Chapter 8: The $hoe deal
Editor's note: In this excerpt from the forthcoming book "The Franchise," LeBron James becomes the object of a bidding war between Reebok, Adidas and Nike.
In late April of 2003, LeBron James officially announced he was going to turn pro with a press conference at his high school. After listening to the pitches of several agents, he chose Aaron Goodwin partly because Goodwin had a history of making major shoe deals with various companies. Goodwin had sent Gary Payton and Jason Kidd to Nike and the likes of Shawn Kemp and tennis stars Venus and Serena Williams to Reebok. Goodwin hired Fred Schreyer, a Portland, Oregonbased attorney who had been Nike's director of sports marketing for six years, to help in the negotiations.
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Now the commissioner of the Professional Bowlers Association, Schreyer was at home in this battlefield -- not only because of his history with endorsement contracts at Nike but because he personally knew many of the parties involved. So did Goodwin, who had a track record of landing huge deals for his clients. Goodwin and Schreyer being involved hinted that Nike was the favorite, considering Goodwin had done most of his basketball deals with them and Schreyer's background with the company. It is a stigma Goodwin fights to this day.
"I represent clients, not shoe companies," Goodwin said.
Still, Schreyer admitted Nike was always the favorite, partly because Nike usually pays the most.
"If Nike is behind you, if they are going to make the investment in you, that's the place you are going to go," he said. "Their track record with marketing marquee athletes and establishing icons is unparalleled. If you could get the best deal with Nike, all things being equal, you go with Nike."
In the weeks leading up to the official talks, which started in early May, Vaccaro had been doing his best to control expectations. The only shoe company representative granting interviews, Vaccaro repeatedly said James would likely get around $5 million per season for five years. That $25 million deal would have been a record deal for any player coming into the NBA, much less one straight from high school.
"Based on past history that sounded like a deal that was pretty good," Schreyer said. "Sonny was a pretty smart guy, he was trying to limit the marketplace. Value in that world is very subjective. It is driven by the market, it's what people are willing to pay."
One of Goodwin's first moves was to reach out to Reebok. He knew Nike and adidas would come with offers, but he wanted to get as many companies involved in the bidding as possible. While they had been on the sidelines when it came to making inroads with James and his family, Reebok had a significant interest.
Reebok developed much lower profile relationships with the James family, even sending Eddie Jackson, LeBron's surrogate father, letters at the federal prison where he was sent midway through James' senior season. Still, it was a challenge to make Reebok believe it had a legitimate shot at landing James. It seemed that their offer would be used as something to inspire Nike and adidas to raise their bids.
• Book Excerpt 1: The $hoe Deal
• Book Excerpt 2: The LeBron Lottery
• Bron Breakdown: From phenom to icon
Goodwin told Reebok that they had a lot of ground to make up, but that James would give them an honest shot. It just had to be a strong shot, an earth-shaking cannon shot, the kind never heard before in the shoe wars.
With Reebok interested, a charged environment had been created. The three biggest companies were all ready to fight with their checkbooks and James was set to reap the reward.
"It was the perfect storm," said Darren Rovell, who covered the James shoe chase for ESPN.com. "It was also the most public endorsement negotiation in the history of sports, which not only changed how everyone perceived the deal but also the stakes for getting it done."
Goodwin shrewdly scheduled three visits to the shoe companies over the course of a 10-day period. He wanted Reebok to go first, then adidas and, finally, the one with the most money, Nike. Having told Reebok to come strong with an offer, he was hoping they'd set the market and adidas and Nike would raise the stakes.
On a Thursday afternoon after school, James, Gloria and Goodwin boarded a private jet and flew to Reebok's headquarters outside Boston. The presentation wasn't all that flashy, especially compared with what they'd see in the next two stops. James was shown sketches and mock-ups of potential signature shoes.
But Reebok's pitch wasn't about flash, it was about cash. In a move that no doubt upset rivals at both adidas and Nike, Reebok changed the game by unveiling a massive offer.
