College basketball's bribery scandal could turn into a nightmare for Adidas
One of Adidas' head marketing execs being implicated in a college basketball bribery scandal couldn't have come at a worse time for the German sportswear company.
According to an investigation by the Department of Justice and the FBI, Jim Gatto, the head of marketing for Adidas' basketball division, paid out sums of the company's money to college-bound players to ensure they go to Adidas-sponsored schools and sign deals with Adidas when they go to the NBA. Adidas was not specifically mentioned by name in the criminal complaint.
Adidas has reoriented its entire business around North America — the largest sportswear market in the world. It's changed nearly everything, from manufacturing to product conception and design, to cater to North American tastes. The company as a whole has moved closer to the customer, and the brand is now trying to create exactly what the customer wants when they want it.
This approach has borne fruit, and the company has seen some success. It now sells more shoes in the US than Nike subsidiary Jordan, and it has doubled its US market share to 11%. Adidas has also posted growth numbers in the 20%-30% range for North America in all earnings reports this year. Still, the company's goal is to reach $5.9 billion in sales by 2020, so it still has a ways to go.
But now all those inroads in America could be in jeopardy. The implication of the company — really even the mention of Adidas next to "college basketball bribery" — can be considered nothing but a setback for the company's efforts.
For its part, Adidas said in a statment on Monday that it was not aware of the scandal before the charges were brought, and that is launching its own investigation.
"We became aware yesterday of the allegations and intend to cooperate with the relevant authorities," an Adidas spokesperson told Business Insider on Wednesday. "The employee has been put on administrative leave and the company has engaged outside counsel to conduct a thorough investigation. In all aspects of our business, Adidas is committed to compliance and ethical business practices."
There is also some speculation that Adidas' college sponsorship programs are in danger. The $160 million sponsorship deal with Adidas and the University of Louisville may be sunk, according to the Courier-Journal. The deal was set to last 10 years and is due to take effect in July 2018.
Though it wasn't mentioned by name, Louisville was implicated in the scandal. According to the complaint, Gatto and others named in the criminal complaint gave $100,000 to an unnamed student (likely Brian Bowen) in exchange for playing at Louisville. Its head coach was put on indefinite unpaid administrative leave by the school on Wednesday.
Louisville's deal is the sixth-largest in college sports and was the largest Adidas had signed until its most recent with Kansas University. KU, which has not been implicated in the scandal, has said it is "monitoring" Gatto's charges. KU's deal was for $191 million over 14 years, and it ranks as the fourth-most expensive.
There are still many in the US who aren't aware of Adidas' relatively new efforts. Their conception of the brand after hearing about the scandal will not be a positive one.
Part of the reason for Adidas' newfound success is its evolved reputation. It's courted fashion trendsetters and lifestyle gurus to help turn it into a "cool" brand. If the scandal grows, it's not hard to see how Adidas' cool reputation could vanish.
NOW WATCH: Sneaker fanatics are driving a massive $1 billion resale market
No comments: