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FIFA, Scandal, and Corporate Sponsors in 2015

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FIFA, Scandal, and Corporate Sponsors in 2015 FIFA, Scandal, and Corporate Sponsors in The American investigation began with a case 1 involving tax avoidance by a U.S. resident who was 2015 affiliated with FIFA. The case then spread to other officials of the association and its members. Several officials secretly admitted guilt and cooperated with the investigation during the two years prior to the public charges. In announcing the charges, recently-appointed U.S. Attorney General Loretta Lynch said that the individuals under indictment “were expected to uphold the rules that keep soccer honest, and protect the integrity of the game. Instead, they corrupted the business of worldwide soccer to serve their interests and enrich themselves.” The current charges are likely to have a major impact on FIFA and its leadership. The association’s president, Sepp Blatter, who was not charged, initially announced On May 27, 2015 Swiss police raided a leadership that he would lead the cleanup of the association, meeting of FIFA, international football’s governing which he had headed since 1998. On May 29, Blatter body, at a luxury hotel in Zurich, Switzerland. The raid was easily reelected to a fifth term. Within days, stemmed from Swiss inquiries concerning FIFA’s though, new allegations surfaced that FIFA’s general award of the 2018 and 2022 World Cups to Russia and secretary, who reports to the president, was responsible Qatar, as well U.S. investigations of soccer federations for paying a $10 million bribe in South Africa’s bid to in North America, Central America, and the Caribbean host the 2010 World Cup. On June 2, under pressure (CONCACAF) and in South America. Swiss police from corporate sponsors and public officials around the arrested seven officials from FIFA and its regional world, Blatter announced that he would resign, stating associations, who faced extradition to the U.S. that “FIFA needs profound restructuring.” He planned The charges quickly expanded. U.S. authorities said to continue in office until a successor was elected, most that at least nine soccer officials and five sports media likely in late 2015 or early 2016. The World Cup and promotions executives faced corruption charges awards for Russia and Qatar are in some doubt, involving more than $150 million in bribes. By early although many observers expect the events to go ahead. June, at least 14 officials faced charges including FIFA officials around the world are facing concerns racketeering, wire fraud, and money laundering. about the integrity of their country associations. Formed in 1904, the Fédération Internationale de Beyond FIFA itself, the allegations are affecting the Football Association (FIFA) organizes football's major association’s sponsors. Companies such as Visa, MTN, international tournaments, notably the World Cup Gazprom, Hyundai, Coca Cola, Adidas, and many (since 1930) and the Women's World Cup (since 1991), others provide hundreds of millions of dollars to as well as many regional tournaments. Its membership sponsor FIFA events. The companies’ reputations are now includes 209 national associations, which also are at stake, as well as their ability to generate marketing members of one of six regional confederations: Africa; traffic for their products. Asia; Europe; North & Central America and the The accompanying articles describe the situation of Caribbean; Oceania; and South America. Each national two sponsors, Nike and Scotiabank. As you read the association has one vote in electing FIFA’s leadership reports, consider the following questions. and in awarding tournaments. FIFA’s tournaments generate revenue from sponsorship. In 2013, FIFA had How important strategically is FIFA for Nike and revenues of over US$1.3 billion, with net profit of $72 Scotiabank? million and cash reserves of over $1.4 billion. FIFA is Are there issues that the companies should have a private association, headquartered in Zurich. assessed in greater depth as they considered forming sponsorship relationships with FIFA and For decades, leaders of FIFA and many of its country its international associations? associations have been accused of bribery, particularly What should the companies do now that FIFA regarding bidding for tournaments and media rights. It officials face official charges? has never been clear, though, what jurisdictions might be relevant for investigating the association. 1 Will Mitchell prepared this report based on public sources (June 2015). All copyrights belong to the relevant holders. 