"Ten university officials, coaches and apparel executives were charged with bribery and corruption" rang the headlines yesterday regarding the latest case of bribery and corruption in the sports world. While bribery and sports scandals have been broken up by the U.S. Department of Justice the last few years – most notably such incidents as the FIFA scandal – none have really touched American soil in a significant way. This all changed yesterday when individuals from some of America's best university basketball teams and officials from Adidas sports apparel were publicly charged with bribery and corruption. So why did this happen? Most importantly, how did it go on for so long without discovery?
For non-American readers, basketball teams for universities in the United States serve in a similar capacity as sports academies for soccer – except there is an added element of getting an education. Most of the supremely talented basketball players, though, take only a year or two of schooling before moving on to being drafted into the National Basketball Association (NBA). The key element to this arrangement is, that during the period that these players are enrolled in university, they are considered amateurs and cannot have sports agents or handlers, nor can they make any money from their talent in basketball. But when faced with the possibility that a 19-20 year old could make $10-15 million dollars when the leave university, there is significant competition to represent these athletes.
So while universities' athletics coaches are in a high stakes situation to attain the most talented athletes for their programs, they cannot pay them because they hold amateur status. Agents, handlers and other representatives cannot be associated with the athletes because they are playing for the universities. So how can you create a situation where the university coach gets his player, and everyone maintains their amateur status? In comes the sports apparel scheme.
Like most bribery and corruption schemes in corporations, money is diverted to targets via third party agents. In this instance, it is the sports apparel organizations. This is how it works:
- Sports apparel companies, such as Adidas, sign exclusive apparel deals directly with universities for their athletes to wear only specific branded clothing while playing for the university. It is a highly competitive area, as the sponsor firms all strive to secure relationships with the top-ranked university teams attached to the strongest star athletes.
- In this instance, Adidas was attempting to influence hugely talented teenagers to attend universities which were Adidas aligned for apparel, so these athletes would be seen wearing their clothes. Of course, there was also the hope that the athletes would continue their loyalty to the brand when they turned professional.
- To prevent the universities from being seen as directly paying players to attend their university, Adidas would broker deals with the athletes separately to ensure they attending the Adidas university of their choice.
- In the case identified yesterday, an athlete had negotiated a $100,000 USD payment from Adidas to his mother for him to attend a particular school.
- Adidas would transfer the money to the player's family via schemes around consulting or management fees.
It should be noted that during a large part of the timeline of this activity, it is unclear if senior management at Adidas was aware of this scheme. Often representatives of a company disguise payments to the family or handlers as legitimate expenses, and well under the radar of legal and compliance staff.
Unfortunately, this scenario is a very common scheme, which ultimately will lead to tremendous reputation damage for Adidas and likely a large decrease in market cap (as of this writing the stock is down 1%, but research has shown that organizations lose 10-15% of their market capitalization between announcement of charges and levying of a fine).
So how could Adidas have prevented this? Today, policies and procedures designed to monitor this type of behaviour are typically very minimal. However, technology is available to enable finance, compliance and ethics staff to detect these schemes before they become embedded in the organization. Through the use of analytics to monitor travel, expense, gifts, entertainment, accounts payable and receivables, organizations can have a 24/7/365 tool that's continually monitoring their business to detect and eliminate this behaviour.
This is only the beginning stages of this case and it is likely to ensnare a large number of individuals, companies and universities. But it is important to know, there are solutions readily available today, which may prevent your organization from headlining the news coming out of the Department of Justice.