The Global Soccer Industry and the Effect of the FI FA Scandal

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Ch apte r 8. Mini -Case

The Global Soccer Industry and the Effect of the FI FA Scandal

Th e Fédé ration Interna tiona le de Foo tba ll Assoc iation (FIFA) was founde d in Pa ris in 190 4 an d

was initially co mprise d of on ly Eu ropea n na tions . By W orld W ar II, FIFA ha d adde d a few Sou th

America n membe rs. Newly independen t states in Africa , As ia, an d the Caribbea n joine d later.

Howeve r, it con tinue d to be gove rne d “as thoug h it was an exc lus ive Eu ropea n club ”— un til 197 4

whe n Joã o Have lange , a Braz ilian , won the elec tion as FIFA’s pres iden t. Have lang e was ab le to

trans form the organ iza tion an d expan d the W orld Cup co mpetiti on to tea ms from na tion s ou tside

Eu rop e an d Sou th America an d mad e the tou rna men t a major money -mak ing en terprise . W ith

the amoun t of exposu re an d mone y invo lved , co mpan ies des ired sponso rsh ip righ ts becaus e of

the adve rtising po ten tial. Ad ida s AG an d Coca -Cola were origina l sponso rs. Have lang e also

ove rsa w sign ifican t inc rease s in revenu e from telev ision righ ts. In the process , Have lang e was

allege d to hav e pa rticipa ted in muc h co rrup tion an d even tua lly was suspec ted of amass ing $5 0

milli on in bribes .

Have lang e fac ilit ated the elec tion of Sep p Blatter who beca me FIFA pres iden t in 199 8 an d

con tinue d to follow Have lange ’s app roac h to po liti cs . After FIFA beca me a worldwide

organ iza tion , espec ially in deve lop ing coun tries in La tin America , Africa , an d the Caribbean ,

more allega tion s of co rrup tion su rfaced . One ana lys t sugges ted tha t “FIFA cou ld no t hav e

deve lope d socce r in poo rer coun tries withou t co rrup t prac tices .” Of cou rse , the re ha s also bee n

co rrup tion in more deve lope d coun tries , suc h as the United Kingdo m an d the United States ,

althoug h no rmally no t throug h blatan t bribe ry. On May 27 , 2015 , the United States Depa rtmen t of

Jus tice an d the FB I announce d a lon g list of ind ictmen ts, an d simultaneou s arres ts of FIFA

officials were mad e at the Zu rich FIFA mee ting s in Switze rland . Seve ral day s after the ind ictmen t,

thoug h he was no t officially ind icted , Blatter steppe d do wn from his lon g pres idenc y.

In orde r to unde rstan d the amoun t of exposu re an d mone y invo lved , an es timated on e billi on

peop le watche d at leas t so me of the 201 0 W orld Cup Fina l. In the sa me yea r the Nationa l

Foo tba ll League ’s Supe r Bo wl accu mulated on ly 114 .4 milli on worldwide viewers. Give n the

mass ive exposu re, it is no wonde r tha t sponso rs alon g with telev ision an d med ia ou tlets wan t to

be invo lved . Howeve r, sponso rs do no t wan t to be assoc iated with a large scanda l. Coca -Cola,

Ad idas , Nike , McDona ld’s, an d Hyunda i Motor were all sa id to be “deep ly conce rned ” abou t the

FB I allega tions — an d by ind ictmen ts brough t recen tly by the United States Depa rtmen t of Jus tice

aga ins t man y reg iona l an d coun try-leve l FIFA-affili ated execu tive s who were iden tifi ed as hav ing

pa rticipa ted in the allege d co rrup tion . Man y of the sponso rs are cau tiou s abou t suppo rting an organ iza tion tha t ha s bee n tainted

po liti ca lly suc h as FIFA. Appa ren tly, the way the co rrup tion ha s bee n pu rsue d is throug h

intermed iaries who are pa id exo rbitan t amoun ts for con trac ts tha t the y he lpe d to es tab lish ; thes e

intermed iaries funne l the bribe s to the leade rs of the reg iona l an d coun try FIFA- related

assoc iations . Fo r exa mple, in orde r for Nike to ge t a con trac t in the socce r-craze d coun try of

Braz il, it pa id a spo rts marke ting agenc y, Traffic Braz il, $3 0 milli on be twee n 199 6 an d 1999 ,

which Traffic Braz il used , in pa rt, for bribe s an d kick -backs . Th is allowed Nike to sign a 10 -yea r,

$16 0 milli on ag ree men t to beco me a co -sponso r of the CBF, the Braz ilian socce r con fede ration .

Nike ’s strateg ic inten t for the dea l was to be tter co mpe te with its ch ief ove rsea s riva l, Ad idas . In

2014 , the W orld Cup was he ld in Braz il, an d Nike ha d $2 .3 billi on in sa les of socce r produc ts, an

annua l inc reas e of 21 pe rcen t, co mpa red with $2 .29 billi on in sa les for Ad idas , which was up 20

pe rcen t ove r its prev iou s yea r. Thes e figu res illus trate ho w stron g the incen tive s are for sponso rs

as well as for med ia ou tlets to pa rticipa te; the adve rtising po ten tial an d se lling oppo rtun ities are

eno rmou s for thos e invo lved .