Privately, Goodwin thought talks would start about the $30 million mark. He had prepared James to reject such an offer while getting the bidding game going. But even Goodwin was stunned by the first proposal put on the table. Reebok said they would give James $60 million in guaranteed money -- and incentives that could raise the deal's value to around $100 million based upon sales and other factors.
Now that was a real shot, a shocking, unprecedented number for an 18-year-old who had yet to dribble a ball as a pro. Consider that Tiger Woods had the previous richest amateur-to-pro in history shoe deal -- $40 million. His last contract was $100 million with Nike, and it came after winning several major golf tournaments when he was established as an unquestioned superstar.
Reebok really grabbed the family's attention when CEO Paul Fireman pulled out a $10 million cashier's check made out to James. If he signed that night, he could take it with him. Reebok said it was a one-time offer, take it or leave it.
"It was a preemptive strike because they felt it was their best chance to sign him and it was smart because it almost worked," Schreyer said. "Someone puts a big check in front of you, life-changing money, and threatens to pull it away. It is tough to walk away from that. But we had to figure the offers weren't going to get worse."
Goodwin had to do some convincing, but the James family left the money on the table, got back on the jet and headed back to Akron.
The next afternoon, a Friday, there was another private jet waiting for James to whisk him and several of his friends to Los Angeles for a weekend pitch from adidas. They stayed at a posh Santa Monica hotel, attended a Lakers-Spurs playoff game and then spent a Saturday afternoon at a ocean-side mansion adidas rented in Malibu. There were shoe models and logos along with a video presentation designed to entice James. The possible marketing campaign was outlined. At the same moment, adidas began a billboard campaign in Akron. The company rented signs and plastered the sides of city buses with messages such as DO YOU WANT TO BE THE NEXT SUPERSTAR? specifically targeted to James. Yes, adidas was recruiting James on the streets of his home town by renting billboards to be seen by anyone driving around or taking a walk. It was like a 50-foot love letter to be seen by James, and everyone else in his city. The adidas pitch that day in southern California was at least two years in the making, and it was impressive. But word of the Reebok offer had reached Vaccaro and Chris Rivers, Vaccaro's top aide. It deflated them. They knew what they could offer. Unlike Reebok -- which had its top executives doing the talking -- things had to be signed off by the adidas brass back in Europe. Raising the offer and wiping out Reebok wasn't likely.
Goodwin said the adidas offer was very large, around $121 million. But it actually included far less guaranteed and upfront money than the Reebok deal. The Reebok offer in Boston two days before had effectively buried adidas under a pile of dollar signs and decimal points. It was such a record-smashing package that it made Nike gulp after leaving adidas gasping for air.
"Sonny was embarrassed by the offer," Goodwin said. "He wasn't getting backed up like he thought he was."
Vaccaro asked for more time to come back with a counter offer, but he knew his chance to snare James had slipped by. He believed it would happen in a tough fight with Nike. He was ambushed by the quick offer from Reebok that nullified all the groundwork he'd put in with James. Within a few days, Vaccaro called Goodwin and told him adidas was out of the running.
"When I took LeBron to the plane, it felt like it was going to be the last time I saw him," Rivers said. "Sonny was responsible for him getting the offers he got, but I think we all knew it was a long shot for us."
Finally, it was Nike's turn.
James and his team made another cross-country flight on another luxury private jet, this time to Oregon and the Nike headquarters in the Portland suburb of Beaverton. It is a wondrous place, a campus that resembles a 1960s-era think tank with its rolling grounds, and people scurrying about dressed in everything from suits to lacrosse gear to jogging clothes. A circular drive wraps around lakes and playing fields set up for various sports. There are sleek buildings of glass and steel with present and past Nike endorsers' names on them: Bo Jackson, Mia Hamm, Tiger Woods, John McEnroe and more.
