Final year project analysis at Kellogg School of Management on which we analyse whether Nike should invest in Brazil to gain marketing exposure during the 2014 world cup.

1. G R O U P 1 5
M A X I M E H U N A U L T , E R I C M O O R E , N I K K H O
S H A N D I T T H A
World Cup 2014: Should we
sponsor Brazil?

2. Questions
We are representing Nike:
 Given a fixed budget of $110M/year, is it worth to
sponsor Brazil for the next 3 years knowing that
the World Cup will happen next year?
 If so, how should we sponsor them to reduce risk
and improve profitability?

3. Background Information
 32 teams qualify for
World Cup
 16 teams advance for
tournament play

4. Step 1: Determining Brazil’s Win
Probability

5. Why?
Number of Games Played
Number of Viewers
Overall Market Potential

6. General Structure Example: Brazil
Method
Win
Probability
Team Score
80% Weight
FIFA
Ranking
60% Weight
Elite Players
40% Weight
Match
History
20% Weight
Historical
Win-Loss
Percentage
Brazil Win
Percentage
against NL:
53.8%
Adjusted Team
Score as
Probability: 53%
FIFA Ranking:
10
Elite Player
Ranking: 5
Historical Win
Percentage: 4/7
= 57.14%
Brazil is 4-3
against
Netherlands

7. Brazil’s Win Percentage by Match
 Brazil vs. Netherlands (4 Games): 53.8%
 Brazil vs. Uruguay (5 Games): 50.0%
 Brazil vs. Germany (6 Games): 40.1%
 Brazil vs. Spain (7 Games): 34.7%

8. Step 2: Estimating the size of the market
for Brazilian jerseys

9. Factors for Analysis
Rounds
Revenue
Countries
Nike Product
Population
Penetration
Price

10. The model:
Calculating Revenue / Person

11. The model:
Calculating Grand Total

12. Outcome
$53,231,408.06
$168,895,316.08
$435,229,007.57
$806,580,325.46
$1,199,224,206.58
$1,941,926,842.36
$-
$500,000,000.00
$1,000,000,000.00
$1,500,000,000.00
$2,000,000,000.00
$2,500,000,000.00
1 2 3 4 5 6
Revenue (In Millions)

13. Step 3: Computing the expected
profitability under different scenarios

14. Main assumptions of our financial model
Revenues Costs
For year 1
• Based on the probabilities to go
through each round
• Based on the potential markets
 With a different scope depending on the
number of games played
 With different penetration rates in each
round
For years 2 and 3
• We knew that sales were going to
drop after the ‘World Cup effect’
• Decline in sales is affected by the
worldwide economic context
Sales Decline (as % of year 1 sales)
Economy Crisis Thriving Probability
Years 2 & 3
0,50 0,70 0,60
0,60 0,80 0,40
Variable costs
• 35% of sales
Fixed costs
• Distribution: $15M
• Marketing: $12M
• Overheads: $7M
• Cost of sponsorship was fixed and
variable, depending on the scenarios
We took into account inflation for
distribution, marketing and overheads
costs
Inflation - Fixed costs (%)
Economy Crisis Thriving Probability
Years 2 & 3
1% 4% 0,60
2% 6% 0,40

15. Scenario 1: fixed sponsorship of $110M
Round 1 Round 2 Round 3 Round 4 Round 5 Round 6
Probability of the
scenario
100% 100% 54% 27% 11% 4%
NPV (Millions) $ -285,37 $ -150,22 $160,98 $ 594,89 $ 1 053,68 $ 1 921,50
Mean: $29,6M
Std Dev: $62,1M
‘31,8% chance of losing
money’

16. Scenario 2: $90M upfront + $20M after round 2
Mean: $127,3M
Std Dev: $63,3M
‘0 % chance of losing
money and significant
increase in profit’
Round 1 Round 2 Round 3 Round 4 Round 5 Round 6
Probability of the
scenario
100% 100% 54% 27% 11% 4%
NPV (Millions) $ -232,68 $ -83,76 $ 211,11 $ 689,22 $ 1 194,74 $ 2 150,97

17. Scenario 3: $90M upfront + $10M after round 2
+ $10M if they win the final
Mean: $147,5M
Std Dev: $61,4M
‘Opportunity to generate
$20M more profit’
Round 1 Round 2 Round 3 Round 4 Round 5 Round 6
Probability of the
scenario
100% 100% 54% 27% 11% 4%
NPV (Millions) $ -238,76 $ -107,41 $ 171,04 $ 592,78 $ 1 038,69 $ 1 858,14

18. Conclusion
 We would probably sponsor Brazil based on our model
 The best way to do it to provide a mix of fixed and variable fees
 Reduces risk (scenarios 2 and 3)
 Increases profit (scenario 3)
 Probably gives an incentives to motivate players
 Although we know that our model is a simplification of what
happens in real life
 We tried to capture the true essence of the problem as much as possible
 There could be elements missing (full tournament simulation in
particular, opportunity to sponsor other teams…)
Scenario 3 is the most appealing