By Aruna Viswanatha in Washington, Sara Germano in New York and Patricia Kowsmann in Lisbon
U.S. authorities are examining payments made by Nike Inc. under
a groundbreaking 1996 soccer sponsorship with Brazil for possible
evidence of any wrongdoing by the company in addition to its
counterparts in the deal, people familiar with the matter said.
The examination indicates the company is still of interest as
the Justice Department pursues its wide-ranging probe of corruption
in the global soccer business.
Allegations of corruption around Nike's 10-year, $160 million
agreement to sponsor Brazil's national team are discussed in barely
veiled terms in the Justice Department's 161-page indictment of
officials in and around soccer's governing body, FIFA.
The indictment describes a multinational U.S. sportswear company
that struck a deal to sponsor the Brazilian federation, and then
cut a side deal with a sports-marketing middleman, who allegedly
used payments from the company for bribes and kickbacks. The people
familiar with the matter confirmed the company is Nike.
Nike said the indictment doesn't allege that the company or its
employees engaged in criminal activity and said it is committed to
ethical behavior.
"We have been cooperating, and will continue to cooperate, with
the authorities," the company said in an email.
Nike's negotiating counterparts at the Brazilian soccer
federation CBF and the middleman, Traffic, are described in the
indictment as unindicted co-conspirators. The indictment doesn't
discuss Nike or any of its employees by name.
The inquiry by U.S. prosecutors has raised questions about a
deal that was a crucial win for Nike. At the time, the company was
widely seen as out of the race in soccer. But it pushed boldly into
Brazil in an effort to sign the reigning world champions and gain
clout in the sport. The Brazilian contract helped drive Nike's
revenue and sponsorship heft in soccer to where it is today:
neck-and-neck with rival Adidas AG.
People involved the sports-marketing business at the time said
in recent interviews that Nike rushed into the top echelon of a
sport and into a country that it didn't understand very well.
Questions about the deal began long before U.S. authorities
began their probe. The Brazilian Federal Accounting Office audited
CBF's accounts around the turn of the millennium and found
anomalies with payments made by Nike to the Brazilian federation,
according to the records of a Brazilian parliamentary commission
that held an inquiry into the deal at that time.
The agreement called for Nike to make scheduled payments
directly to the CBF via its account at Banco Real, according to a
translation of a copy of the agreement in the commission's
records.
But the audit found that Nike sometimes routed payments via
different accounts, according to a translation of the audit report
included in the committee's records.
"There were several banking transactions that weren't done
directly to that account, instead going through a triangulation
through banks, whose goal should be better explained," the
translation of the audit report copy says.
The report doesn't include an explanation of the transactions.
According to the contract, Nike could send the money via other
accounts if instructed to do so by CBF. It's unclear to whom Nike
made the payments, which according to the schedule set forth in the
contract were due in annual installments of between $5 million and
$20 million over 10 years.
The Brazilian parliamentary inquiry in particular questioned
whether the terms of the contract were overly favorable to Nike in
terms of control over exhibition matches and appearances by
players. It also questioned why the contract was done through an
intermediary.
Reynaldo "Ingo" Ostrovsky, who served as Nike's communications
manager in Brazil after the contract was signed, testified in 2001
that Nike originally approached Traffic when it became interested
in sponsoring the Brazilian national team knowing the
sports-marketing firm held the marketing rights.
In the testimony, Mr. Ostrovsky was asked by the Brazilian
lawmakers how much Nike had to pay Traffic for the rights to
CBF.
"The contract makes it quite clear that Nike did not make any
payments to Traffic," Mr. Ostrovsky said, according to a
translation of the transcript. "The contract says the financial
settlement, if any, it will be done between the CBF and the
Traffic. We do not, have not made any financial or monetary
settlement with Traffic."
Mr. Ostrovsky declined to comment.
Translated language from a copy of the contract included with
the commission report says that Nike agreed to make payments
directly to CBF, which would then make any payments due to
Traffic.
U.S. authorities, however, allege that three days after the deal
between the sportswear company and CBF was signed, a representative
from the company and a representative from Traffic signed a
separate, one-page agreement whereby Traffic was permitted to
invoice Nike directly for additional marketing fees. A statement on
the Traffic Group website said that the firm continues to operate
normally and news reports alleging wrongdoing are based on
incomplete information.
A spokesman for Nike, Reggie Borges, said Mr. Ostrovsky was
referring in his testimony to the contract between Nike and CBF,
and not the one-page agreement signed between Nike and a Traffic
affiliate.
The indictment alleges Traffic eventually invoiced the company
for $30 million and that the middleman then used the funds in part
to pay bribes and kickbacks.
The indictment refers to the company's negotiating counterparts
at the CBF and the middleman, called Traffic Group, as
co-conspirators. The Traffic representative, founder José Hawilla,
has pleaded guilty to charges related to the probe. He has admitted
to crimes including money laundering and fraud related to the broad
soccer probe. Mr. Hawilla's lawyer said his client is cooperating
with the investigation.
Write to Sara Germano at sara.germano@wsj.com and Patricia
Kowsmann at patricia.kowsmann@wsj.com
Access Investor Kit for NIKE, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US6541061031
Subscribe to WSJ: http://online.wsj.com?mod=djnwires