The arrival made an impression. So did Nike's presentation, which surpassed anything James had witnessed. After a greeting and pitch from Nike boss Knight, the party was taken down to the workshop where Nike designers had already made several examples of what would be his signature shoes. One featured a likeness of his treasured Hummer and others reflected his "King James" nickname. Then models emerged wearing different pieces of apparel Nike planned to market with James' name on them. He was made to feel like his hero, Michael Jordan. He was shown another video presentation with his highlights splashed into a potential campaign. Then four rappers emerged with lyrics written especially for James, which appealed to his love of hip-hop music.
But the dollars didn't match the show.
When it came time to talk numbers later on with the lawyers, Nike's offer came in below what Goodwin had expected. He said the initial offer was around $56 million in guaranteed dollars. Though Schreyer said they didn't reveal the Reebok offer, James' agents were sure Nike had heard all about it. The James camp was disappointed in the proposal.
"The presentation was impressive, they'd done a tremendous amount of work," Schreyer said. "Part of the thing you conclude from that is, you've seen how much they've put into this, they're not just going to walk away over a few million a year. They spent a few million to put the presentation together."
That's right, "a few million" just for the show to entice James. It made those Akron billboards from adidas look like 25-cent postcards.
Goodwin's parting shot to Nike was to the point: "I was pretty clear. I said, 'If you want this kid, then show it.'"
Goodwin and Schreyer made a counter offer, laying out what Nike had to do to secure James. Perhaps Nike should've agreed then, because the war wasn't close to over. The price was rising by the day. The shoe companies were discovering that James and his business team were even tougher to beat in this arena than he was on the court.
On May 20, 2003, the Akron Beacon Journal reported Reebok had become the leader for James with an offer in excess of $75 million. The reaction from basketball and shoe people was shock, the deal was never expected to go so high. It did nothing but increase the pressure on Nike as talk shows and industry observers bantered about how Nike may be outbid by a top rival. Nike's history had been to play to win. When the company really wanted someone, it got him.
|ABOUT THE BOOK|
|In a new book, award-winning sports journalists Terry Pluto (Cleveland Plain Dealer) and Brian Windhorst (Akron Beacon Journal) take an in-depth look at how a team and a city are being rebuilt around superstar LeBron James. In the chapters excerpted here, they describe how as a high-school senior James led savvy sneaker-company executives on a high-stakes chase that resulted in a record payday ... and how the 2003 lottery unfolded in thrilling fashion.|
Goodwin said Nike was "several million per year" below Reebok's offer. Officials in Beaverton were issuing "take it or leave it" statements. On May 20, Schreyer and Goodwin made a final proposal to Nike via fax. Then Schreyer flew from Portland and Goodwin flew from Oakland to St. Louis. They met and traveled on to Akron and the Radisson Hotel in downtown to be with James and complete the deal -- with someone. The morning and afternoon of May 21 passed with no word from Nike. Meanwhile, Fireman and several Reebok lawyers flew in from Boston expecting to make a historic deal for the company. When the Reebok executives arrived, James was already at the hotel. He had inked a deal with trading card manufacturer Upper Deck to sign 6,000 pieces of memorabilia per year. It included a $1 million signing bonus, James' first big paycheck.
James greeted the Reebok officials at the hotel. He then went to St. Vincent-St. Mary, which was just a few blocks away, to play some basketball. The idea was to keep him out of the room, but not too far away for when his signature was needed. After all the games, secret and public, all the talk of money, all those trips on commercial jets and private -- the time had come to make the biggest deal in the history of shoes.
What happened next, though, is a matter of much conjecture. The details from the various sides conflict, and the emotions of some were still raw about it, years later.
"The only one who knows in his heart of hearts is [Goodwin]," said Rivers, who left adidas with Vaccaro and is now at Reebok. "A lot of lives would've been different had things gone differently in that room."
Goodwin said that when the Reebok lawyers presented the paperwork for the contract, Schreyer found some differences in terms that had been already negotiated in the days before. When Goodwin brought it up, he said Fireman told him: "My sources tell me you don't have the other deals you say you have."
