The Company Behind Mounjaro and Zepbound Is Sponsoring Caitlin Clark. Should You Buy the Stock? | The Motley Fool (2024)

When it comes to the business of sports, brand sponsorships are a commonly used strategy. This makes sense, as many athletes tend to become synonymous with certain companies.

It's nearly impossible not to think of Nike when you see Michael Jordan or Serena Williams. Or what about insurance company State Farm? Perhaps Patrick Mahomes comes to mind.

In May, pharmaceutical company Eli Lilly (LLY -0.55%) partnered with the Indiana Fever to be the team's jersey patch sponsor. Since Lilly is based in Indiana, the sponsorship makes a lot of a sense from a community standpoint. With that said, I see an even more lucrative opportunity on the horizon: Associating with Caitlin Clark.

Let's dive into Clark's meteoric rise, how sports sponsorships work, and why Lilly might have just made a genius move.

Who is Caitlin Clark?

Earlier this year, on March 3 to be precise, Caitlin Clark became a household name. The 22-year-old point guard for college basketball powerhouse Iowa scored 35 points, breaking the all-time scoring record for NCAA Division 1 across both men's and women's programs.

While many people were at least familiar with Clark before she broke the scoring record, I'd wager this moment in particular was when people really started paying attention.

As a sports enthusiast (and tortured Philadelphia sports fan), I must say that the purity of Clark's game is awe-inspiring. From wicked cross-overs to near half-court heaves that swish on repeat, Caitlin Clark is a walking highlight reel.

Following an epic performance and championship run in the NCAA March Madness tournament, Clark went on to be the first overall pick in the WNBA draft this year by the Indiana Fever.

This move by the Fever was both strategic and tactical. In 2023, the Fever posted the worst record in the WNBA's Eastern Conference (and the third worst record in the entire league). Adding Clark to the roster clearly brings some much-needed depth to a team in need of some star power.

However, I think there's more to the story. After all, sports is a business. Let's explore how the Fever are already benefiting financially from Clark's brand.

How do sports sponsorships work?

The entire sports landscape could be appropriately viewed as an extension of the entertainment industry. The media rights to air certain sporting events such as the Super Bowl, World Series, and NCAA Tournament fetch enormous sums from broadcasters and streaming platforms.

Nowadays, athletes in just about every sport have myriad logos and brands on their jerseys. Golfers and race car drivers in particular are covered with so many logos that they're essentially billboards in human form.

Given its worldwide appeal, basketball is one of the more lucrative opportunities when it comes to brand partnerships. According to Statista, the NBA raked in $1.7 billion from sponsorships last year. To put this figure in perspective, sponsorship revenue has nearly tripled in the NBA over the last decade.

One of the key aspects of sponsorships in the NBA and WNBA is jersey patches. These logos are stitched onto the shoulder area of jerseys and can be easily seen by viewers when the cameras focus on a particular player.

While the costs of these patch deals vary, the league average in the NBA is estimated to be around $10 million per year.

The WNBA isn't doing too shabby, either. In April, the Phoenix Mercury signed a patch deal with Cleveland Avenue worth $3 million per year. As of the time of this writing, this is believed to be the leading patch sponsorship deal in the WNBA.

How can Eli Lilly benefit?

Companies spend billions of dollars on advertising. From commercials to social media campaigns, and more, businesses will stop at nothing to capture your attention. And when it comes to Caitlin Clark, the attention she garners should not be underappreciated.

According to data from Nielsen, the 2024 NCAA Women's Basketball National Championship featuring Clark and Iowa versus an extremely talented South Carolina team fetched 18.9 million viewers. This was roughly 4 million more viewers compared to the NCAA Men's Basketball National Championship game, and it was the most viewed basketball game at any level since 2019.

Moreover, 1.8 million people tuned in to watch Clark play in February during a regular season game versus Nebraska -- on Super Bowl Sunday, no less.

The idea here is clear: Clark has a big fan base, and a record number of people continue to watch her play. This dynamic could be a game changer for Eli Lilly.

If you are unfamiliar with Lilly, you probably have seen commercials for some of its flagship medications such as Mounjaro, Verzenio, and Jardiance.

Right now, there is no hotter pocket of the pharmaceutical realm than weight loss treatments. While Novo Nordisk has a commanding market share lead thanks to Ozempic, Wegovy, Rybelsus, and Saxenda, Lilly has its own lineup of diabetes and obesity care treatments featuring Mounjaro, Jardiance, and the recently approved Zepbound.

I can't help but think that a large cohort of people who are unfamiliar with Lilly by name will see the company's logo on Clark's shoulder patch during games. In theory, this could prompt people to search "Eli Lilly" on the internet and begin to draw the connection between the company and its emerging multi-billion-dollar weight loss operation.

I see Lilly's choice to sponsor the Indiana Fever and Caitlin Clark as a savvy chess move that even the heftiest research and development investment can't leapfrog. While Lilly's relationship with Clark is not reason alone to buy the stock, I think the company has potentially unlocked a new way to land on people's radars, which could spur some positive brand equity and business growth over time.