KD Heading to Golden State! You Buying?

(Disclaimer: The opinions voiced here are mine and mine alone.  Please do not substitute this post for professional investing advice.  Consider this a friendly exchange with another colleague in the doctor's lounge.  As usual, think long and hard before you do anything with your hard earned dollars, especially when the opinion comes from some stranger online.)

In the biggest basketball free agency news since The Decision, superstar Kevin Durant of the Oklahoma City Thunder announced this week that he will be joining the Golden State Warriors.  A lot has been written and even more will be written about what this means for NBA basketball.  But this blog is about money.  No I'm not talking about Durant's contract which is expected to be worth $54.3 million over 2 years.  Let's approach it from a different perspective.

The Background:

One of the most iconic American brands, sports apparel giant Nike (NYSE: NKE) dominates the sports endorsement world, especially in basketball.  Nike's losing Curry to new-comer Under Armour (NYSE: UA) is widely regarded as one of the greatest fumbles in the company's history. (See You won't believe how Nike lost Steph to Under Armour).  For those who don't follow basketball, Golden State Warriors superstar and 2x NBA MVP Stephen Curry is currently one of the hottest athletes in the world.  Curry's UA sneakers have been outselling every other active player's, including Lebron James.  In March, Morgan Stanley analyst Jay Sole valued Curry's worth to UA at a staggering $14 Billion.

The Matchup:

Given that back story, it's not surprising that many investors are interested in the new kid on the block - Baltimore based Under Armour.  Many have been asking whether UA will catch up to and maybe even overtake Nike in the sports apparel world.  I consider that very unlikely in the short term - UA's expected revenue for year 2016 sits at $5 Billion while NKE's revenue was $8.2 Billion for the last QUARTER!  That said, early investors in UA have been rewarded handsomely.  Over the last 5 years, UA shares appreciated over 300% - handily beating NKE.

Sourced from Yahoo finance

Given the meteoric rise of Under Armour, many investors are framing the future of the sports business as a NKE vs. UA world.  In fact, Yahoo sports reporter Adrian Wojnarowski was quick to call Durant's decision a "coup" for Nike. 

The Punchline:

Wojnarowski is dead wrong.  If anything, Durant joining the Warriors will drive sales for both companies.  KD and Curry play different roles, their relationship on the court is more likely to be complementary than competitive.  With KD on the roster, Golden State is almost guaranteed to go deep into the playoffs.  And every additional game is another opportunity for both stars to showcase their athletic gear - which translate into more sales for the respective companies.  Personally I don't have any spare capital to invest with.  But if I did, I would be buying both NKE and UA.  If someone holds a gun to my head and says "Pick One" then I'm going with UA for the simple reason that it's a much smaller company and has significant room to grow.

Future Proof, MD

Dr. Bo Liu is an aspiring radiologist-in-training and the founder and editor of the White Coat Money Blog.  He has an interest in interventional radiology and helping his medical colleagues get ahead in this mad world of medicine and money.  When he's not crushing the list at the PACS station or typing up your next favorite blog post, you can usually find him at the local badminton club, movie theater or the most recently opened restaurant.