It seemed to be a partial truth. Adidas was out of the running and Nike hadn't matched Reebok's latest offer.
"Someone gave you some bad info," Goodwin said he told Fireman, and then he asked for a break.
Goodwin said within minutes of leaving the suite his phone rang. It was a call from Nike. But this time it was from Howard White, one of Phil Knight's confidants. He said Knight -- not the Nike lawyers -- wanted James. Knight wanted to get the deal done. With Knight more directly involved, the game changed very quickly. Within minutes, Goodwin said, Nike had upped the offer to near what Reebok had put on the table. Within a few more minutes, a fax outlining the pact was sent to the hotel. James was summoned to sign it as the Reebok executives waited in a suite to continue talks. The deal changed in 25 minutes, according to Goodwin's brother and partner, Eric. He was talking with Nike officials from the Goodwins' Seattle office. James signed the offer sheet and it was faxed to Oregon.
Goodwin went back to the Reebok officials and told them the talks were off, that James had gone in a different direction. Needless to say, there were some hard feelings because Reebok claims it would've been willing to adjust the terms, but never got the chance. Other people have other versions of a complicated story like this. There was a feeling that Reebok had been left at the altar after shaming Nike into delivering the final deal.
The bottom line was $90 million over seven years plus incentives, along with that original $10 million signing bonus that Reebok had first put on the table in front of James. It added up to $100 million. Shocked and furious, Reebok made some efforts to reach Gloria James at her home and on her cell phone. When she picked up the phone and saw who the caller was, she didn't answer. James may or may not have left money on the table, but he joined the company he seemed to like the best. That may have been the key. Goodwin knew James preferred Nike, and a wise agent will then try to make the best deal that matches his client's wishes. Nike is Jordan's company. While James was one of the most mature 18-year-olds anyone would ever meet -- he still was a kid with Michael Jordan posters on his wall. As a kid, he sometimes had Jordan shoes on his feet.
"It's special to be a part of the Nike family, it is something I dreamed about," James said. "They welcomed me and my family. It was a decision I felt comfortable with."
Yes, James' representatives did what their client wanted and did it on their own schedule. They had billion dollar companies sweating and sometimes swearing as they chased an 18-year-old kid from the inner city of Akron. The result was a record-smashing number, a day before anybody knew what city he'd play in -- and months before he'd play in his first NBA game. Those factors alone made the contract go down in history. It only upped James' growing national reputation and media outlets made it the top news story the next day, not just the top sports story. "When you're signing a deal like that, it's a career deal, LeBron is not going to change horses midstream," Schreyer said. "Nike wasn't going to get him for 50 cents on the dollar, but it wasn't all about money there are different ways to value deals."
After leaving the Radisson in a rage, Reebok officials released a statement the next day. Afraid of a hit to their stock after it was learned they'd missed out on James, it read in part: "While we believe LeBron James would have been a tremendous asset to Reebok, the costs associated with securing a long-term partnership with him was far beyond what we are willing to invest. Reebok's largest competitor simply put more money on the table and in the final hour -- after carefully considering what is in the best interest of our business and our shareholders -- Reebok elected to not match this offer."
This, too, was unprecedented. A company having to make such a public comment over an endorsement deal that never happened. Not a merger, not a takeover, but an endorsement deal. "It was a unique sets of circumstances and we were able to drive an incredible deal," Schreyer said. "There was a sense with LeBron that he was the must-have guy of the moment. That coupled with several companies bidding allowed us to get a deal that was unprecedented. Everything was lined up. You had the guy, the goods, the interest. It was a function of the marketplace."
Yes, Nike got their guy and James got about $100 million.
It turned out to be a great deal for both sides.
Adapted from the book "The Franchise: LeBron James and the Remaking of the Cleveland Cavaliers" © 2007 by Terry Pluto and Brian Windhorst. All rights reserved. This text may not be reproduced in any form or manner without written permission of Gray & Company, Publishers.