Blending Athletics and Revenue: Adidas and the Commercialization of the Olympics | Cold Call

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0:46Geoffrey Jones:From July 23rd to August 8th, 2021, 206 nations will send over 16 ,000 athletes and 4 ,000 staff to Tokyo to participate in the 29th Summer Olympics. COVID-19 has ensured that this is unlike any previous Olympics, beginning with the fact that although they're taking place in 2021, these are actually the 2020 Olympics. A recent surge in COVID cases around the world has prompted organizers to ban all spectators, so all the drama and spectacle will unfold in empty venues. And opportunities for athletes to mix and mingle in the Olympic Village are basically out. But there is one aspect of the 2020 Games that will feel very familiar.

1:29Geoffrey Jones:Sponsorships. Over 50 firms are listed among the partners for the Games, including numerous Japanese brands seizing upon this rare opportunity. Savvy brand managers know that the Super Bowl doesn't even come close to the global exposure brands get from the Olympics. But it wasn't always this way. There was a time when the Olympic brand wasn't for sale. Today on Cold Call, we've invited Jeff Jones to discuss the case entitled Horst Dassler, Adidas, and the Commercialization of Sport. I'm your host, Brian Kenney, and you're listening to Cold Call on the HBR Presents Network. Professor Jeff Jones is a historian who studies the evolution, impact, and responsibility of global business.

2:11Geoffrey Jones:He is a repeat customer here at Cold Call. We love having him on the show because we love the way that your cases, although they took place long ago, still are highly relevant today. There are many lessons we can learn from what's happening today. So thanks for coming back, Jeff. Always pleased to be on the show. And this is super timely. The Olympics are kicking off here shortly in Tokyo. I think people will be really interested, as I was in reading the case, in hearing about the history of Adidas and the history of the Olympics as the way it's evolved to what we know today. Let me ask you to start just by telling us when you step into the classroom, what's your cold call to start this case?

2:47I start in the middle of the case with the growth of Adidas, as they say in Europe, or Adidas, as is most common in the United States. The company started in like 1949 by 1975. It's really big. How do we explain that? Or put another way, is this an innovation story or a marketing story? Which was the most important in the firm's growth? And I find that quite a good way to get the discussion going.

3:14Geoffrey Jones:Why was it important to you to write this case? How does it relate to the things that you think about as a business historian and a scholar? Well, the course I teach is about the role of business, particularly entrepreneurs, in waves of globalization going back from the 19th century to the present day. The Adidas story is set primarily between the 1930s and the 1970s. That's a very interesting period. The world has de-globalized. The Great Depression has resulted in tariffs. There's wars. There's the spread of communism. There's the Cold War. So business as a whole is like fragmented big time.

3:52And yet this is the period when sport is globalized big time. Nations who have completely different political ideologies are competing. You know, if you want to create a story about deglobalization, the very interesting part of this story is that globalization is happening in the cultural sphere in sports. while in business terms, de-globalization is happening. So I love that paradox because it complicates how we understand globalization. I like that tension that this case causes.

4:27Geoffrey Jones:Very, very interesting. You do a great job in the case of describing the rise of organized sports and the Olympics. Can you just describe a little bit of that to us? It's the story of the wealth created by industrialization. By the 19th century, people who had industrialized, particularly in Europe, had more money.

5:09reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs. Add more leisure time. They're able to travel more. Governments are becoming interested in promoting health through sports. So you start to get, primarily in Europe, the creation of international federations of sports. I think gymnastics, 1881, rowing, 1892, which organized these sort of competitions between sports.

5:54It's the late 19th century when it really gets going. The Olympics itself is the brainchild of a French nobleman, Pierre de Gaubartin, who in the 1890s thinks, let's resurrect the Olympic Games, which hadn't been held since, I don't know, the fourth century in the Common Era. And he's a kind of visionary who thinks of sport as a way to express different ways of being human. And so he forms the International Olympic Committee. 1896, there's the very first modern Olympics held in Athens. 280 athletes, 43 events, 12 countries. Hungary is the only national team. Everybody else is like affluent college kids and others who just turn up for this event.

