Basketball Scandal

The Other Shoe Drops

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Louisville basketball coach Rick Pitino is being fired. Adidas could soon be fired too. Source: Reuters

A week after federal prosecutors unveiled indictments against 10 people alleging bribery and fraud in college basketball, a major US university involved in the case said it had begun talks with German sports wear firm Adidas about whether or not to cancel a €136 million ($160 million) sponsorship deal.

The University of Louisville, its basketball coach Rick Pitino, and Adidas have been at the center of the corruption scandal that has rocked the college basketball world. Prosecutors allege that coaches took bribes to help steer young players to colleges where Adidas had partnership arrangements.

Those indicted included James Gatto, head of sports marketing in the basketball division of Adidas, which is based in the Bavarian town of Herzogenaurach and is the largest sportswear company in Europe.

“Our legal counsel is working with Adidas to look at that contract to see if it is indeed valid.”

John Karman, director of media relations, University of Louisville

“Given what has happened in the last week or so, I can tell you that our legal counsel is working with Adidas to look at that contract to see if it is indeed valid, or if there are areas of concern that could possibly void the contract,” John Karman, director of media relations at Louisville, said of the German firm’s sponsorship deal.

The university’s contract with Adidas expired in August and was renewed for a 10-year term. In exchange for $160 million, the highest amount Adidas has ever paid for a college basketball contract, it required all the sports team members at the university to wear Adidas uniforms and shoes during all appearances. But the players themselves are barred under the rules of the National Collegiate Athletic Association from receiving any money.

Adidas declined to comment on the status of the contract talks. But Katja Schreiber, a spokeswoman for the firm, said the company has hired outside legal counsel to conduct an internal investigation of Adidas’ basketball recruiting activities. She said that Mr. Gatto had been placed on administrative leave while that investigation is being conducted.

“What we’re focussed on is doing a full investigation internally,” Ms. Schreiber said. “We have hired outside council to run that investigation, to look at all of our grassroots and all of our college basketball programs because we are very much committed to sticking to the law and applying all rules and regulations.”

Grassroots refers to efforts by the major apparel and shoe companies to recruit promising high school basketball players to attend workshops and summer camps organized by the companies, giving them an opportunity to be seen by college talent scouts.

But the federal indictments allege a perversion of the grassroots process, saying money was paid to college assistant coaches and players’ families to steer young players to go to certain colleges where Adidas has partnership arrangements, for the players to reach agreements with particular financial advisers, and to agree to sign with Adidas when they eventually joined a National Basketball Association team and could accept sponsorship deals.

The U.S. Attorney’s office in New York did not actually name Adidas or any of the universities in its three indictments, but details soon leaked out. A spokesman said they had not been named “because in some instances the companies or universities might be victims.”

The university is already beginning to feel the fallout from the scandal. At least three promising players, who had pledged to join the Louisville basketball team next year, have changed their minds and withdrawn applications. The university also announced that it had begun the process of firing its famed head basketball coach, Rick Pitino, just days after telling him that he was being placed on leave until the legal case was resolved.

For Adidas, the scandal threatens to undo some of the progress it has made in boosting sales in the United States over the past year. Adidas’s spokeswoman said the company had achieved 35 percent sales growth in the US in the first half of 2017, driven by sales of running, training and outdoor categories. It expects the US market, where rival Nike is the leader, to generate €5 billion (5.88 billion) in annual revenue by 2020.

While basketball helps sell a huge number of sneakers to young people, Adidas says the sport accounts for only about 3 percent of its total revenues.

Charles Wallace is an editor for Handelsblatt Global in New York. To contact the author: c.wallace@extern.handelsblatt.com

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