FBI probes Adidas in basketball bribery case | Business| Economy and finance news from a German perspective | DW | 05.10.2017
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FBI probes Adidas in basketball bribery case

Sportswear giant and trendsetter Adidas has been caught red-handed in a major corruption and bribery scandal in the US, prompting a reconsideration of athlete endorsement in exchange for other superstars.

Major sports brands like Nike and Adidas sponsor college and youth sports teams all over the US. They do so in order that players are seen in their apparel and to increase their chances that players who go pro will later endorse their brand. Depending on the success of the player this could mean millions in future revenue.

The lengths brands will go to ensure the athlete's commitment continue to escalate. In many cases, once coaches of these sponsored teams see a potential star, they broker a deal with Adidas or Nike, offering the student a large sum of money to play for a designated university. The coaches themselves may also receive a large sum of money for their recruitment.

Read more: Adidas profits hit the billion mark

Yet under NCAA (National Collegiate Athletic Association) regulations it is illegal to pay student athletes and doing so renders the athlete ineligible to play. The NCAA claims to "protect young people from the dangerous and exploitive athletics practices of the time," but in a time where millions of dollars are thrown at athletes to keep brand names relevant, it is hard to imagine many turning it down.

Following the rulebook?

"These athletes are from middle to lower class families so money is important and it becomes an abused system," explained Tony Ponturo, the CEO of Ponturo Management Company. "One thing you may want to look at is why a shoe company is paying a coach $2.2 million [1.87 million euros]. They are getting paid millions to influence a school to use their brand."

This time the deal turned sour. An FBI complaint was issued once an undercover agent revealed those involved in the scheme, prompting an investigation into the involvement of Adidas in federal corruption.

One of the schools in question, the University of Louisville, has a 10-year $160-million sponsorship agreement with Adidas. The unnamed basketball player was offered $100,000 to play.

Since the FBI began investigating the complaint, two executives of Adidas have been arrested including Jim Gatto, global sports marketing director for basketball.

Does athletic endorsement still pay?

Competition for the next great American athlete is fiercely combative. Even so, retail experts note that the millennial generation does not respond like generations past.

"When consumers see athletes using either brand, they don't believe they're using that to run faster or shoot better," said Allen Adamson, the founder of Brand Simple Consulting.

Read more: Nike drops Pacquiao endorsement over anti-gay remarks

"The market is so over-saturated with endorsements that the value of endorsements linking back to performance is diluted." Although it is important for Nike and Adidas to retain their relevance to the sports industry, their sales may not depend on it as it once did. And that's where pop culture comes in.

All of this just for a pair of shoes

Premier League - FC Liverpool vs. FC Chelsea (picture-alliance/Offside/S. Stacpoole )

While the industry might still expect athletes to sell athletic wear best, celebrity representation may connect with consumers on a deeper level yet

Back in 1986, a hip-hop group from Queens, New York, named Run-D.M.C. released the hit track "My Adidas," inspiring fans to show up in head-to-toe Adidas to see "the three brothers, wearing three stripes" in concert.

In the following year, a senior Adidas employee saw tens of thousands of fans lifting their Adidas into the air at concerts and recognized their relevance. This led to Run-D.M.C. becoming the first hip-hop group to receive a million-dollar endorsement.

Fast forward to 2017 and it's not uncommon to see celebrities linked to sportswear, despite not being athletes. Nike has comedian Kevin Hart, PUMA has Kylie Jenner, Cara Delevinge and Rihanna. Under Armour has Gisele Bundchen, and Adidas has Pharrell and Kanye West. With Kanye, the hype was immense.

When Adidas issued his "Yeezy Boost" boots a buying frenzy ensued, pushing the cost of these limited release shoes to $7,000 a pair on eBay, up from the original price of $350.

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This fanfare illustrates a powerful integration of pop culture, entertainment and sports. In 2015, Adidas made a big splash during Paris Fashion Week when Raf Simons and Rick Owens used Adidas trainers for their men's catwalk shows.

Even off the catwalk, fashion critics noted that nearly every celebrity and fashion blogger was wearing a piece of Adidas. Few sports brands have penetrated high fashion that successfully.

Since Kanye's partnership with Adidas the sneaker giant has passed Nike's Jordan brand to become the second most popular sneaker maker in the US.

"It's a way for the brands competing to gain share and gain popularity by doing things that are different and unique, so if you wear that product you feel more relevant," according to Ponturo.

Still looking for the dirt

While the FBI investigation continues there is the possibility for indictments from a grand jury and for all unnamed parties involved to be called to the witness stand. If not, the possibility remains that behind-the-scenes plea bargains could broaden the case to include more suspects.

Sports experts believe the Adidas scandal combined with the cynical buying patterns of millennials may influence future marketing efforts for sportswear. "Consumers skepticism is so high that one more athlete for either brand won't move the needle. This could be the wake up," says Allen Adamson, "they have to find another way to grow their brand."

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