In the sportswear industry, Nike is the main player, but well-known competitors Adidas, Under Armour, and others are constantly attempting to improve their position in the market. One way an apparel company can gain an edge is to sign superstar athletes to wear their gear and advertise their brand. Famously, professional basketball players LeBron James, Kobe Bryant, and Michael Jordan are all signed under the Nike brand, and they all have signature shoes with Nike. This has helped Nike perpetually control the largest market share in the U.S. sportswear industry,1 and has largely contributed to their continued success.
While in college, future professional and current student athletes wear the brand that their university has entered into an apparel agreement with. When those players declare for the pros, they sign with a shoe company and wear and advertise that brand of sportswear. Certainly, when a player makes the decision of what brand to wear as a professional, what clothes they wore as a college player will play a role in their decision. In an attempt to cut into Nike’s supremacy, Adidas allegedly won the race to the bottom to sign future star basketball players and increase the popularity of the company.
On September 26, 2017, federal agents arrested ten individuals on charges ranging from wire fraud and bribery to money laundering, conspiracy, and other offenses2. According to Joon H. Kim, U.S. Attorney for the Southern District of New York, bribes were paid to lure top recruits to elite college basketball programs.3 Kim referred to this scheme as “the dark underbelly of college basketball.”4
The U.S. Attorney’s Office of the Southern District of New York released information alleging and describing two convoluted bribery schemes, and in one of those Adidas served as the lynchpin. In this suspected arrangement, elite high school basketball players and their families would request cash payments from specific Adidas company affiliates who held themselves out as willing to compensate these amateur athletes5 Adidas agents would then make these payments, allegedly as much as $100,000, and in return, the players would make a “commitment” to sign with Adidas upon becoming a professional player, and would also commit to play college basketball at universities sponsored by Adidas. In funneling elite high school athletes to Adidas schools, Adidas hoped that those teams would perform well and reflect positively on the brand.6 Adidas executive Jim Gatto and employee Merl Code now face charges of money laundering conspiracy, wire fraud conspiracy, and two counts of wire fraud for their role in this alleged scandal.7
Because of these charges, Adidas currently has a black eye that could impact the bottom line of the company. This is especially noteworthy because Adidas has been gaining ground on Nike over the past year, cutting into Nike’s market share and passing Nike’s Jordan line as the number two seller in American sports footwear.8 Nike, however, could soon be facing legal problems of its own. On September 28, 2017, just two days after the original scandal’s arrests, Nike’s Elite Youth Basketball League was served a subpoena by federal prosecutors, and the FBI continues to vigorously dig into the “dark underbelly” of college basketball.9
Adidas, however, is not the only entity suffering from the fallout of this suspected scheme. The aftermath of the alleged wrongdoings has hit many colleges hard, particularly the University of Louisville. This is noteworthy because Louisville has been the most profitable men’s college basketball program over the last decade, generating $355.9 million in revenue from 2006-2015.10 In that timeframe, Louisville was $116 million more profitable than Duke University, the school with second most lucrative men’s basketball program11 After firing their athletic director and head coach Rick Pitino, hundreds of thousands in season ticket revenues has been returned to malcontent Louisville fans by the school, and the team and its chances at earning postseason accolades (and profits) have been irreparably disrupted.12
Currently, a dark cloud is hanging over college basketball and major amateur sports in general because of the suspected misconduct of many parties, chiefly Adidas. It remains to be seen, and will be interesting to follow, how these alleged transgressions will impact the lucrativeness of Adidas, the harmed college basketball programs, and amateur sports overall moving forward.
Daniel Roberts, Adidas has nearly doubled its US sneaker market share—at Nike’s expense, Yahoo! Finance (June 23, 2017), https://finance.yahoo.com/news/adidas-nearly-doubled-us-sneaker-market-share-nikes-expense-153106743.html. ↩
Bill Chappell, 4 College Basketball Coaches Arrested in Bribery Case; Adidas Exec Also Named, NPR (Sept. 26, 2017), https://www.npr.org/sections/thetwo-way/2017/09/26/553738090/4-college-basketball-coaches-arrested-in-bribery-case-adidas-exec-also-named. ↩
US Attorney SDNY (@SDNY News), Twitter (Sept. 26, 2017, 12:11 PM), https://twitter.com/SDNYnews/status/912726381167042560. ↩
Harry Lyles Jr., The FBI’s investigation of college basketball corruption, explained, SBNation (Sept. 27, 2017), https://www.sbnation.com/college-basketball/2017/9/27/16366056/college-basketball-scandal-corruption-fbi. ↩
Bret Kenwell, This Is How Much Ground Nike (NKE) Is Losing to Adidas, InvestorPlace (Sept. 26, 2017), https://investorplace.com/2017/09/nike-losing-market-share-adidas/#.WhZ_UhOPKCR. ↩
Kyle Boone, Report: Nike grassroots basketball division served with subpoena by federal agents, CBS Sports (Sept 28, 2017), https://www.cbssports.com/college-basketball/news/report-nike-grassroots-basketball-division-served-with-subpoena-by-federal-agents/. ↩
Mike Nudelman, Chart shows why Rick Pitino was so important to the University of Louisville, Business Insider, (Sept. 30, 2017), http://www.businessinsider.com/rick-pitino-louisville-college-basketball-scandal-2017-9. ↩
See id. ↩
Tim Sullivan, Louisville athletics refunded $419K to season-ticket holders after Pitino and Jurich were fired, Courier-Journal (Nov. 17, 2017), https://www.courier-journal.com/story/sports/college/louisville/2017/11/17/louisville-basketball-scandal-basketball-season-ticket-refunds/872945001/. ↩
Latest posts by Jake Plotnik (see all)
- Revised Tax Treatment for Net Operating Losses and Potential Effects - May 5, 2018
- A Tasty Tax Exclusion for Silicon Valley Employees - March 20, 2018
- Corruption Scandal in College Basketball - February 19, 2018