In 2006, Warren Buffett made one of his largest and most surprising acquisitions when his holding company Berkshire Hathaway purchased Russell Corporation, a sports apparel and equipment manufacturer, for $600 million.
Though Russell was best known for its athletic wear and uniforms, the deal also gave Berkshire ownership of some of the most iconic sporting goods brands in the world – Spalding basketballs, AAI gymnastics equipment, and Dudley softballs, among others.
This article explores the details of the acquisition, why it made strategic sense for Berkshire, and how it expanded Buffett’s corporate reach deeper into the lucrative sports industry.
Russell’s Range of Sports Brands and Products
Founded in 1902 in Alexander City, Alabama as a maker of menswear, Russell Corporation over the next century transformed into one of the nation’s largest marketers and manufacturers of athletic uniforms and apparel.
By 2006, Russell was the undisputed #1 producer of team uniforms for American sports leagues from youth to pro level, including famous deals with Little League Baseball, Pop Warner football, and major college programs.
But uniforms were only part of Russell’s sports holdings. Over the decades, the company smartly acquired established sporting goods brands that brought it footholds across multiple sports:
Spalding Basketball Equipment
The basketball brand that needs no introduction. Founded by former Boston Red Stockings pitcher A.G. Spalding in 1876, it became the NBA’s first official basketball when the league began in 1946. In addition to the iconic NBA game ball, Spalding makes rims, backboards and a full range of recreational and pro basketball gear.
The brand has a deep cultural legacy in the sport extending from the early 20th century when the historic Boston Celtics dynasty teams dribbled Spalding leather balls on their way to 11 championships.
BIKE Athletic Protection Gear
Russell purchased Illinois-based BIKE in 1998, gaining a strong brand in protective gear across multiple contact sports.
BIKE is well known for its cups and supporters worn by athletes to protect sensitive areas during games, as well as pads and guards for shoulders, thighs, and knees.
Young football players across America grow up wearing BIKE’s iconic green and gold gear.
AAI Gymnastics Equipment
Founded in 1978, AAI (“American Athletic Inc.”) manufactures the balance beams, vaulting horses, parallel bars, high bars, pommel horses, rings and other specialized equipment used in competitive gymnastics.
You’ve seen AAI’s blue-framed apparatuses at the Olympics and NCAA championships whenever gymnasts are flipping and twisting to gold.
Dudley Softballs and Accessories
First crafted in Pennsylvania by maker A.J. Reach in the late 1880s, the Dudley brand was bought by Russell in 1992 to complement its portfolio with a giant of the recreational softball market.
Dudley makes all varieties of softballs for slow to fast pitch leagues, plus gloves, bags, helmets and masks for softball players.
Lesser known brands acquired by Russell over the years include Brooks and Spot-Bilt shoes, Red Lion apparel, Jerzees activewear, and Triumph Sports bras.
Berkshire Buys an Undervalued Gem
Despite its strong stable of brands, Russell hit difficulties in the early 2000s as rising manufacturing costs cut into profits. In 2004 longtime CEO Jack Ward announced his retirement, leaving questions around new leadership and strategy.
The company’s stock price dropped to historic lows under $14/share by 2006, well below its highs above $30 earlier in the decade.
Sensing an undervalued company stacked with strong assets, Berkshire Hathaway swooped in to acquire Russell in January 2006, purchasing 87.3% of outstanding shares for $600 million.
The $18/share deal price represented a 27% premium over Russell’s closing price the previous day. Berkshire stated its intention to purchase remaining shares and take Russell private.
For Warren Buffett, the logic of buying Russell was simple – he saw a fundamentally strong business with great brands that was underperforming and underpriced. R
ussell’s diverse $1.1 billion revenue stream from sporting goods icons like Spalding was right in line with the type of all-American brands Buffett loves to add to his portfolio.
And at a purchase price around 8 times EBITDA, Russell came at a big discount compared to similar public companies trading upwards of 12 times earnings. Buffett also surely realized the global growth possibilities ahead in sports sales and licensing.
The profit potential for turning around Russell through better management and reinvestment was straightforward in Buffett’s eyes.
And Russell’s deep roots in Buffett’s home territory of Alabama likely gave him extra confidence that the Russsell brand and culture could thrive under Berkshire’s decentralized leadership model.
Impact on Berkshire’s Sports Holdings
The Russell deal had an immediate impact expanding Berkshire’s exposure in the sports business, adding over $1 billion in new sports oriented revenue.
