Adidas, which has close links to soccer governing body FIFA, faces allegations it helped Germany win the competition to host the 2006 World Cup. Yet the allegations, which it denies, have done little to dent its reputation or share price.
A few moments before kick-off in the 1970 World Cup final in Mexico between Brazil and Italy, Brazilian football legend Pelé asked the referee to wait before blowing the whistle because he had to tie his shoelaces. Millions of people watching the match on TV screens around the world saw a close-up of the shoe worn by the world’s best footballer — Puma’s “King” model.
The German sports equipment maker could not have dreamt of a better advert, and its national rival Adidas was livid, legend has it. The ploy marked the start of a soccer marketing war that continues to this day.
At first, the main combatants were Adidas and Puma. Later, Adidas did battle with U.S. competitor Nike.
They soon graduated from simple ploys such as Pelé’s lace-tying. In the early 1980s, Adidas founded the sports marketing company International Sport and Leisure, which nurtured close contacts with world soccer’s governing body, FIFA.
For years, ISL marketed the valuable broadcasting rights for the World Cup tournaments. Later it emerged that ISL managers had bribed leading sports officials for years.
ISL went bankrupt in 2001, but FIFA and Adidas still maintain close ties: Adidas is among FIFA’s five top sponsors and spends an estimated €30 million per year on its involvement with the organization.
There is a history of dubious ties between Adidas and sports officialdom.
That relationship has come under intense scrutiny following bribery allegations leveled by Germany’s Der Spiegel magazine, which suggested German soccer officials tapped a €6.7 million, or $7.6 million, slush fund in 2000 to buy votes for their successful bid to host the 2006 World Cup.
The money, Der Spiegel reported on Friday, had been loaned by the late Adidas chief executive Robert Louis-Dreyfus. Frankfurt’s state prosecutor said on Monday it would look into the allegations.
Der Spiegel said Mr. Louis-Dreyfus, acting in a private capacity, lent the money to the German bidding committee before the decision was taken to award the World Cup to Germany on July 6, 2000. The magazine said the loan never appeared in the budget of the bidding committee or of the subsequent World Cup organizing committee.
The report has been vehemently rejected by German soccer legend Franz Beckenbauer, head of the 2006 organizing committee, and Wolfgang Niersbach, the current president of the German Football Association (DFB). “There was no slush fund and no buying of votes,” Mr. Niersbach said on Monday. Adidas too said it was blameless and unaware of any such payment.
But there is a history of dubious ties between Adidas and sports officialdom. Mr. Louis-Dreyfus, who ran Adidas from 1993 until 2001, made a 15 million-mark (€7.67 million) loan guarantee to Uli Hoeness, the then-president of Bayern Munich football club, Germany’s largest. Mr. Hoeness used that money to play the stock market and later was sent to jail for tax evasion.
It’s never been established whether the money was part of a business deal or a corporate executive helping out a friend.
Adidas subsequently became a shareholder of FC Bayern AG, an unlisted company founded in 2001 for marketing, sponsoring and licensing the premier brand in German soccer.
The DFB and Adidas have been loyal team mates ever since West Germany won the 1954 World Cup in Switzerland, a seminal event in the history of the young post-war republic, desperate for a positive collective experience as the nation struggled to emerge from the rubble, the shame and the guilt of World War Two.
Ever since 1954, the DFB’s national strip has featured the three stripes of Adidas, powerful advertising for which the sports company pays €25 million per year. Soccer is key for Adidas because it’s the last sports bastion where it is still eye-to-eye with market leader Nike.
Robert Louis-Dreyfus was head of Adidas from 1993 to 2001. Source: Picture Alliance/Abaca
Last year Adidas generated €2.1 billion, or 15 percent of its total revenue, from sales of soccer strips and accessories.
The current chief executive of Adidas, Herbert Hainer, is a former protégé of Mr. Louis-Dreyfus and joined the company in 1987. He succeeded the Frenchman as head of Adidas in 2001. Mr. Hainer has always insisted that the company’s investment in FC Bayern, where it’s a shareholder alongside luxury carmaker Audi and insurer Allianz, was above board.
The Spiegel allegations that Germany bought FIFA votes to host the 2006 World Cup may have dealt Germany’s reputation for integrity a further blow just weeks after auto giant Volkswagen was forced to admit that it had fitted 11 million diesel cars with software designed to cheat emissions tests.
But unlike VW, which faces compensation claims from irate customers, the buyers of sports equipment seem untroubled by fraud allegations. In fact, they’re barely interested in such scandals.
Nike is a good example. The Oregon-based market leader remained loyal to U.S. cycling star Lance Armstrong for years even though he was suspected of doping. Nike only withdrew its support after Mr. Armstrong admitted he had doped.
Or there’s the case of Justin Gatlin. When the sprinter was banned from 2006 to 2010 for doping, Nike cancelled its contract with him. Now the American sprinter is back in the game and winning races, and Nike has returned as his sponsor — despite his troubled past.
Then there’s the case of Brazil. In 1996 Nike agreed a sponsorship deal with the Brazilian Football Confederation (CBF) worth $200 million over 10 years. All the money was supposed to be transferred straight to the CBF. But U.S. authorities found that $40 million was paid into the account of a go-between company which in turn paid half of that to an official within the CBF.
Such irregularities haven’t hampered Nike’s sprint to global market leadership. On the contrary, the brand with the swoosh has been growing at double-digit rates for years, is highly profitable and has just announced plans to boost revenues by two thirds in the next five years.
That might explain why Adidas has responded quite calmly to Der Spiegel’s allegations, even though sources at the company admit the report isn’t good for its reputation.
On the other hand, Adidas has been in the headlines for months because of its close connections with FIFA, which plunged into the biggest crisis of its 111-year history in May, when 14 soccer officials and sports marketing executives were indicted in the United States on bribery, money laundering and wire fraud charges involving more than $150 million in payments.
But the connection hasn’t hurt Adidas sales. A few days ago, Mr. Hainer said: “Adidas is really buzzing.”
That might explain why Adidas shareholders weren’t panicking on Monday. The stock fell a modest 0.3 percent following the new revelations. They’ve increased by a third this year.