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College basketball's bribery scandal could turn into a nightmare for Adidas

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Adidas Adidas has been focusing on North America. Now that’s in jeopardy. Reuters/Hannibal Hanschke

The implication of one of Adidas’ head marketing execs en a college basketball bribery scandal couldn’t have come at a worse time for the German sportswear company.

Jim Gatto, the head of marketing for Adidas’ basketball division, is accused of using the company’s money to pay college-bound players to ensure they went to Adidas-sponsored schools and signed deals with Adidas when they went to the NBA. The investigation was led by the Department of Justice and the FBI.

Adidas has reoriented its entire business around North America, the largest sportswear market in the world, changing nearly everything — from manufacturing to product conception and design — to cater to North American tastes. The company 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’s Jordan subsidiary, and it has doubled its US market share, to 11%. Adidas has also posted growth figures in the range of 20% to 30% for North America in all earnings reports this year. The company’s goal is to reach $5.9 billion in sales by 2020.

But now, all those inroads in America could be in jeopardy. Though the complaint did not mention Adidas by name, the implication of the company — even the mention of Adidas next to “college basketball bribery” — could be a setback for its efforts.

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Adidas said in a statement on Monday that it was not aware of the scandal before the charges were brought and that was launching its own investigation.

“We became aware yesterday of the allegations and intend to cooperate with the relevant authorities,” an Adidas representative 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 sponsorships are in danger. The Courier-Journal reported that it was unclear what would happen with the company’s $160 million sponsorship deal with the University of Louisville, which was implicated in the investigation, though the complaint did not mention it by name. The deal is set to last 10 years starting in July 2018.

Gatto and others are accused of conspiring to pay $100,000 to the family of a student (who was not named in the complaint but is most likely Brian Bowen) in exchange for his playing at a public research university in Kentucky (presumed to be Louisville).

The school on Wednesday put its head men’s basketball coach on indefinite unpaid administrative leave.

Louisville’s deal is the sixth-largest in college sports and was the largest Adidas had signed until its most recent with the University of Kansas. Kansas, which has not been implicated in the scandal, has said it is monitoring Gatto’s charges. Kansas’ deal is for $191 million over 14 years, and it ranks as the fourth-largest.

Part of the reason for Adidas’ newfound success is its evolved reputation. It has 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 that reputation could vanish.

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