• Badge

    A Decade of Revolution Declare Your Research Independence

The movie The Blind Side finally brought some well-earned respect to what is arguably the second most important position on the football field – The Offensive Tackle.  At Hedgeye, we have one of the finest OTs to play at Yale in recent years – a fine young man by the name of Darius Dale (otherwise known as Sunny D).  Darius worked alongside me for the past 8 months, and is now shifting over to our Macro team. I’m both proud and nervous. Proud because Darius continues to grind hard every day and absorb every little nugget of knowledge he can, and he does it with a smile that lights up the room. I’m nervous because during those 8 months, Darius (6’ 4” 325lbs) ensured that I was not sacked once. Now he’s got Keith’s back, which is fine by me.

What’s my point here? The offensive tackle is a position that allows the quarterback extra time and protection to put points on the board when it matters.  If you saw The Blind Side (amazing movie, but the book was even better), you couldn’t help but notice that Under Armour was all over it. Uniforms, gloves, shoes…the whole shebang.  Is that because that’s the traditional garb at Ole’ Miss? Nope. Check out the Training update from Ole Miss below. No UAs to be found – only Swooshes.

Sunny D, Blind Side, and UA  - om1

Sunny D, Blind Side, and UA  - new

Let’s be real about something. If Nike wanted this exposure, it would have had it. So let’s not turn this into a petty ‘UA is better than Nike’ campaign. Nike’s SG&A dollars are 10x greater than UA’s revenue. If Nike wanted to be highlighted in the 2000 Keanu Reeves flick “The Replacements” about scab players getting a second chance at the Pros during a Pro strike, then it would have had it. Instead, it threw a bone to Reebok.

Reebok was masterful at spending too much in endorsement dollars and then not following up with the right infrastructure investment. Nike plays it right, and I’m convinced that Under Armour does too. In fact, we know more about the depth and behavior of these arrangements than many might think – simply by pouring through financial statements.

All the brands are required to disclose meaningful off-balance sheet liabilities grouped by duration. Whether we’re talking a store that is locked into a 5-year lease, or an athlete with a 5-year contract, it’s the same thing from my perspective. There’s a major accounting lever that the company could use to impact its reported earnings. The same way that there are some retailers (i.e. DKS, WFMI) will take an 8-year asset and model it over 15-years which artificially inflates near-term earnings, we can see the same with an athlete endorsement.

Sunny D, Blind Side, and UA  - ua nums

Nike’s deals are spread rather consistently over the next 5-years. Interestingly, UA has 86% of its obligations due in 3 years or less. I like that. Will that number shrink? Yes, it likely will when we see the 2009 numbers which will include the likes of Michael Phelps and other higher-profile signings (announced and not).  This simply tells me that UA has initially had a conservative accounting approach to how it has gone about building these deals – that compares to others (aka Reebok and others that are defunct) that have wagered too much on a pipe dream.

Yet another reason why I like how they are building this business for the long-term.

Sunny D, Blind Side, and UA  - tab1

Sunny D, Blind Side, and UA  - tab2

Sunny D, Blind Side, and UA  - tab3

Sunny D, Blind Side, and UA  - lindsay