Big Baller Brand

Yesterday, LaVar and Lonzo Ball unveiled the ZO2—the first sneaker from the semi-eponymous Big Baller Brand. The Balls came out with their own kicks because every major sneaker company had passed on signing Lonzo Ball, who is expected to be a high first-round pick in this year’s NBA Draft.

That Lonzo Ball is going to have his own sneaker from his own brand is not unprecedented. The price, however, is: The going rate for the ZO2: Prime is $495 (and $695 for sizes 14 and up). There is also a premium, autographed version for $995 (again, $200 more for big sizes). And if those aren’t in your price range, the ZO2 slides are a mere $220.

If you can believe it, the sneakers were roasted on social media. Many people pointed out their similarity to the Kobe 8, others noticed the logo looked like a ripoff and everyone clowned the price point. Even Shaquille O’Neal and Stephon Marbury, who both have licensed their names to budget sneakers, mocked the $495 kicks.

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So why the hell are they $495? The ZO2s contain premium insoles, but lots of sneaker brands have the same ones. Is it just a marketing ploy to pitch these kicks as a luxury line? Well: Yes, duh. “I haven’t actually seen the shoes,” says Matt Powell, vice president of industry analysis for market research firm NPD Group, “but there would have to be all kinds of fancy technology and materials for a shoe to be that price. The top basketball shoes that are selling today are under $150—so the price seems way out of balance what with what’s normal here.”

In general, Powell says, companies sell sneakers to retailers for about half of the eventual sale price. So, for example, retailers will buy a $150 Nike sneaker for about $80 wholesale. It costs Nike about $45 to manufacture and ship that shoe.

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So the sneakers—and the $220 slides, which are even funnier, honestly—are likely not costing hundreds of dollars to make, even at a much smaller scale than Nike. They’re priced at a point to make them a luxury item, not to move numbers. The ZO2 is not trying to compete with Nike’s top-selling basketball sneakers. It’s trying to compete with $400 premium Jordans and even higher-end luxury kicks.

Last month, Darren Rovell reported that Nike, Adidas, and Under Armour passed on Lonzo Ball after LaVar insisted the company license Big Baller Brand from him. He also came armed with a prototype of what he thought Lonzo’s first sneaker could be.

This is unorthodox, of course, but LaVar has a point here: Sneaker deals for rookies are not what they once were. Powell cites recent rookie sneaker deals: LeBron got $19 million a year when he signed with Nike in 2003, Kevin Durant got $17 million a year from Nike in 2007, John Wall got $15 million a year from Reebok in 2010.

“Look, John Wall’s a good player, don’t get me wrong,” Powell says. “But he’s not LeBron on the court or in the stores. And that was not good money that [Reebok] spent on him.”

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Three years ago in a column on Forbes, Powell explained why sneaker companies aren’t handing out high-priced sneaker deals anymore.

Most athletic shoe brands spend 12-13% of sales on marketing (or as Nike cutely calls it, “demand creation”). If we use a 13% standard to gauge endorsement costs vs. wholesale sales, we can get a quick snapshot on profitability.

So Lebron earns $19 million a year from his Nike shoe deal. Dividing that by 13% equals $146 million. This means in order for LeBron’s endorsement contract to be offset profitably, he’d have to sell $146 million worth of shoes each year. According to my analysis of the data from SportsOneSource, in 2013 and 2012, wholesale sales of LeBron’s shoes were about $155 million. He did not offset in the years before that. Prior to 2012, sales of LeBron’s shoes were well below $146 million, meaning Nike “lost money” on his deal.

Powell estimates that, without a father pushing the Big Baller Brand, Lonzo Ball could’ve expected about a $2 million a year, three-to-five year contract from a sneaker company. (LaVar said Nike offered $2 million and a five-year deal.) If he becomes a star, then he could get that big money sneaker deal.

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But by going his own way with Big Baller Brand, Ball might be missing out on big bucks. Powell says he thinks LaVar Ball is “clueless” about the sneaker business, and that the ZO2 won’t sell much after the initial media hype wears off.

“And who’s going to sign him now?” Powell says. “I think, even if this venture fails, it will be some time before before he gets another shot at a sneaker deal.”