Nike Inc.'s entanglement with the biggest scandal in the soccer
world began with a headlong plunge into unfamiliar territory two
decades ago.
Fresh off the U.S.-hosted World Cup and desperate for a real
foothold in the world's most popular sport, Nike's top officials
aggressively pursued an endorsement with Brazil's soccer
federation. The effort culminated in a $200 million 10-year deal in
1996 that was staggering in size and put soccer powerhouse Adidas
AG on notice that it faced a real competitor.
Signaling its importance to the company, the agreement was
signed by Nike co-founder Philip Knight, President Tom Clarke,
soccer chief Sandy Bodecker and soccer sports-marketing director
Cees van Nieuwenhuizen, according to a translation of the contract
in the record of a Brazilian parliamentary inquiry that took place
in 2001.
But interviews with people involved in soccer marketing at the
time of the deal indicate that Nike entered a country—and
the top echelon of a sport—without much knowledge about
how deals there were negotiated. The result was missteps that
ultimately caught Nike up in a far-ranging U.S. investigation of
corruption at the International Federation of Association Football,
or FIFA, soccer's governing body.
Nike's contract, according to the Brazilian translation, says
the company was to pay the Brazilian soccer federation directly,
not a middleman working on its behalf. A 161-page indictment made
public last week, however, alleges in a barely veiled reference to
Nike that $30 million of the sponsorship pact was paid out through
a side deal between the company and a middleman. The middleman used
part of that money to pay bribes, the indictment alleges.
A person familiar with the matter confirmed the company is
Nike.
Nike isn't named in the indictment, and neither it nor any of
its executives have been charged with wrongdoing. The company said
it is cooperating with authorities. It declined to make Messrs.
Clarke, Bodecker or Knight available for comment. Efforts to reach
Mr. van Nieuwenhuizen were unsuccessful.
Nike wouldn't comment on specific issues raised in this article.
In a 1997 interview with The Wall Street Journal, Mr. Knight
indicated the company's introduction to big soccer had been a
learning experience.
"We were surprised a little bit in terms of soccer politics and
how business is done in that world," he said. "In some ways it is
the most political of all the sports."
The indictment sheds light on how the big-money business of
soccer created big risks for its sponsors. Spurred by the deal,
Nike now reaps about $2.3 billion in revenue from soccer, neck and
neck with Adidas. In 2014, the company sponsored more World Cup
teams than its German rival.
But the people Nike negotiated with to secure the Brazilian
sponsorship now are under scrutiny by law-enforcement authorities,
and the bribery allegations against senior officials of FIFA have
cast a long shadow over Nike's signature win.
Steve Miller, who spent much of the 1990s working in Nike's
sports-marketing department, said the company went "totally blind"
into a region where it had few people on the ground.
"Brazil was a place where we had no serious engagement, we did
not have a head of Brazil," Mr. Miller said.
Nike appeared to be out of the race in soccer by the mid-1990s,
and finding a way back in was a priority, according to interviews
with current and former executives in the sports-marketing
industry. The company set its sights on Brazil, and when Nike
landed the Brazilian team, the soccer-marketing community buzzed
about its willingness to pay up.
Doug Logan, who served as commissioner of Major League Soccer
from 1995 until 1999, said the deal reset expectations. "It meant
that our shoe suppliers and apparel suppliers were going to have to
up the ante," he said.
Peter Moore, a onetime Nike employee who was chief executive of
Adidas America from 1994 to 1998, said the deal was the turning
point at which the company first began to take Nike seriously in
soccer, its "mother sport."
But there was fallout as well. To secure the deal in Brazil,
Nike had to negotiate with a middleman—called Traffic
Brazil—which was the marketing agent for the Brazilian
soccer federation, CBF. The owner of Traffic Brazil, Jose Hawilla,
whose name also appears as a signatory to the contract, has
admitted to crimes including money laundering, fraud and extortion
related to the broad soccer probe. Information accompanying his
guilty plea includes a veiled description of the Nike deal.
Nike's negotiating counterpart at the Brazilian federation was
Ricardo Teixeira, who also appears as a signatory to the contract.
He isn't named in the FIFA indictment, which refers to the
federation's negotiator and signatory as "Co-Conspirator #11."
Mr. Teixeira's whereabouts aren't known.
The FIFA indictment discusses Nike's pursuit of the contract in
some detail, though it doesn't name the company, referring only to
"Sportswear Company A," which it describes as a multinational
sportswear company based in the U.S. Information filed in Mr.
Hawilla's plea added further detail.
According to the documents, a federation official, Mr. Hawilla
of Traffic Brazil, and four representatives of the company met in
New York to sign off on a 44-page endorsement agreement that
required the company to pay $160 million over 10 years.
"Nike won't be asked to pay any remuneration to Traffic, in
accordance to this contract," the contract says, according to the
Brazilian parliament's translation. "CBF will be responsible for
all payments to Traffic, in accordance to this agreement."
Yet, according to the indictment, there were other financial
terms that weren't reflected in that agreement: Sportswear Company
A agreed to pay a Traffic affiliate with a Swiss bank account an
extra $40 million in compensation. Three days after the main
contract was inked, a representative of the company signed a
one-page agreement with Traffic that said the Brazilian federation
had authorized Traffic to invoice the company directly. Traffic
invoiced the company for $30 million over the next three years,
some of which Traffic paid as bribes and kickbacks, the indictment
alleges.
Mr. Miller, who left Nike around the turn of the millennium,
said he didn't have any reason to believe Nike did anything illegal
in its Brazilian deal.
And for all the fallout, the endorsement has paid off for
Nike.
The company sponsored five national teams at the time the
Brazilian deal was announced, according to a news report at the
time. In the last World Cup, Nike sponsored 10 teams to Adidas's
nine.
Sonny Vaccaro, a prominent sports-marketing executive who worked
at both Nike and Adidas, said the Brazilian deal was the turning
point. "That's the last time Adidas owned the world," he said.
Write to Sara Germano at sara.germano@wsj.com and Patricia
Kowsmann at patricia.kowsmann@wsj.com
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