Roger Federer – the business of tennis

Roger Federer is an icon. He has won 20 grand slams. And is the only tennis player who has earned over a billion dollars in his career.

But how did he out earn his counterparts: Rafael Nadal and Novak Djokovic who have both won 22 grand slams each?

The $2 million mistake

Roger Federer was 21 years old and his dad was acting as his agent. His dad had negotiated a great sponsorship deal with Nike. Nike would pay $2 million a year to Federer. Except that, it wasn’t such a great deal. Federer had won the Wimbledons that year and was the second ranked tennis player in the world. And yet, people ranked behind him were earning double the money from endorsements.

Federer had left millions on the table, just because he didn’t know how to negotiate. 

It took him 3 more years before he decided to go with a professional agent. And earn what he was worth. What his image could command. His new agent Tony Godsick went to work and immediately tripled the annual earnings for Federer! 

Godsick was a god when it came to negotiations. After seeing success with having Tiger Woods as their spokesperson, Gillette decided to expand and get someone from tennis too. They were deciding between Federer and Nadal, when Godsick orchestrated a masterplay. He got Tiger Woods to come and meet Federer during US Opens! The ensuing photos in the press sealed the decision for Gillette.

By 2010, 29 year old Federer was now earning $43 million a year with carefully crafted sponsorship deals with multiple brands. This included the record breaking $10 million a year deal with Nike. 

But Federer was still more or less in the same league as Nadal and Djokovic. He didn’t start out-earning his competitors until the waning part of his career.. 

Leaving Nike makes Federer a billionaire

Federer was 36 years old when he broke off with Nike. After 10 years with them, he didn’t renew his contract and decided to walk off. Because he found a deal Nike could not match.

Nike may have increased their sponsorship to $15 million. But Federer got Uniqlo to offer $30 million per year, for a period of 10 years. Tripled the old Nike deal. (And what’s more, Uniqlo would pay him even if he retired from playing tennis the next day!)

Nike was the biggest athletics wear company in the world. They dwarfed Uniqlo’s sales figures by 5 times! So then why could Nike not match Uniqlo’s offer and retain Federer? Because Nike was already sponsoring a roster of other top tennis players: Serena Williams to Rafael Nadal to Maria Sharapova. Their budget didn’t have space.

Whereas, Uniqlo had no top players. They are not even known for athletic wear. But they wanted to grow beyond Japan. It made sense for them to go with an icon: someone everyone in the world recognized.

By going to a place where he was scarce, where there was no competition, Federer increased his value.

Doubling the Uniqlo deal

You know what’s even more jaw dropping? Uniqlo had no shoes suitable for the game of tennis. Hence Federer still wore Nike shoes on the court for a while after he broke off with Nike.

But within a year, Federer found a Swiss footwear brand: On Running. And signed an equity deal with them. He would give them feedback and help them with R&D and create the best shoes that he could wear on the court. In return, he would get 3% of the company. 

In less than 3 years, On Running went public. And Federer’s 3% stake was worth over $300 million!

He earned $600 million because Federer left Nike! And went searching for places where he is a scarce commodity.

Action Summary:

  • Scarcity creates value. Change your niche and focus on a market where the competition is less. Reduced competition will automatically increase your value and allow you to command higher prices.
  • Make a list of everyone who would benefit by using your products. And then audit and rank the niches based on how many competitors are doing a good job for that audience. A big market + fewer competitors is a recipe for easier home runs.