IBUGBE

Horst Dassler, the son of the founder of Adidas, cultivated relationships with athletes and national associations – with the aim of expanding his family’s sports apparel business. In doing so, he created the first sports sponsorships for the Olympics, and ultimately became a key force behind the commercialization of sports today.

Harvard Business School professor Geoffrey Jones explores the pros and cons of the globalization and commercialization of sport in his case, spanning from the 1930s to the 1970s, “Horst Dassler, Adidas, and the Commercialization of Sport.”

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BRIAN KENNY: 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: 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 Superbowl 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 Geoff Jones to discuss the case entitled “Horst Dassler, Adidas, and the Commercialization of Sport.” I’m your host, Brian Kenny, and you’re listening to Cold Call on the HBR Presents network.

Professor Geoff Jones is a historian who studies the evolution, impact, and responsibility of global business. 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. Thanks for coming back, Geoff.

GEOFF JONES: Always pleased to be on the show.

BRIAN KENNY: And this is super timely and the Olympics are kicking off here shortly in Tokyo. I think people will be really interested as I was in reading the case and hearing about the history of Adidas and the history of the Olympics as the way that 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?

GEOFF JONES: I start in the middle of the case with the growth of Adidas, as they say in Europe or Adidas, as it’s most common in the United States. Company started in like 1949 and 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.

BRIAN KENNY: 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?

GEOFF JONES: Well, the course I teach is all about the role of business, most 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, the spread of communism, there’s the Cold War. So business as a whole is like fragmented, big time. And 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 de-globalization, 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.

BRIAN KENNY: 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?

GEOFF JONES: It’s a story of the wealth created by industrialization. By the 19th century, people who had industrialized, particularly in Europe, had more money, they had 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 the sort of competitions between sports. It’s the late 19th century, when it really gets going. The Olympics itself is the brain child of a French nobleman, Pierre de Coubertin, 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 the kind of visionary who thinks of sport as a way to express different ways of being human. And so he formed 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. But after 1896, it’s been held every four years except in periods of war ever since.

BRIAN KENNY: It’s 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?

GEOFF JONES: And I think if you just stand away, there are only 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. So 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. So World War I in particular, I think is transformational for organized sports.

BRIAN KENNY: Lets 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.

GEOFF JONES: Yes, the Dassler family, they’re the ultimate dysfunctional family. The brothers hate each other. The sons hate the fathers. It is extraordinary that out of this total dysfunction, you get very innovative business. Well, the whole story begins with the Adi and Rudi, Dassler the two brothers, 1920. They set up a small shoe factory in Bavaria. They 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 Rudi sets up Puma located at the other end of the same city.

BRIAN KENNY: Amazing.

GEOFF JONES: With disastrous relationships between the employees of both companies. So that’s the formal beginning of Adidas but you know, much of the business had already started right in the interwar years, serving, as I said, sports clubs, then they get a big boost in the ‘36 Olympics.

BRIAN KENNY: And they were both members of the Nazi party and they used their business interests in a way to work with the Nazis.

GEOFF JONES: 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 the relationship between the two. Rudi goes to jail for longer than Adi does as a result of this Nazi exposure.

BRIAN KENNY: Let’s talk a little bit about the way that they started to engage with athletes. And I’m thinking, 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?

GEOFF JONES: Beginning, very modestly as shoemakers. So they are craftsman. 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, and that’s how they come across, it seems, Jesse Owens in the 1936 Olympics, they seem to be wandering round 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, quite a smart marketing innovation. And then 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.

BRIAN KENNY: And maybe we can move on to the next generation of leadership at Adidas. A lot of the case deals with Horst Dassler 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.

GEOFF JONES: Horst is the son of Adi with whom he has a deteriorating relationship. Also has a deteriorating bad relationship with the son of Rudi Dassler.

BRIAN KENNY: Maybe Adi was the tough one to get along with us.

GEOFF JONES: So, he gets his start when he sent off to the ‘56 Melbourne Olympics and he sent off because he can speak better English than other members of the family. So 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 paranoiac. 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 that they hid the books of the business, they hid what he was doing.