6:45But after 1896, it's been held every four years, except in periods of war ever since.

6:52Geoffrey Jones:Yeah. Amazing how it's grown since then and amazing how they decided to move it around the world to different places, which has become such a sideshow of the Olympics in and of itself. I was surprised to read in the case about the role that the World Wars played again in the rise of organized sports. Can you talk a little bit about that? I mean, I think if you stand away, there are really two quite separate but important things. The first is with war, you need a lot of healthy men to fight it. So governments start seeing health and fitness as a strategic asset in many ways. And we've had the rise of nationalistic spirits as well.

7:32So countries now interested, they've done the war thing, then they become interested competing in the sports field. That's a very important aspect. The second, for me, very important aspect is that these international associations move to so-called neutral countries, particularly Switzerland. FIFA, for example, the Soccer Association, had been established in France. It moves to Switzerland. So do all of the others. For these associations, the good thing about Switzerland was a high degree of banking secrecy and a total lack of transparency. And this becomes very important in how these international associations work as well.

8:20So World War I in particular, I think, is transformational for organized sports.

8:24Geoffrey Jones:Let's talk about the origins of Adidas. The case obviously goes into great detail around how it started and the relationship between the two brothers and how that unfolded over time. It reads like a novel, I think, in some ways. Really interesting stuff. Yes. I mean, the Dassler family, they're the ultimate dysfunctional family. The brothers hate each other. The sons hate the fathers. It's extraordinary that out of this total dysfunction, you get very innovative business. Well, the whole story begins with Adi and Rudy Dassler, the two brothers, 1920. They set up a small shoe factory in Bavaria.

9:04They build a business really supplying the local sports clubs that had come on with soccer shoes and other pieces of equipment. And they exist together as a unified firm until they break up after the end of World War II. And then Adi sets up Adidas and Rudy sets up Puma located at the other end. Propel Fitness Water with Gatorade electrolytes, zero sugar and vitamins. Propel hydrates better than water to help you get the most out of your workout and get back to your best self. What propels you? Propel with Gatorade electrolytes. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs.

9:51It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs. End of the same city. Amazing. With disastrous relationships between the employees of both companies. So that's the formal beginning of Adidas. But much of the business had already started in the interwar years, serving, as I said, sports clubs.

10:32Then they get a big boost in the 36 Olympics.

10:35Geoffrey Jones:Yeah. And they were both members of the Nazi party and they used their business interests in a way to work with the Nazis. They benefit enormously from the Nazis' sports interests. By the end of the war, they're entirely making boots for the army and using forced labor. And it's really at the end of the war, it's very unpleasant when both brothers denounce the other brother to the Allies as being more pro-Nazi and responsible for this level of engagement. And that's what finally breaks up the relationship between the two. Rudy goes to jail for longer than Adi does as a result of this Nazi exposure.

11:19Geoffrey Jones:Let's talk a little bit about the way that they started to engage with athletes. And I'm thinking, you know, the Jesse Owens piece of this is really interesting. Can you just describe sort of how they began to woo athletes and what did they do that was so innovative with their footwear? They're beginning very modestly as shoemakers. So they are like craftsmen. And so you don't have like an amazing innovation. What they do is work with athletes and the people in the sports clubs and others and slowly, slowly, slowly improve their products. I think that's the secret of what they're doing, close to the athletes.

12:00And that's how they come across, it seems, Jesse Owen, in the 1936 Olympics. They seem to be wandering around the sports field, talking to athletes about what they want. But it's more than that, of course, because all of the sports associations, including the Olympics, have strict amateur rules. So there can be no sponsorship or everything else. So the Dasslers are also wandering around giving people their shoes because they want people to wear their shoes. And they had partly because of this prohibition against advertising, their shoes in the interwar years had two stripes on it. So it was visible as their product without saying it's their product.

