The FIFA corruption scandal has shaken the soccer world, and it is hard to tell how far the ramifications could go. According to the indictment, an unidentified sportswear company was involved in a bribery case, and there are strong signs to believe this could be none other than Nike (NYSE:NKE).
Nike is not specifically named in the indictment, but there are strong clues pointing in its direction. In 1996, Nike signed a landmark $200 million contract to sponsor the Brazilian national team for over a decade. This was a major move that propelled Nike into soccer in a big way, and the Department of Justice believes these negotiations may have included tens millions of dollars in bribes and kickbacks.
From the official press release:
Other alleged schemes relate to the payment and receipt of bribes and kickbacks in connection with the sponsorship of CBF -- Brazilian national soccer federation -- by a major U.S. sportswear company, the selection of the host country for the 2010 World Cup and the 2011 FIFA presidential election.
According to the investigators, the unnamed sportswear company had to deal with another company, The Traffic Group, in order to get the sponsorship deal approved. Traffic is a Brazilian sports marketing company whose founder, Jose Hawilla, has pleaded guilty to bribing FIFA officials in order to become the middleman between the organization and different sponsors who wanted to obtain contracts.
The indictment claims that "Sportswear Company A" agreed to pay a Traffic affiliate with a Swiss bank account an additional $40 million in base compensation on top of the $160 million it was obligated to pay to the Brazilian football federation.
Based on these investigations, from 1996 to 1999, Traffic invoiced the sportswear company for $30 million in payments. Hawilla then allegedly paid a big part of that money to high-ranking officials at FIFA, the South American football federation, and the Brazilian football federation.
How much did Nike know?
Let's assume for the sake of the argument that Nike is in fact the company mentioned in the indictment. After all, Nike did sign a major deal to sponsor Brazil in 1996, so this sounds like a distinct possibility. What would this say about the company and its involvement in the scandal?
Nike has denied any wrongdoings, and the company says it is cooperating with the authorities:
Like fans everywhere, we care passionately about the game and are concerned by the very serious allegations. Nike believes in ethical and fair play in both business and sport and strongly opposes any form of manipulation or bribery. We have been cooperating, and will continue to cooperate, with the authorities. The charging documents unsealed in Brooklyn do not allege that Nike engaged in criminal conduct. There is no allegation in the charging documents that any Nike employee was aware of or knowingly participated in any bribery or kickback scheme.
Nike has a valid point in saying that the company has not been directly accused of any misbehavior. The indictment also does not say that payments made from the sportswear company to The Traffic Group were illegal bribes. We only know that Traffic Group used that money to pay bribes to corrupt officials.
That said, this still raises some questions when it comes to Nike and its role in this case. Shouldn't the company have known, or at least felt suspicious about where that money was going? Paying tens of millions of dollars to an intermediary company through a Swiss bank account should probably raise some eyebrows as to what lies behind such an agreement.
From a legal point of view, Nike is probably not very exposed, at least according to the information currently available. However, some actions can be irresponsible, or perhaps even unethical, and the company's reputation is still at stake.
Andrés Cardenal owns shares of Apple. The Motley Fool recommends Apple and Nike. The Motley Fool owns shares of Apple and Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.