BRIAN KENNY: 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?

GEOFF JONES: I’m not sure there was any relationship because Horst kind of misses what’s happening in the US market and Nike gets it exactly right. What we’re seeing in the US market is the democratization of sport and the spread of jogging by regular people. Adidas 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 ended up in 1982 with only about 10% of the US market.

BRIAN KENNY: 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?

GEOFF JONES: Horst wants to build something bigger than an athletic company. He wants to build a giant sports marketing 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. So eventually to get control of the international Olympics committee. Why does he want control? He wants to 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.

BRIAN KENNY: 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, it was both brilliant and devious at the same time.

GEOFF JONES: 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 in the Olympic tradition because they were afraid of what the consequences would be. And that remains extremely strong. For example, FIFA, it’s extremely strong until 1974. And the last head of FIFA, an English guy called Stanley Rous, 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, João Havelange. Havelange 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. And that becomes like the standard practice of what they are doing with Horst in the middle of the whole thing. Is it underhand? Yes. He’s using all sorts of tactics to take control of the sporting associations, is putting his own people in like Sepp Blatter who later goes on to head FIFA.

BRIAN KENNY: Some people might say he’s a visionary. What he did is kind of amazing the way he pieced all this together.

GEOFF JONES: 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 the guy’s an absolute visionary because I think in the case, it says, I think there’s 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. He’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 is 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 getting involved in sport and corrupting what they saw as the high Olympic ideals.

BRIAN KENNY: There was certainly a fair amount of cynicism around the sports marketing world and the way that athletes are represented in 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 a firm, 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? How will we remember them?

GEOFF JONES: I mean, 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 a sport is like a wonderful, 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, you know, it hasn’t really gone away. We’ve had to come through like a huge scandal in 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. That’s also honestly their legacy. So it’s a very conflicted legacy.

BRIAN KENNY: So many of your cases seem to have this tension that runs through them, which is one of the reasons I love talking about them. And one of the questions that I always like to ask is, could this happen today? You know, Horst was maturing as a business leader and his firm was evolving at a time when there was still, this green field was open to him and he could shape it in a way that suited his needs. Is that still possible today? And in other areas?

GEOFF JONES: Absolutely. And probably involve not following what the established rules were as well.

BRIAN KENNY: Which some people would say is innovation again, there’s that tension. The whole conflict comes back up. Well, he’s innovating, he’s doing something different than everybody else has done.

GEOFF JONES: I have a strong, ethical belief that innovation must have an ethical core to it. We think now what happens in sport was inevitable. Of course, the sponsorship and everything else, maybe there were other paths, but they have been lost. Now what we do know there are individual actions, Horst Dassler was appointing particular people to particular associations who took particular decisions. We do know there’s not just some sign of kind of like an inevitable rolling on. Maybe the other path would have been different. Maybe governments would have taken on more funding of sports, relieving some of the commercial pressures. We’ll never know.

BRIAN KENNY: As usual. This has been a fantastic conversation. And I thank you for sharing your insights with us. I guess one final thought one final question would be if there’s one thing you want people to take away from this case, what would it be?

GEOFF JONES: Story of ends and means. You could say that the ends of bringing money into sport were in the last resort desirable. The means of which it’s done were clearly not desirable. How do we think about that? In many cases, including this one, there’s rarely a good answer, but I think it’s a question we ought to ask ourselves. What kind of means are you prepared to live with to get a desirable end?

BRIAN KENNY: Hey, great. And timeless lesson. Geoff Jones. Thanks so much for joining us on Cold Call.

GEOFF JONES: Cheers.

BRIAN KENNY: If you enjoy Cold Call, you should check out our other podcasts from Harvard Business School, including After Hours, Skydeck, and Managing the Future of Work. Find them on Apple Podcasts or wherever you listen. Thanks again for joining us. I’m your host, Brian Kenny, and you’ve been listening to Cold Call, an official podcast of Harvard Business School, brought to you by the HBR Presents network.