12:49Quite a smart marketing innovation. And what happens after they split up, right, is Adidas has now three stripes. But it's very visible who it belongs to. So it's not just good and useful shoes. They really work on the visibility of the shoe.

13:07Geoffrey Jones:Maybe we can move on to the next generation of leadership at Adidas. A lot of the case deals with Horst Dossler when he took over the business. You could maybe describe a little bit about how that came to be. and Horst is a really interesting character in the case. Yeah, Horst is the son of Adi with whom he has a deteriorating relationship. He also has a deteriorating bad relationship with the son of Rudy Dassler. Maybe Adi was the tough one to get along with. So he gets his start when he's sent off to the 56 Melbourne Olympics. And he's sent off because he can speak better English than other members of the family.

13:52So that's what gets him off. He's an interesting guy. He's a workaholic. He's fascinated with sports. He played sports when he was a kid. He's very awkward in public and very charismatic in private meetings. Very, very ambitious and like totally paranoid. Propel Fitness Water with Gatorade electrolytes, zero sugar, and vitamins. Propel hydrates better than water to help you get the most out of your workout and get back to your best self. What propels you? Propel with Gatorade electrolytes. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more.

14:42Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs. He hides businesses from his family. As the relationships deteriorate, so a branch of Adidas is set up in France, which he runs. And that starts to compete with Adidas in Germany. And although the family should have had full access to everything, we know they hid the books of the business. They hid what he was doing.

15:26Geoffrey Jones:So you mentioned that Horst was paranoid, obviously, about the family. I'm wondering, you know, how did he feel as Nike emerged on the scene? And we know that Phil Knight, the founder of Nike, sounds like a similar character to Horst a little bit in terms of his ambition and his drive. What was the relationship like if there was any between those two businesses? I'm not sure there was any relationship because Horst kind of misses what's happening in the U.S. market. And Nike gets it exactly right. What we're seeing in the U.S. market is the democratization of sport and the spread of jogging by regular people.

16:08Adidas remains focused on high-end, high-skill products. Part of that issue also is Nike realizes they can get good quality shoes made in Asia and they head off into the world of outsourcing. And so they grow the market extremely quickly in the United States. Adidas, on the other hand, remains focused on its German factories on a high level of craftsmanship. So they end up in 1982 with only about 10 % of the US market.

16:44Geoffrey Jones:Horst spends a lot of time, I guess, thinking about how he can have influence over some of these large athletic organizations that you mentioned, the IOC and FIFA and IAAF. What's driving him on that front? And what's his strategy, I guess, as he's starting to think about how to have influence there? Horse wants to build something bigger than an athletic company. He wants to build a giant sports parking business, which for sure, Adidas sporting equipment will be part of it, but he's thinking much bigger than selling shoes. So what's his strategy? His strategy is to get control of the sports associations, and then the sports associations have seats on the International Olympics Committee.

17:33So eventually to get control of the International Olympics Committee. Why does he want control? He wants control because these associations all have amateur status. They insist that their participants are amateurs. So by getting control, he wants them to change the rules of the game to allow corporate sponsorship and he's setting up a company in monte carlo to capture those sponsorships to actually broker them between the sports associations and the companies he's going to create a whole new business unrelated to sports equipment of basically packaging up sponsorship deals from the sports associations and selling them to broadcasters and to companies.

18:31Geoffrey Jones:So people listening to you might say, yeah, well, what's the big deal? That happens all the time. That's how the world works. But what he did was it was both brilliant and devious at the same time. It is. The founder of the Olympic Games had been extremely clear that sport and money do not mix very well. So he prized the ideals of amateur sports and that was very strong. Propel Fitness Water with Gatorade electrolytes, zero sugar and vitamins. Propel hydrates better than water to help you get the most out of your workout and get back to your best self. What propels you? Propel with Gatorade Electrolytes.

