Reebok scores hat trick of sorts with NHL deal
The Canton company yesterday said it will buy Canadian hockey equipment and apparel maker Hockey Company Holdings Inc. for $204 million, gaining the rights to supply game jerseys to the National Hockey League and sell NHL-licensed gear.
Reebok, the nation's second-largest sneaker maker, already has deals with the National Basketball Association and the National Football League to outfit teams and sell NBA- and NFL-licensed apparel to fans. The deals have helped boost Reebok's clothing sales by nearly 70 percent since 2001. Reebok doesn't give out details about how it structures these agreements. In most cases, companies pay the sports league's royalties from sales of licensed gear and apparel. Sometimes, they also pay the leagues an upfront fee.
Reebok has "completed a triple play with the NFL, the NBA, and now the NHL," said Bob McGee, editor of Sporting Goods Intelligence, an industry newsletter.
As pro sports go, hockey often takes a back seat to football, basketball, and baseball in the United States. Though NHL teams tend to play to stadiums with nine out of 10 seats filled, attendance at NHL games has been flat in recent years, according to the NHL. And with a possible strike threatening the start of the next hockey season, it would seem an unlikely sport to help fuel Reebok's growth.
But from a business perspective, Wall Street sees plenty of upside. Reebok factored into the price of the deal any potential losses in sales as a result of a player strike. The acquisition gives Reebok the leading position in sales of equipment and apparel in a sport that's especially popular in Canada and Europe. Even in the United States, the number of people playing in youth hockey leagues and on high school and college teams has more than doubled in the past decade.
The Hockey Company is the world's largest supplier of hockey gear and owns three of hockey's best-known brands, CCM, JOFA, and KOHO. With $240 million in sales last year, the company has a 30-percent share of the market. Nearly 70 percent of its sales come from gear, including skates, sticks, helmets, and protective padding. The rest comes from sales of jerseys and other apparel.
Fans bought $1.3 billion of NHL-licensed apparel last year, a 7 percent increase from 2002, according to the NHL. In addition to gaining the rights to outfit all 30 NHL teams and sell their jerseys at retail, Reebok will also supply jerseys to teams in the American Hockey League and the Canadian Hockey League, both of which feed players to the NHL.
"The deal allows us to enter into a sport that we haven't had a presence in prior to today and to do that in a meaningful way," said John Frascotti, Reebok's senior vice president of new business development. "Hockey is a high-performance global sport, it's an Olympic sport. Some of the best athletes in the world play the game."
Though the deal marks Reebok's first foray into hockey and sports equipment, analysts said, the Hockey Company is a good fit for the athletic shoe maker. Licensed apparel is one of the more profitable and fastest-growing portions of Reebok's business. In 2001, when its deal with the NBA was just getting started, Reebok sold $912 million of sports apparel worldwide. By the end of 2002, when the NFL deal was also in place, those sales grew 21 percent to $1.1 billion.
Reebok doesn't break out what percentage of those sales come from licensed apparel. But John Shanley, an analyst with Wells Fargo Securities, estimates that NBA- and NFL-licensed jerseys, jackets, hats, and sweatshirts generated $450 million to $500 million in US sales for Reebok last year. The company logged $1.3 billion in worldwide apparel sales, or 37 percent of its $3.5 billion total revenues in 2003.
In addition to paying $204 million, Reebok also will assume $125 million in debt. The company has agreed to buy a 41 percent stake in the company from a group of shareholders, including Wellspring Capital Management. It will start a tender offer to buy the remaining outstanding shares in the Hockey Company.
Shares of Reebok on the New York Stock Exchange fell 5 cents yesterday to $42.04.
Naomi Aoki can be reached at naoki@globe.com.
