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    MARKET EDGES

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I know it seems like every day I am throwing out another reason why not to like Warnaco. I’m not trying…the facts simply keep rolling in. The latest has to do with none other than Michael Phelps and Nike.

Phelps created a brand for himself faster than any human I have ever seen. Everything from inspiration, hard work, team focus, and sheer determination (not to mention 12k calories per day of carb loading). Product endorsers are chasing him like wildfire. Heck, Mrs. Phelps even took Donovan McNabb’s mother’s job as a soup pitch-mom.

Speedo currently endorses MP for swimwear and goggles. That’s going to change, in my humble opinion.

Let’s assemble a little narrative…

For the first time since I can remember, Nike bowed to avert a PR disaster and allowed its swimmers wear Speedo suits at the games. A wise move. Speedo’s product was superior. If Nike athletes lost, then it would be blamed on product. Not good. If they swam in Speedo and lost, then that’s ammo for Nike to bash the competition.

Either way, I would not want to be part of the swim product/marketing team at Nike leading up to the games. I definitely would not want to be part of the team as Michael Phelps garnered more attention than almost any athlete in modern Olympic history. Nike hates to lose.

What comes next? Phelps almost loses gold in the 200 meter butterfly as his Speedo goggles failed and filled with water.

Phelps goes on to conquer the swimming world, and US hearts alike. This missed product/marketing opportunity on a world stage coincided with Liu Xiang (Chinese hurdler, National hero, and Nike guy) failing to compete in his race. It also synchs with non-Olympic developments, such as Lance Armstrong’s wind-down as a Nike torchbearer, Tiger’s injury, and the seemingly unstoppable Federer being handed some high-profile losses. Granted – Roger lost to another Nike athlete (Rafael Nadal), but the rivalry has not been the brand builder one might have thought. Nike is probably thinking that it needs new blood.

Combine the fact that it wants to crush Speedo with the need for someone who transcends a single sport (i.e. can be on the cover of SI, Time, and Men’s Health all at once) and you’ve got the perfect Nike pitchman.

The math here is pretty simple. Nike has about $2.3 billion (with a B) in SG&A. Warnaco spends about $100mm, with less than 10% going to Speedo. Nike could pay $10mm annually in a heartbeat. For Speedo to match, it would cost 15% of EPS. Nike’s toll would be only 0.3% of EPS. This battle would be the equivalent of the US invading Aruba.

The bottom line here is that my confidence level is quite high that Nike is going to either a) Make Warnaco/Speedo pay-up meaningfully to retail Phelps, or b) lure away WRC’s highest profile endorsee.