Howeve r, becaus e of the wea k ins titutiona l infras truc ture in man y coun tries aroun d the world

whe re the ga me of socce r is played , the re is oppo rtun ity for co rrup tion . Appa ren tly, man y

invo lve d in the FIFA infras truc ture globa lly, reg iona lly, an d within spec ific coun tries hav e take n

advan tag e of this oppo rtun ity. Fo r exa mple, Pa ragua y ha s bee n the headqua rters for the La tin

America n reg iona l con fede ration kno wn as CONM EB OL sinc e 199 8 whe n Nico lás Leoz , a

Pa raguaya n bus iness man an d pres iden t of the La tin America n Con fede ration , nego tiated to

hav e the con fede ration headqua rtered the re. As pa rt of the ag ree men t, he ob taine d

prosecu torial imm un ity for the organ iza tion throug h the Pa ragua y pa rliamen t. In essence , this

gav e the fede ration licens e to ac t in way s tha t wou ld protec t it aga ins t loca l law en force men t

officials, similar to loca l embass ies tha t hav e exe mption from prosecu tion in a pa rticu lar foreign

coun try. As such , this allowed the loca l con fede ration to pu rsu e dea ls unde r the tab le. Leo z was

cha rge d in the FIFA ind ictmen ts by the U.S. Depa rtmen t of Jus tice , alon g with 13 othe r FIFA

officials, of bribe ry an d mone y launde ring sche mes related to fund s he rece ive d from spo rts

marke ting firms du ring his tenu re at CONM EB OL. Interes ting ly, following the ind ictmen t,

Pa raguay ’s cong res s move d qu ick ly to repea l the prosecu torial imm un ity for the CONM EB OL

fede ration .

Like wise , man y othe r lega l an d inves tiga tive organ iza tion s in Switze rland , La tin America , an d

aroun d the world, inc lud ing INTE RPOL, an interna tiona l inves tiga tion organ iza tion , hav e begu n

to initiate the ir own enqu iries . Man y fan s in the socce r world hav e bee n exc ited abou t thes e

ind ictmen ts becaus e the y felt tha t the co rrup tion was hu rting the ga me. Peop le were profiti ng in

illega l way s tha t tainted man y organ iza tion s assoc iated with the ga me of socce r. Th is ou tline s a

main dange r of working in coun tries whe re man y pa rticipa te in co rrup t prac tice s ind irec tly sponso red by the gove rnmen t. Th is is no t to sa y officials in more deve lope d gove rnmen ts are no t

also co rrup t, bu t the rule of law is no t as stron g in man y deve lop ing coun tries .

Sou rces : 2015 , A timeline of the FIFA scanda l, Lo s Ange les Times, ww w.latimes .co m, Jun e 2; P.

Blake , 2015 , FIFA scanda l: W hy the US is po licing a globa l ga me, BB C News, ww w.bbc .co m,

May 28 ; M. Fu tterman , A. Viswana tha , & C. M. Matthe ws, 2015 , Socce r’s geyse r of cash , W all

Stree t Jou rna l, May 28 , A1 , A10 ; S. Germano , 2015 , Nike is coope rating with inves tiga tors, W all

Stree t Jou rna l, May 28 , A11; P. Ke irnan , R. Je lmaye r, & L. Maga lhaes , 2015 , Socce r bos s

lea rne d rope s from his Braz ilian men tor, W all Stree t Jou rna l, May 30 –31 , A4 ; K. Malic, 2015 , Th e

co rrup tion rhe toric of the FIFA scanda l, New York Times , ww w.ny times .co m, Jun e 16 ; S. S.

Munoz , 2015 , FIFA pro sho ws socce r state within a state, W all Stree t Jou rna l, Jun e 20 –21 , A7 ; S.

Vran ica , T. Mick lel, & J. Rob inson , 2015 , Scanda l pressu res socce r’s sponso rs, W all Stree t

Jou rna l, May 29 , A1 , A8 ; A. Viswana tha , S. Germano , & P. Ko wsmann , 2015 , U.S. probe s Nike

Braz il mone y, W all Stree t Jou rna l, Jun e 13 –14 , B1 , B4 ; M. Yg les ias & J. Strombe rg, 2015 , FIFA’s

hug e co rrup tion an d bribe ry scanda l, exp lained , VOX, ww w.vox .co m, Jun e 3; C. Zillman , 2015 ,

Here’s ho w major FIFA sponso rs are reac ting to the scanda l, Fo rtune , ww w.fortune .co m, May

28 .

Cas e Discuss ion Ques tion s

1. How doe s the FIFA scanda l rep resen t a form of po liti ca l risk for co mpan ies ope rating in foreign

coun tries ?

2. W ha t are the bene fits to co mpan ies suc h as Nike an d Coca -Cola ac ting as sponso rs of socce r

organ iza tion s in foreign coun tries ?

3. W ha t interna tiona l strateg y is be ing use d by the major co mpan ies ho lding thes e sponso rsh ips ?

Pleas e exp lain.

4. Give n the proces s desc ribe d for ga ining sponso rsh ips (e.g., throug h spo rts marke ting

agenc ies ), shou ld Nike an d othe r major co mpan ies rea lize tha t bribe s an d othe r co rrup t

prac tice s were tak ing place ?

5. How ca n co mpan ies hand le co rrup t prac tice s in foreign prac tices ? Can the y find way s to

co mpe te the re withou t engag ing in thes e prac tices ? Pleas e exp lain.