Adidas a higher ROI on its basketball investment in 2013.