Nike’s stock price slips in the wrong direction

What’s going on here?

Nike’s stock dropped more than 1% after Duke basketball player, Zion Williamson, tore his sneaker during a game.

What does this mean?

Zion Williamson (who is tipped as a future NBA top player) tore his sneaker within the first minute of a game against rivals, North Carolina. His Nike PG2.5 shoes split apart, and Williamson left the game with a knee injury. Nike, the exclusive supplier of Duke’s basketball shoes and gear put out a statement reinforcing that the “quality and performance of their products is of upmost importance” and while this is “an isolated occurrence,” they will work to identify the issue. 

What’s the big picture effect?

This story shows the close relationship between a company’s reputation and the value of its shares. Having a top athlete like Williamson hurt himself due to a shoe malfunction had a negative impact on Nike’s brand and reputation, as the company prides itself in selling high performance sneakers. Social media played a role in amplifying the negative publicity. This made it difficult for Nike to respond to these negative claims as the video of Williamson went viral on Twitter, with many people criticising Nike and suggesting for Williamson to move on to using its competitors, Adidas or Under Armour.

If Williamson’s injury leads to lasting or permanent impairment in his ability to excel as a basketball player, the player could sue Nike, arguing that the company is liable for manufacturing a defective sneaker that caused his injury. Under Article 2 of the Uniform Commercial Code (the US equivalent to the Sale of Goods Act 1979) Nike must market footwear that is of reasonable quality for its intended purpose, and a sneaker that falls apart is clearly not good enough.

However, it is unlikely that Williamson will go down the lawsuit route as the injury is relatively minor. The bigger issue is whether this incident will affect Nike and its endorsement deals with Williamson as they try to repair their damaged image.

Report written by Maab S.

If you're interested in writing for LittleLaw, click here for more information