BUSINESS

FIFA probe puts a spotlight on the role of Traffic Sports and other sports marketing firms

05/28/2015 04:21 EDT | Updated 05/28/2016 05:59 EDT
NEW YORK, N.Y. - The U.S. Justice Department's targeting of FIFA, soccer's global governing body, has put a spotlight on the powerful role that marketing firms play in the global sports arena.

Such firms act like talent agencies: They work with athletes, teams and athletic associations to sign sponsorships and advertising deals. In some cases, they buy and resell media and licensing rights.

Big names in the United States include IMG, which was acquired last year by talent agency William Morris Endeavor, and Learfield Sports.

The big four U.S. pro team sports organizations — the National Basketball Association, the National Football League, Major League Baseball and the National Hockey League — sell their broadcasting rights directly to networks. But for many other sports events — from college football to the Olympics to soccer tournaments — third-party agencies often handle the marketing and media rights.

The Justice Department's allegations against one such agency — Miami-based Traffic Sports USA, whose parent, Traffic Group, is based in Sao Paulo, Brazil — illustrate the potential for corruption.

Most experts caution that, outside of FIFA , such corruption isn't likely widespread in the United States. Criminal violations are more likely when the third-party agencies buy rights in smaller countries and when government oversight is especially lax.

Here's how the deals typically work:

A sports marketing company will pay a set amount to acquire rights to a sports event. The company will then try to sell those rights at a profit to corporations and broadcasters.

"If I'm a university producing a soccer tournament, I don't have to sell sponsorships or produce a radio broadcast — I've outsourced all of that," said Jim Andrews, senior vice-president at sponsorship research firm IEG.

In Traffic's case, according to authorities, executives paid FIFA officials bribes and kickbacks to ensure that Traffic acquired the media and marketing rights associated with soccer tournaments and soccer federations in the United States and other parts of the CONCACAF region — The Confederation of North, Central America and Caribbean Association Football, which is part of FIFA.

For example, according to the indictment, a Traffic executive paid the president of the Venezuelan soccer federation a $1 million bribe in 2007 to ensure that it kept its hold on TV and sponsorship rights for the Copa America, hosted by Venezuela that year.

The indictment alleges that in the 1990's, as soccer's popularity rose in the United States and rights to games became increasingly valuable, the schemes expanded.

"Over time, all of these major tournaments have gotten much more lucrative," Andrews said. "Audiences are bigger, and you can broadcast to an international audience a lot easier than we could 20 year ago, which means a lot more money."

Traffic is only one of several sports marketing agencies involved in the corruption, according to the indictment. Others include Full Play and Torneos y Competencias S.A., based in Argentina, and an unnamed marketing agency based in New Jersey.

"When you start dealing with huge amounts of money, it's natural that more and more people will want to try to get a piece of these deals," said Carlos Eduardo Silva, a marketing professor at the Mackenzie University in Brazil.

He added, though: "These deals are much more exposed than they used to be, and it's a lot easier to scrutinize them."

The founder of Traffic Group, Jose Hawilla, pleaded guilty to numerous charges ahead of the indictment. Traffic Group's U.S. president, Aaron Davidson, is among those who have been indicted. Hawilla agreed to repay $151 million, $25 million of which was paid at the time of his plea.

Two security officers stood in front of Traffic's offices in an upscale Sao Paulo neighbourhood Thursday, turning away reporters and television crews. No one without an appointment was allowed inside.

Calls to the company went unanswered, and a law firm hired by Traffic didn't immediately return requests for comment.

Riccardo Silva, founding partner of MP & Silva, a rival sports marketing agency not involved in any of the allegations, said it was frustrating to compete with Traffic in Latin America.

"We participated in some auctions with them, and we never won," he said. "Objectively, we had a feeling that we could really never compete on items like the CONCACAF Champions League."

In 15 years of business, his agency never won any media or licensing rights from CONCACAF OR CONMEBOL, the South American Football Confederation, even though it won rights for federations in Asia, Europe and the Middle East, Silva said.

"Everyone knew there were preferential relationships between CONCACAF and Traffic, and between CONMEBOL and Full Play," Silva said. "Now whether those relationships were built on trust and confidence or something else, I don't know. But it was clear that it was impossible to compete with them."

Despite how widespread the bribery and kickback schemes appear to be in the indictment, corruption is not rampant in the sports marketing industry in the United States, suggested Carrie LeCrom, executive director of the Center for Sport Leadership at Virginia Commonwealth University.

"It's not something we've commonly seen," she said. "There's some wining and dining as the price of business, but it's not as overt as offering people bribes."

___

Associated Press Writers Andrew Dampf in Rome and Tales Azzoni in Sao Paulo contributed to this report.