With the global headphone and earbud market expected to be worth more than $17.5 billion by 2022, Skullcandy believes its expansion of its partnership with NBA All-Star Kyrie Irving will help it capture a larger share of those dollars.
When Skullcandy came on the scene in 2003, the Utah based firm seized a substantial share of the burgeoning headphone market, with stylish, rugged cans that caught the fancy of skateboarders and snowboarders, selling their products through action sports shops and other specialty retailers rather than traditional music channels. But the proliferation of smartphone technology combined with the entry of competitors like Beats that also boasted trendy designs and played the lifestyle game adroitly have made the past five years tough for Skullcandy.
While Andrew Burns, a Senior Research Analyst at D.A. Davidson, still rates Skullcandy as a buy, stating that the significant slump the brand’s stock has seen over the last few years (from $20 at IPO in 2011 to about $3 today) is due to “external market forces” rather than mismanagement, there is no denying that the brand has been in need of a pivot in strategy.
Enter Cleveland Cavaliers point guard Kyrie Irving. By creating deeper relationships with athletes who are willing to invest into the company, Skullcandy hopes it can cement itself as a major player in the headphone space.
According to Sam Paschel, Skullcandy's Chief Commercial Officer, "We came to the conclusion that we needed to reestablish ourselves in this market, which led us to take a hard look at how we could refine our brand and determining ways we could differentiate ourselves through authentic partnerships. It didn't take long for Kyrie to move to the top of our list... he oozes creativity and has his finger on the pulse of what's hot.”
While celebrity endorsements are not a new practice – Skullcandy has had a broad cross-section of ambassadors from sport to music to art and beyond - but the Irving deal is different in that it joins a growing trend of celebs taking equity in lieu of cash for endorsement. Case in point, while Skullcandy still plans on using other athletes and celebrities to market their products, they will be structured as more traditional endorsements. In Irving’s case, not only will he take an (undisclosed) equity stake in the company, but he will also have considerable creative input on the brand's products alongside his own signature line of headphones and accessories that Skullcandy hopes will create a blue ocean in an ever crowded marketplace.
"I think there has been a big shift in the way consumers view athletes as endorsers, and Kyrie having an equity interest changes the dynamic of that perception considerably," explains Paschel." Consumers are a lot savvier these days, especially with social media. They know when your brand is being inauthentic by just leveraging a celebrity's reach through a transnational approach (e.g. pay-to-tweet). We hope that our customers will appreciate that [Kyrie] has a vested interest in making the company a success, and in turn, we hope that will make him work that much harder to get us there. We're true partners in this venture, and we're all in on Kyrie's ability to help take our brand to the next level," he adds.
The partnership goes much further than dollars and cents for Kyrie, who after signing a $90 million deal with the Cavaliers in 2014, wants to ensure that the legacy he leaves off the court is as strong as his game on it. Indeed, while the point guard has a lucrative shoe deal with
"I have always appreciated representing something that is bigger than myself," says Kyrie. "While I admit that there has been a bit of a learning curve for me, as a 24 year old now immersed in the business world, ironically, it’s that age and culture gap that makes this partnership work so well because [the brand and I can] bring a different prospective to the table.”
Indeed, one only needs to hear Kyrie speak briefly about the project to realize just how much enthusiasm he has for Skullcandy and what he hopes to accomplish with the brand. While the synergies are clear, the opportunity to partner with Skullcandy offers Kyrie the chance to be remembered as both a business mogul and a trendsetter of his generation.
"I want people to look back and say that I tried everything, even if I didn’t succeed at all of it. I want to be a generational leader, affecting the way trends move forward. Most importantly, I want people to remember me as a risk taker. Someone that refused to live by the status-quo and instead used his platform to show people that anything is possible. And I hope I can look back and thank Skullcandy for helping me leave that legacy."
The equity he’s received gives Irving high incentives to leverage his celebrity image to push the brand forward. More importantly, Skullcandy must find ways of reestablishing itself as the go-to headphone brand. Long gone are the days of low competition and little demand for higher quality products. With Beats,
“Historically, athlete and celebrity endorsements don’t immediately have a material impact on the stock price,” says Burns. “On the surface, the endorsement checks the right boxes and Kyrie should certainly help the brand in sales and increased awareness. But shareholders will likely take a wait and see approach before they decide whether this partnership is worth betting on.”
Jason Belzer, Esq. is Founder of GAME, Inc. and a Professor of Organizational Behavior and Sports Law at Rutgers University. Follow him on Twitter @JasonBelzer.