19:16When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a$75 sponsored job credit at indeed.com slash podcast. That's indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsored Jobs. In the Olympic tradition, because they were afraid of what the consequences would be.

19:51And that remains extremely strong. For example, FIFA, it's extremely strong until 1974. And the last head of FIFA, an English guy called Stanley Roos, was absolutely into amateur sports. He refused any sort of corporate sponsorship. So Horst's first move is to get rid of him and replaces him by a Brazilian guy, Hiao Havelanger. Havelanger gets elected by getting the votes of sports foundations from Africa, Latin America and Asia. And he promises them a ton of money to build their sports. then Dassler's job was to raise the money to do that. And they do that by setting up this sort of sports marketing company in Monte Carlo, which starts off by paying FIFA for World Cup sponsorship, repackaging it, and then selling it off to broadcasters and companies.

20:55And that becomes like the standard practice of what they're doing. We've horsed in the middle of the whole thing. Is it underhand? Yes, he's using all sorts of tactics to take control of these sporting associations. He's putting his own people in, like Sepp Blatter, who then goes on to head FIFA.

21:15Geoffrey Jones:Some people might say he's a visionary. What he did is kind of amazing, the way he pieced all this together. Yeah. I think if I think of the class discussions with MBAs, there's that kind of discussion in the classroom. there's a group of people saying that the guy's absolute visionary because i think in the case it says i think this quote from the fifa guy saying amateur sports has got absolutely no money at all and what he's doing is creating buckets of money for all sorts of sports and that can be deployed in building sports capabilities in emerging markets youth sports just a different world Now, the other half of the class will say, hang on, here's this guy operating in the shadows using every sort of tactic to take over associations, manipulate events.

22:10He's operating out of Switzerland, out of Monte Carlo, where there's absolutely no regulatory oversight at all on what the guy is doing. I think there's a huge tension between the visionary who's a transformational figure and the kind of seedy guy who's basically introducing what the founders of the Olympic movement most feared, which was money and getting involved in sport and corrupting what they saw as the high Olympic ideals.

22:44Geoffrey Jones:There is certainly a fair amount of cynicism around the sports marketing world and the way that athletes are represented and the way that brands align with athletes. We've seen some brands actually suffer from having done that. If you think about Nike and Tiger Woods and his amazing fall from grace. I'm wondering, as you think about Adidas and Affirm, every firm has core values that they aspire to uphold. If you're looking back at the origins of a company like Adidas, where so much of the success seems to have come as a result of activity that was questionable, I guess, in terms of its ethics, how do you think about figures like Horst and Adi in history?

23:28Geoffrey Jones:How will we remember them? I think memories are kind of in the eye of the beholder, really, as we've already been saying. Some people will remember them as the ones who really put sport at a whole new level, and they will reflect that for many people on Earth, sport is like a wonderful. You want to know what quality sounds like? It sounds like a Ford Super Duty towing up to 40 ,000 pounds before the sun comes up. It sounds like a Ford Mustang doing what a Mustang does. Ford, J.D. Power's number one in initial quality among mainstream brands. Ready, set, Ford. When properly equipped, max towing varies based on cargo, vehicle configuration, accessories, number of passengers.

24:10For J.D. Power 2026 U.S. initial quality study award information, visit jdpower.com slash awards. Awards based on 2026 model year. Newer models may be shown. Wonderful thing to go to see, to participate. It's just the most important things in their life. Other people, I think, will and probably should see them as introducing a level of grayness in the sports business that we're still struggling with now. Now, you know, it hasn't really gone away. We've had to come through like a huge scangling college basketball involving a top Adidas executive. FIFA, you know, eventually the Department of Justice had to take action against the high level of corruption in the game.

24:54That's also, honestly, their legacy. So it's a very conflicted legacy.