What Impact Could College Athletic Scandals Have on Sneaker Brands?

While scandals in college athletics are not entirely new, the headlines that broke Sept. 26, 2017, created an unusual level of unrest in men’s basketball and the sneaker industry. This time, a major brand was in the spotlight, and federal authorities were involved.

According to court documents, Adidas’ director of global sports, Jim Gatto, was allegedly involved in helping the family of top high school basketball recruit Brian Bowen II receive up to $100,000 for his commitment to play for the University of Louisville, an Adidas school. The FBI investigation of these alleged actions resulted in charges of fraud, bribery and corruption.

Such misdeeds, if they occurred, would also have violated NCAA amateurism rules.

In the months that have followed, the scope of the investigation has grown to include more universities and sports companies, revealing a widespread pattern of questionable recruitment and enticement activities.

On the eve of the NCAA tourney, the scandal’s repercussions are unclear.

In recent weeks, Yahoo! Sports has revealed that more than 25 athletes, both past and present, and at least 20 top-tier basketball programs, are listed in new federal documents obtained by the news source. The schools with ties to the recent reports include Utah (an Under Armour school), Nike-backed programs such as Duke and Wichita State, and Adidas-sponsored Kansas.

When contacted by FN, many of the institutions were quick to address the accusations.

“We are dedicated to conducting all aspects of Wichita State’s intercollegiate athletic programs with integrity and in full compliance with NCAA and American Athletic Conference rules,” the school said in an email to FN. “We have no knowledge of the transactions described in the Yahoo! report published [Feb. 23]. We will fully cooperate with any formal inquiries from NCAA or legal authorities regarding this matter.”

Meanwhile, a statement sent to FN from Under Armour simply said: “We are monitoring this story very closely, [but] Under Armour believes it would be premature to comment.” Requests for remarks from Nike and the NCAA were not returned.

Adidas, though, has taken more decisive action. The firm told FN, “Following the allegations, we immediately engaged outside counsel to conduct a thorough investigation of our grassroots and college basketball programs. We continue to fully cooperate with the authorities. Pending the internal investigation, we’ve put the individual charged on administrative leave and have terminated any consulting relationships related to the allegations. In light of the U.S. government investigation, which is still ongoing, we cannot provide more details at this time. We will certainly not hesitate to take additional actions to strengthen our processes to help prevent such occurrences from happening in the future.”

Free Throw

While brands are willingly throwing money around in the college sports world — and the institutions are willing to take it — the NCAA does not allow student-athletes to receive financial compensation.

NCAA rules state: “If a college-bound student-athlete is paid for appearing in a commercial or receives an endorsement before he or she is accepted at an NCAA member school, his or her eligibility could be affected. … If the college-bound student-athlete was chosen to participate because of his or her athletic ability, he or she may not be paid.”

Those amateurism rules have been the subject of decades-long debates, and for many insiders, it’s where the problems begin.

college basketball pitt louisville
College athletes from Pitt and Louisville.

Former basketball star Ed O’Bannon, the Most Outstanding Player of UCLA’s 1995 championship team, is perhaps best known today for winning an antitrust class-action lawsuit against the NCAA in 2014 for its use of student-athletes’ images for commercial purposes.

He now believes that his fight with the NCAA is directly related to the payment scandal that’s making headlines today. “The biggest point in our lawsuit was controlling your likeness, whether you’re a former or current athlete,” O’Bannon said. “So if Adidas wants to sponsor a kid coming out of high school when they go to a [college], Adidas should be able to do that, because the kid controls his or her likeness. And if they control their likeness, then they can accept any sponsorships, whether it’s a shoe company or a yogurt brand or a car company.”

Famed sports marketing executive Sonny Vaccaro agrees.

Vaccaro, who helped NBA icon Michael Jordan get his first sneaker deal with Nike, got the ball rolling on business relationships between college coaches and footwear brands in 1977. He told FN that the answer for labels to steer clear of scandals today is by paying athletes.

“When I did the deal with the universities — with Jerry Tarkanian [at UNLV], Eddie Sutton [at Arkansas], John Thompson [at Georgetown] and all those first guys — we didn’t break any laws. It was a business deal. Everybody’s allowed to do a business deal for the athletes’ value except the athlete, because of amateurism,” Vaccaro said. “The athletes deserve something, and maybe if they were allowed to get money legally, things like this wouldn’t happen.”

Bank Shot

The investigations into the student-athlete payments are ongoing, so it is too early to predict the outcome for the individuals involved, much less the larger sports community.

But as Adidas noted, Gatto has been put on leave from his executive position. And the athlete in question, Bowen, transferred to South Carolina (an Under Armour school) but is not playing during his freshman season.

The NCAA recently stripped the University of Louisville of its 2013 men’s basketball national championship and vacated 123 of its wins as the result of an unrelated scandal involving an assistant coach providing prostitutes and strippers to players and recruits.

As for long-term impacts for the sneaker companies, industry insiders believe brands need not worry. “So far, the public hasn’t shown that it cares, in terms of taking business from a brand,” said Matt Powell, senior industry adviser for sports with The NPD Group Inc. “When the scandal broke, I was watching it very closely, and it seemed as if Adidas sales got better right after.”

Added Vaccaro, “It’s business as usual tomorrow. People don’t care.”

But aside from the lack of consumer reaction, brands have another reason to stay the course with sponsorships. Having ties to colleges is big business for the athletic footwear and apparel giants. Just ask Under Armour, which in May 2016 signed a 15-year, $280 million deal with UCLA, the largest such sponsorship in college sports history.

According to retail sales data resource The Licensing Letter, licensed collegiate brand-based merchandise transactions in the U.S. and Canada — apparel included — grew to $3.51 billion in 2016, from $3.35 billion in 2014.

And the sneakers the players are wearing on the court, mostly signature styles from big-name pros, are part of what NPD has measured as a $19.6 billion athletic footwear industry.

“The brands are getting advertising exposure with their logo on the uniform, so there’s a dollar value you could put on that,” Powell said. “It’s about getting your logo on SportsCenter and in photographs. And they clearly have justified it in their minds that they’re getting benefits for this, even though they’re spending millions of dollars.”

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