It built upon a sport portfolio highlighted by Berkshire’s ownership of insurer Homestate Companies, which held big insurance policies with pro baseball, basketball, football, hockey and golf entities.
Russell also joined Berkshire’s Justin Brands subsidiary, maker of Western boots and athletic footwear brands including Justin Athletic.
Owning Russell instantly turned Berkshire into one of the biggest suppliers of iconic sporting goods brands to millions of athletes across America and beyond.
Whether it was the basketball, pads or gym horse used in youth games, or uniforming major league baseball coaches, Berkshire now had its logos and products directly in front of sports fans everywhere.
The operational impact was also significant as Berkshire absorbed one of Alabama’s largest public companies, adding over 5,500 employees worldwide under the Berkshire banner.
Russell’s headquarters remained in Alexander City post-acquisition, keeping not only its management team but many back-office jobs tied to the small town of 15,000 in rural east Alabama.
Russell also brought specialized manufacturing expertise to Berkshire’s apparel businesses. Its network of factories, sewing operations and distribution hubs in the US,
Central America and Asia gave Berkshire extra production capacity that could be leveraged across business units.
Overall the Russell deal exemplified Buffett’s strategy of acquiring good companies attached to great brands available at a fair price, brands that often have mass cultural resonance like Russell’s place in American sports.
Performance Under Berkshire
Berkshire Hathaway wasted no time improving Russell’s operational and financial performance after taking it private.
Within two years, Russell surged to record high revenues near $1.8 billion as margins improved and interest costs dropped substantially without public shareholders.
EBITDA swung from a slight loss in 2005 to gains approaching $200 million by 2008, demonstrating Russell’s turnaround. By 2013 Russell topped $2 billion in sales, showing steady growth under Berkshire’s patient ownership.
There were some bumps along the way, as Russell had to exit some licensed apparel deals that didn’t meet Berkshire’s return requirements. Workforce unrest emerged as union employees contested benefit changes made during the turnaround.
And Russell’s uniform business faced pressure as competitor Nike signed deals to design NCAA basketball uniforms and other gear.
But on the whole Russell thrived within Berkshire between 2006-2013, earning consistent profits that justified the acquisition price and then some. Buffett’s mantra of letting acquired executives continue local autonomy without interference proved out well with Russell.
Berkshire Exits Russell In Transformational 2013 Deal
After seven years of ownership and $100 million in dividends paid, Berkshire Hathaway decided to sell Russell in 2013 to Strategic Sports Group in a $350 million deal.
The purchase price plus prior dividends represented an excellent cash-on-cash return for Berkshire. And the divestment showed discipline by Buffett – with the turnaround finished and Russell’s value restored, it was time to exit and deploy that capital into other opportunities.
Yet Russell didn’t walk away from Berkshire empty handed. Beyond revitalized operations, it gained transferable lean manufacturing expertise as well as financial stability that enabled reinvestment.
This helped Russell develop innovative products like moisture-wicking, snag-resistant uniforms that use 27% less fabric. The company also instituted domestic quick response factories that slash production times to meet demand shifts faster.
Strategic Sports Group represented a unique buyer – as a joint venture between a private equity firm and the National Football League Players Association (NFLPA), its goal was building athlete-owned companies that could expand the over $16 billion US sports equipment market. Russell was an ideal platform for such expansion.
The sale closed in late 2013, crystallizing a hugely successful acquisition by Berkshire that demonstrated savvy deal-making combined with stellar post-purchase operational improvement.
To this day “Made with Russell Athletic” remains a sign of quality manufacturing throughout sports.
Berkshire Still In the Game
Though it no longer owns Russell, Berkshire retains heavy sports industry involvement today:
Homestate insurance subsidiary Berkshire Hathaway Homestate Insurance still underwrites major sports properties and franchises. Recent policyholders include the NBA, MLB, NHL plus pro golf and tennis leagues.
Justin Brands continues producing its lines of Western boots and athletic shoes worn by millions.
Berkshire’s BNSF railway remains a preferred hauler of sporting goods courtesy of Russell’s volume shipping legacy.
Acquisitions like Duracell batteries and Brooks Running shoes keep Berkshire product placements active across sporting events and in locker rooms.
And you can bet Warren Buffett still watches tournaments and big games wearing his iconic Russell Athletic zip-up jacket as a nod to one of his savviest buys.
The 2006 Russell deal expanded Buffett’s empire into a new arena and checkmated competitors with classic value investing strategy.
By locking up globally powerful sports brands like Spalding and Dudley through an undervalued target, Berkshire Hathaway slammed home an advantage it continues to benefit from years later.