1 Nike’s Bold Push into Soccer Entangled It Nike’s contract, according to the Brazilian translation, in FIFA Probe says the company was to pay the Brazilian soccer federation directly, not a middleman working on its Company entered Brazil without much knowledge behalf. A 161-page indictment made public last week, about how deals there were negotiated however, alleges in a barely veiled reference to Nike that $30 million of the sponsorship pact was paid out Sara Germano & Patricia Kowsmann through a side deal between the company and a Wall Street Journal, June 4, 2015 middleman. The middleman used part of that money to Nike Inc.’s entanglement with the biggest scandal in pay bribes, the indictment alleges. the soccer world began with a headlong plunge into A person familiar with the matter confirmed the unfamiliar territory two decades ago. company is Nike. Nike isn’t named in the indictment, and neither it nor any of its executives have been charged with wrongdoing. The company said it is cooperating with authorities. It declined to make Messrs. Clarke, Bodecker, or Knight available for comment. Efforts to reach Mr. van Nieuwenhuizen were unsuccessful. Nike wouldn’t comment on specific issues raised in this article. In a 1997 interview with The Wall Street Journal, Mr. Knight indicated the company’s introduction to big soccer had been a learning experience. “We were surprised a little bit in terms of soccer politics and how business is done in that world,” he said. “In some ways it is the most political of all the sports.” The indictment sheds light on how the big-money business of soccer created big risks for its sponsors. Spurred by the deal, Nike now reaps about $2.3 billion Fresh off the U.S.-hosted World Cup [in 1994] and in revenue from soccer, neck and neck with Adidas. In desperate for a real foothold in the world’s most 2014, the company sponsored more World Cup teams popular sport, Nike’s top officials aggressively pursued than its German rival. an endorsement with Brazil’s soccer federation. The effort culminated in a $200 million 10-year deal in But the people Nike negotiated with to secure the 1996 that was staggering in size and put soccer Brazilian sponsorship now are under scrutiny by law- powerhouse Adidas AG on notice that it faced a real enforcement authorities, and the bribery allegations competitor. against senior officials of FIFA have cast a long shadow over Nike’s signature win. Signaling its importance to the company, the agreement was signed by Nike co-founder Philip Steve Miller, who spent much of the 1990s working in Knight, President Tom Clarke, soccer chief Sandy Nike’s sports-marketing department, said the company Bodecker, and soccer sports-marketing director Cees went “totally blind” into a region where it had few van Nieuwenhuizen, according to a translation of the people on the ground. contract in the record of a Brazilian parliamentary “Brazil was a place where we had no serious inquiry that took place in 2001. engagement, we did not have a head of Brazil,” Mr. But interviews with people involved in soccer Miller said. marketing at the time of the deal indicate that Nike Nike appeared to be out of the race in soccer by the entered a country—and the top echelon of a sport— mid-1990s, and finding a way back in was a priority, without much knowledge about how deals there were according to interviews with current and former negotiated. The result was missteps that ultimately executives in the sports-marketing industry. The caught Nike up in a far-ranging U.S. investigation of company set its sights on Brazil, and when Nike landed corruption at the International Federation of the Brazilian team, the soccer-marketing community Association Football, or FIFA, soccer’s governing buzzed about its willingness to pay up. body. 2 Doug Logan, who served as commissioner of Major “Nike won’t be asked to pay any remuneration to League Soccer from 1995 until 1999, said the deal Traffic, in accordance to this contract,” the contract reset expectations. “It meant that our shoe suppliers says, according to the Brazilian parliament’s and apparel suppliers were going to have to up the translation. “CBF will be responsible for all payments ante,” he said. to Traffic, in accordance to this agreement.” Yet, according to the indictment, there were other financial terms that weren’t reflected in that agreement: Sportswear Company A agreed to pay a Traffic affiliate with a Swiss bank account an extra $40 million in compensation. Three days after the main contract was inked, a representative of the company signed a one-page agreement with Traffic that said the Brazilian federation had authorized Traffic to invoice the company directly. Traffic invoiced the company for $30 million over the next three years, some of which Traffic paid as bribes and kickbacks, the indictment alleges. Mr. Miller, who left Nike around the turn of the A Nike swoosh logo can be seen in the seats of a U.K. soccer stadium millennium, said he didn’t have any reason to believe in May 2015. Photo: AP Nike did anything illegal in its Brazilian deal. Peter Moore, a onetime Nike employee who was chief executive of Adidas America from 1994 to 1998, said And for all the fallout, the endorsement has paid off for the deal was the turning point at which the company Nike.
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