#26. The Story of Gatorade 🥫 | A Billion Dollar Business

In 1965, the University of Florida's football team was experiencing numerous losses. At the time, athletes were prohibited from drinking water during practice games due to a widespread misconception that it would make them slow and sluggish. Apart from the occasional salt tablet and a sip of water, hydration was not permitted. This restriction, coupled with the hot Floridian summers, led to severe dehydration among the athletes, impacting their performance.

The then football team's coach went into the university's laboratory and asked a group of scientists to find a solution.

The scientists studied the thermodynamic physiology of exercise and found that players were losing key electrolytes and body fluids as they sweated in the heat.

To prove this thesis and find a solution, the scientists asked the Florida head coach Ray Graves if they could study the 1965 football team. Coach Graves agreed, but allowing only the Freshman players to participate in the study.

The scientists started conducting various tests. They squeezed sweat from used jerseys after each practice, and took blood and urine samples from each player to measure blood volume, salt and sugar levels, and lipid levels.

The results shocked everyone. Players were losing massive amounts of fluid and electrolytes and burning the carbohydrates that provided them energy. They found that players were losing an average of 260 fluid ounces in a two-hour practice, approximately 16 pounds in fluids.

A group of four University of Florida scientists, led by Dr. James Robert Cade, started developing a solution. They tried to make a drink that replicated sweat, but the first iteration was so unpleasant that the scientists became sick after drinking it. They kept iterating, eventually creating a formula that contained water, sodium, potassium phosphate, and sugar.

When players complained that it tasted like sweat — lemon juice, orange, and additional sugar were added, and the first version of Gatorade was born.

The results were immediately apparent. The freshman team beat the varsity B team after drinking Gatorade at halftime of a scrimmage.

Within weeks, Coach Graves had the entire University of Florida football team drinking Gatorade. The team started to win against heavily favored schools, even in the hot Florida heat.

This continued into 1966 when Florida won the Orange Bowl with a 9-2 record, beating Georgia Tech 27-12.

Georgia Tech head coach Bobby Dodd even attributed his team's loss to Gatorade.

Those words started to spread nationwide.

Football teams at the University of Richmond and Miami of Ohio were the first to order Gatorade outside the state. It soon became a product that teams felt was necessary to win football games and just like that, the sports drink category was born.

However, a bigger problem was brewing. Gatorade was becoming so popular that schools throughout the country wanted to order it, but the scientists who invented it didn't know how to fulfill orders or ship the product.

They had no interest in running a business, so in 1966, they approached the University of Florida with an idea. They offered to sell the entire Gatorade product to the university for ten thousand dollars in cash (or an inflation-adjusted $100,000 today), but the school declined.

This is when everything took a turn. Two scientists who developed Gatorade, Dana Shires and Alejandro de Quesada left Florida and accepted jobs as assistant professors at Indiana University School of Medicine.

They then met executives from an Indianapolis-based canned bean company called Stokely Van Camp at a Christmas party in 1966.

The group started talking about Gatorade. The executives were interested in the product and asked to be sent samples. After trying batches of lime, orange, and grape flavors, they wanted to turn Gatorade into a bigger business.

The four scientists hired a lawyer to draft the documents and a deal was done within weeks.

The scientists initially wanted to sell the entire company for one million dollars, but Stokely Van Camp was unsure of the demand. They decided to pay the scientists 30,000 dollars in cash and a 5 cent per gallon royalty in perpetuity. The Gatorade sale was complete.

The scientists worked with a lawyer to set up the Gatorade Trust to collect royalty payments, and Stokely Van Camp started selling Gatorade for 29 cents per quart (0.9 liters) during the summer of 1967.

Stokely Van Camp initially put Gatorade in the same 32-ounce cans it used for pork and beans, but the cans rusted from the inside while they sat on grocery store shelves.

This caused the Gatorade to leak out of the cans and drip onto the floor. The company pivoted just a few months later and put Gatorade in plastic jars.

They took inspiration from the famous Weedy slogan, calling Gatorade the "Beverage of Champions", and sales started to take off nationwide.

However, with sales increasing and Gatorade quickly becoming a national success, the University of Florida came calling.

The school claimed that their labs, football players, and even mascot were instrumental in the formation of the product and argued that they should be entitled to all past, present, and future royalties from the Gatorade brand.

The University of Florida then filed a lawsuit against the Gatorade Trust, but there were a few problems with their case.

For example, Dr. Robert Cade and his scientists were funded by the National Department of Health Grants, not the University of Florida.

Perhaps even more significantly, Dr. Robert Cade had somehow never signed the school's standard invention agreement, which would have automatically assigned about 75 percent of their earnings from a deal back to the University of Florida.

After a few months of back and forth, the Gatorade Trust decided to settle with the University of Florida in 1972. The scientists agreed to give 20% of all Gatorade royalties to the University of Florida in perpetuity and kept 80% for themselves.

Stokely Van Camp was then acquired by Quaker Oats Company for 230 million dollars just a few years later, and this is when Gatorade really started to become a national success. The company paid $25,000 to become the official sports drink of the NFL in 1977 and signed a similar deal with the NBA in 1984.

Gatorade also signed Michael Jordan to a 10-year, $13.5 million deal as the company's first and only endorsement and followed it up with the iconic "Be Like Mike" ad campaign, which only cost $10,000 to produce.

The late 1990s were even better for Gatorade. The company was now selling its product in 45 countries. They were doing more than $300 million in annual sales, and the business was growing at an unprecedented 20% year-over-year. This attracted the attention of PepsiCo, who acquired Quaker Oats Company for $13.4 billion in 2001.

Quaker Oats had a small cereal and snack food division at the time, but PepsiCo saw Gatorade as the crown jewel of the business and has heavily invested in the brand over the last two decades.

Gatorade now has 22 different flavors and does more than $6.25 billion in annual sales, which is two times more than competitors Body Armor and Powerade combined. Gatorade has also expanded beyond its original thirst quencher product. They've added healthier options like Gatorade Fit and Gatorade Zero, recently released a sweat patch that wirelessly connects to your phone to track workouts, and are now looking to steal market share from brands like Red Bull and Monster with the launch of their new energy drink, Fast Twitch.

As I said before, no one has benefited more from the growth of Gatorade than the four scientists who created it at the University of Florida nearly 60 years ago.

Brand acquisitions have caused their royalty deal to change slightly over the last few decades, but the Gatorade Trust still collects a royalty between 1.9% and 3.6% depending on annual Gatorade sales.

This resulted in more than one billion dollars in royalty payments being sent to the four scientists that created Gatorade. The University of Florida has made more than $200 million in royalties themselves. Now that's not bad for a lab experiment they never intended to sell.

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