Nike abandons hockey

Nike just couldn't do it.

Thirteen years after it skated into the hockey industry with its purchase of the world's largest hockey company, Nike is abandoning Canada's national game.

Last week, the iconic sports company whose simple swoosh logo is among the world's most recognized, said it was putting on the block its flagging hockey division, known as NikeBauer.

It wasn't supposed to be like this.

In 1994, the year Nike bought Montreal's Canstar Sports, maker of the popular Bauer skates and other equipment, hockey was surging.

The NHL had just added four expansion teams in the U.S. Sunbelt and relocated the Stars franchise to Dallas from Minnesota. Wayne Gretzky was starring for the Los Angeles Kings, and broadcaster ABC was airing NHL playoff games on U.S. network television for the first time since 1980.

Hockey's amateur and minor leagues were making similar strides.

By 1993-94, some 303,000 amateur players were registered with USA Hockey, the sport's governing body in the U.S., up 55 per cent from 1990-91. The sport had generated such a buzz that media company Walt Disney was even investing in hockey overseas, buying a stake in Russia's famed Central Army team.

"I remember (Nike CEO) Phil Knight saying at the time that hockey was North America's fourth-most culturally-significant sport," said John Collins, a former senior executive in Nike's hockey division. "He wanted in."

Nike would wind up paying a frothy $395 million (U.S.) for Canstar, a 50 per cent premium above the level its shares were trading in prior months.

Industry executives now say even though a number of suitors will probably emerge for NikeBauer, it's doubtful the division will sell for more than $150 million – less than half what Nike originally paid for it.

Nike said its hockey unit posted sales of about $160 million a year ago, and several industry officials said they estimate the division generated a profit of $20 million. (Sports-equipment companies these days are valued at roughly six or seven times their annual profits, executives say.)

While Nike maintains it's the leading company in the hockey equipment business with 35 per cent of a market some estimate is worth $480 million, several retailers, distributors and competitors said Nike has nevertheless struggled to navigate many obstacles during its tenure in the hockey business.

Nike initially viewed Canstar as a springboard into the rollerblade business, which was sizzling in the mid-1990s.

Canstar's Bauer brand had started selling in-line skates in 1990 and within two years, they accounted for a fifth of the company's $133 million in sales.

By 1994, at least 14 companies were battling for a piece of the $300 million in-line-skate market. One company, First Team Sports, signed up as pitchmen the likes of NHL stars Gretzky and Brett Hull and some in the industry predicted the in-line-skate market would blossom into a $1 billion business.

Rollerblade president John Hetterick said of Nike's purchase of Canstar: "Nike will ... help us get in-line speed skating and roller hockey into the Olympics. This sport will surpass ice hockey in a few years."

That's not what happened.

Within five years, sales of in-line skates were beginning to slip, and companies were either folding or looking to see off their rollerblade assets. (In 2004, the Sporting Goods Manufacturers Association said there were 17 million in-line skaters, compared with 32 million in 1998.)

"It really went south," said Jim Rennie, who published Jim Rennie's Sports Letter, a widely read sporting goods newsletter, from 1977 to 2002.

"Skateboarding came on in popularity and they just marketed in-line skating wrong," Rennie said. "They were too focused on the extreme rollerblader who was doing jumps and everything, not the average skater."

It was no easier on the ice for Nike.

After buying Canstar, Nike decided to allow the Canadian company to operate independently. While Canstar factories churned out Bauer and Cooper branded skates, facilities in the U.S. and overseas produced a separate Nike line.

There were immediate setbacks.

Retailers were returning an inordinate number of skates to Nike because they didn't fit comfortably. The company's top NHL endorsement agent, Detroit Red Wings high-octane star forward Sergei Fedorov, reportedly cut ties with Nike over similar concerns.

Nike subsequently merged the two hockey divisions. Last year, it combined all of its hockey offerings under the NikeBauer brand.

NikeBauer president Mark Duggan said even though Nike may be quitting hockey, there's reason for optimism.

"We've done nothing wrong," Duggan said. "This company has never performed better. Some markets like Eastern Europe and Russia are positioned to grow," Duggan said, adding that because Russia will host the 2014 Winter Olympics, the country will probably try to bolster its amateur programs.

Ice Hockey Federation of Russia executive director Sergey Arutyunyan said in an interview there are roughly 200,000 players in his country's amateur program. Russian television shows about 300 games from the country's top pro hockey league, Arutyunyan said, and some teams have budgets of $60 million – more than some NHL clubs.

"The main obstacle is a poor number of ice rinks," he said. "However, this problem is actively being resolved."

Duggan also said that even though Reebok has an exclusive agreement to provide hockey jerseys to the NHL – a move that has dramatically bolstered its exposure – Nike has ties to some of the sport's top young stars, like Carolina Hurricanes star forward Eric Staal and his three brothers.

Still, Rennie is less sure about NikeBauer's prospects.

"The reality is hockey's a declining market in the U.S.," he said.

Indeed, USA Hockey figures show that in 2005-06, the most recent year for which statistics are available, there were 442,077 registered players in the U.S., down from 445,245 in 2004-05 – the second-straight year of decline.

By contrast, Hockey Canada had 545,363 registered players in 2006-07, down slightly from the previous year's 552,040.

One unlikely factor in hockey's drop-off in the U.S. may be aging baby boomers, Rennie said.

"Old-timers hockey is key to the business. If you're a dentist playing old-timers, you're going to spend money on good equipment."

Trouble is, many old-timer league players quit the sport for good when they reach their early 60s, Rennie said.

Firenzo Arcadi, who owns Toronto sporting goods store Toronto Hockey Repair Ltd., has another theory about why the hockey business has swooned.

"It's the $900 skate," Arcadi said, referring to NikeBauer's latest offering, a sleek silver, black and blue skate called the Supreme one90 that retails at some stores for $899.

"These companies like Nike are pricing themselves right out of the market," said Arcadi, whose store sells about $2.5 million worth of equipment each year, down from $3 million just four years ago.

"It's at a point where families are having to decide whether they want to pay a $1,100 mortgage or buy skates," he said.

Source: Toronto Star, 10/9/07