For What It’s Worth…An occasional discussion of business valuation, forensic accounting and fraud.
Is nothing sacred?
Like many Americans, soccer (or football, as the rest of the world calls it) conjures images in my mind of a dozen or so youngsters chasing after a ball in the blazing sun like some kind of oversized amoeba while parents shout “encouragement” from the sidelines. But soccer is big business. The Fédération Internationale de Football Association (FIFA) is the worldwide oversight body for the sport. Consisting of 209 national member associations, FIFA controls the premier athletic event – the World Cup, which captures an average audience of 3.5 billion viewers. For the 2011-2014 World Cup cycle, FIFA reported revenue of around $5.7 billion. About 70% of that came from the World Cup itself. With big money, comes big temptation and big opportunity.
Last week, Swiss law enforcement officers raided the Baur au Lac hotel in Zurich, arresting seven FIFA officials in conjunction with a U.S. Justice Department indictment that accuses 14 people, including five executives of FIFA’s corporate sponsors, of racketeering, conspiracy and corruption. According to the indictment, over the past 25 years, the defendants and their co-conspirators solicited and received over $150 million in bribes and kickbacks in exchange for assigning broadcast and other marketing rights to the sports marketing executives who paid the bribes. Separate from the individual defendants’ criminal liability, major international corporations may also face exposure as this scandal unfolds.
The U.S. Foreign Corrupt Practices Act of 1977 (FCPA) prohibits U.S. citizens and foreign issuers of securities traded in U.S. securities markets from offering anything of value to a foreign official. The FCPA’s language is broad; a foreign official need not hold elected office. While FIFA, itself, is not a governmental entity, the delegates from the various member associations may also be government officials. For example Salman Bin Ebrahim Al Khalifa, the FIFA delegate from Bahrain, is a member of the Bahrainian royal family. Other FIFA representatives may also have ties to foreign governments, making the bribery allegations potential FCPA violations.
According to the indictment, in 1996, “a major U.S. sportswear company” obtained sponsorship of the Brazilian national soccer team through bribes. According to the indictment, Traffic Brazil, a local sports marketing firm, invoiced the multinational sportswear company tens of millions of dollars in extra “marketing fees,” which were, in turn, used for bribes.
Unconfirmed speculation is that the unnamed company is Nike, Inc. Nike’s sponsorship of the Brazilian team is part of a global strategy that catapulted its soccer based revenues from $40 million in 1994 to $2.2 billion in 2014, or about 10% of the company’s global revenue.
Stay tuned … it appears that the story of corruption in international soccer has only begun to unfold.