Why Michael Jordan Deserves to Make $100 Million a Year From Nike

The legend-Michael Jordan. Photo: Nike.com

Michael Jordan is now worth more than $1 billion, according to Forbes' ranking. His wealth comes in part from his NBA salary, his current ownership of the Charlotte Hornets, and other endeavors and endorsements. However, by far his biggest payout comes from Nike , which will pay him more than $100 million in 2015.

That number is staggeringly high for a retired athlete. In fact, Jordan is the highest-paid retired athlete, making more from Nike in 2014 than he made in all 15 years of his professional basketball career with the Chicago Bulls and Washington Wizards. Even so, Nike is getting the better end of this deal.

How much is the Jordan brand worth?In April, a pair of shoes Jordan wore in his early career sold at auction for over $71,000. A different pair sold at auction in 2013 for a whooping $105,000. While it's interesting to see what Jordan's relics are worth to collectors, it still pales in comparison with how much new Jordan product sales are worth to Nike. Jordan-brand products make Nike nearly $2.5 billion a year.

Air Jordansstarted selling in 1985 and sold $70 million worth in the first two months. Fast-forward 30 years, and the Jordan brand now controls nearly 60% of the U.S. basketball -shoe market, which is just part of Nike's total basketball shoe empire that controls around 95% of the market. Adidas owned Reebok and Under Armour have about and 2.6% and 1%, respectively.

Nike basketball moves even higherAll of this is positive news for Nike shareholders, as basketball is such a profitable and growing segment for Nike. In fact, Nike made over $3.7 billion in basketball segment sales in 2015, a 19% increase over 2014 (which itself was a 19% increase over 2013). Nike also recently reconfirmed its dominance in basketball in the U.S. by winning an eight-year deal to outfit the NBA with Nike uniforms earlier this year.

Nike is also growing its basketball presence outside the United States. Nike co-hosted the Quai 54 World Streetball Championship in Paris earlier this year, releasing special-edition shoes for the occasion. Jordan himself was in Paris to introduce the event.

However, Nike's fastest-growing region is still China, and basketball is quickly becoming the most popular sport there. In 2015, Nike's revenue in China increased 22% (24% on a currency neutral basis). Nike has attributed much of its China success to basketball, which according to Forbes has over 300 million basketball players and growing.

Is it too late to buy Nike?Basketball revenue, led mostly by the Jordan brand, is helping to push Nike sales even higher. Altogether, the company grew EPS 25% in FY 2015 (ended May 31) over the previous year. This marks the company's eighth quarter in a row of beating analysts' profit expectations.

These Air Jordan XX9 sneakers retail for as much as $225. Photo: Nike.com.

Much of this EPS growth was due to higher margins earned by selling more expensive items, something basketball shoe sales continue to help with, as Nike can charge higher prices for in-demand Jordan shoes, as well as LeBron James and Kobe Bryant basketball shoes. Margins increased to 46% in 2015 from around 43% in 2013.

So now that Nike has made such an incredible surge in share price, up nearly 50% over the past year, is there still room to grow from here? During the FY 2015 earnings call in July, Nike CEO Mark Parker spoke on the success of 2015 and the company's continued bullish outlook by saying:

With growing revenues, continually expanding margins that help to drive more profit than ever, and a P/E of just 30 times -- which is below the industry average of 49 -- Nike continues to look like a win.

The article Why Michael Jordan Deserves to Make $100 Million a Year From Nike originally appeared on Fool.com.

Bradley Seth McNew owns shares of Nike and Under Armour. The Motley Fool recommends Nike and Under Armour. The Motley Fool owns shares of Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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