Mini-Case The Global Soccer Industry and the Effect of the FIFAScandal The Fdration Internationale de Football Association

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Mini-Case The Global Soccer Industry and the Effect of the FIFAScandal
The Fédération Internationale de Football Association (FIFA) wasfounded in Paris in 1904 and was initially comprised of onlyEuropean nations. By World War II, FIFA had added a few SouthAmerican members. Newly independent states in Africa, Asia, and theCaribbean joined later. However, it continued to be governed “asthough it was an exclusive European club”—until 1974 when JoãoHavelange, a Brazilian, won the election as FIFA’s president.Havelange was able to transform the organization and expand theWorld Cup competition to teams from nations outside Europe andSouth America and made the tournament a major money-makingenterprise. With the amount of exposure and money involved,companies desired sponsorship rights because of the advertisingpotential. Adidas AG and Coca-Cola were original sponsors.Havelange also oversaw significant increases in revenue fromtelevision rights. In the process, Havelange was alleged to haveparticipated in much corruption and eventually was suspected ofamassing $50 million in bribes.

Havelange facilitated the election of Sepp Blatter who becameFIFA president in 1998 and continued to follow Havelange’s approachto politics. After FIFA became a worldwide organization, especiallyin developing countries in Latin America, Africa, and theCaribbean, more allegations of corruption surfaced. One analystsuggested that “FIFA could not have developed soccer in poorercountries without corrupt practices.” Of course, there has alsobeen corruption in more developed countries, such as the UnitedKingdom and the United States, although normally not throughblatant bribery. On May 27, 2015, the United States Department ofJustice and the FBI announced a long list of indictments, andsimultaneous arrests of FIFA officials were made at the Zurich FIFAmeetings in Switzerland. Several days after the indictment, thoughhe was not officially indicted, Blatter stepped down from his longpresidency.

In order to understand the amount of exposure and moneyinvolved, an estimated one billion people watched at least some ofthe 2010 World Cup Final. In the same year the National FootballLeague’s Super Bowl accumulated only 114.4 million worldwideviewers. Given the massive exposure, it is no wonder that sponsorsalong with television and media outlets want to be involved.However, sponsors do not want to be associated with a largescandal. Coca-Cola, Adidas, Nike, McDonald’s, and Hyundai Motorwere all said to be “deeply concerned” about the FBIallegations—and by indictments brought recently by the UnitedStates Department of Justice against many regional andcountry-level FIFA-affiliated executives who were identified ashaving participated in the alleged corruption.

Many of the sponsors are cautious about supporting anorganization that has been tainted politically such as FIFA.Apparently, the way the corruption has been pursued is throughintermediaries who are paid exorbitant amounts for contracts thatthey helped to establish; these intermediaries funnel the bribes tothe leaders of the regional and country FIFA-related associations.For example, in order for Nike to get a contract in thesoccer-crazed country of Brazil, it paid a sports marketing agency,Traffic Brazil, $30 million between 1996 and 1999, which TrafficBrazil used, in part, for bribes and kick-backs. This allowed Niketo sign a 10-year, $160 million agreement to become a co-sponsor ofthe CBF, the Brazilian soccer confederation. Nike’s strategicintent for the deal was to better compete with its chief overseasrival, Adidas. In 2014, the World Cup was held in Brazil, and Nikehad $2.3 billion in sales of soccer products, an annual increase of21 percent, compared with $2.29 billion in sales for Adidas, whichwas up 20 percent over its previous year. These figures illustratehow strong the incentives are for sponsors as well as for mediaoutlets to participate; the advertising potential and sellingopportunities are enormous for those involved.

However, because of the weak institutional infrastructure inmany countries around the world where the game of soccer is played,there is opportunity for corruption. Apparently, many involved inthe FIFA infrastructure globally, regionally, and within specificcountries have taken advantage of this opportunity. For example,Paraguay has been the headquarters for the Latin American regionalconfederation known as CONMEBOL since 1998 when Nicolás Leoz, aParaguayan businessman and president of the Latin AmericanConfederation, negotiated to have the confederation headquarteredthere. As part of the agreement, he obtained prosecutorial immunityfor the organization through the Paraguay parliament. In essence,this gave the federation license to act in ways that would protectit against local law enforcement officials, similar to localembassies that have exemption from prosecution in a particularforeign country. As such, this allowed the local confederation topursue deals under the table. Leoz was charged in the FIFAindictments by the U.S. Department of Justice, along with 13 otherFIFA officials, of bribery and money laundering schemes related tofunds he received from sports marketing firms during his tenure atCONMEBOL. Interestingly, following the indictment, Paraguay’s congress moved quickly to repeal the prosecutorial immunity for theCONMEBOL federation.

Likewise, many other legal and investigative organizations in Switzerland, Latin America, and around the world, includingINTERPOL, an international investigation organization, have begunto initiate their own enquiries. Many fans in the soccer world havebeen excited about these indictments because they felt that thecorruption was hurting the game. People were profiting in illegalways that tainted many organizations associated with the game ofsoccer. This outlines a main danger of working in countries wheremany participate in corrupt practices indirectly sponsored by thegovernment. This is not to say officials in more developedgovernments are not also corrupt, but the rule of law is not asstrong in many developing countries.

Sources: 2015, A timeline of the FIFA scandal, Los AngelesTimes, www.latimes.com, June 2; P. Blake, 2015, FIFA scandal: Whythe US is policing a global game, BBC News, www.bbc.com, May 28; M.Futterman, A. Viswanatha, & C. M. Matthews, 2015, Soccer’sgeyser of cash, Wall Street Journal, May 28, A1, A10; S. Germano,2015, Nike is cooperating with investigators, Wall Street Journal,May 28, A11; P. Keirnan, R. Jelmayer, & L. Magalhaes, 2015,Soccer boss learned ropes from his Brazilian mentor, Wall StreetJournal, May 30–31, A4; K. Malic, 2015, The corruption rhetoric ofthe FIFA scandal, New York Times, www.nytimes.com, June 16; S. S.Munoz, 2015, FIFA pro shows soccer state within a state, WallStreet Journal, June 20–21, A7; S. Vranica, T. Micklel, & J.Robinson, 2015, Scandal pressures soccer’s sponsors, Wall StreetJournal, May 29, A1, A8; A. Viswanatha, S. Germano, & P.Kowsmann, 2015, U.S. probes Nike Brazil money, Wall Street Journal,June 13–14, B1, B4; M. Yglesias & J. Stromberg, 2015, FIFA’shuge corruption and bribery scandal, explained, VOX, www.vox.com,June 3; C. Zillman, 2015, Here’s how major FIFA sponsors arereacting to the scandal, Fortune, www.fortune.com, May 28.

Case Discussion Questions
How does the FIFA scandal represent a form of political risk forcompanies operating in foreign countries?

What are the benefits to companies such as Nike and Coca-Cola acting as sponsors of soccer organizations in foreigncountries?

What international strategy is being used by the major companiesholding these sponsorships? Please explain.

Given the process described for gaining sponsorships (e.g.,through sports marketing agencies), should Nike and other majorcompanies realize that bribes and other corrupt practices weretaking place?

How can companies handle corrupt practices in foreign practices?Can they find ways to compete there without engaging in thesepractices? Please explain.