Why #FIFA Allegations Could Hurt Nike and Help Under Armour | $NKE $UA

Editor's Note: This is an excerpt from recent research from our Retail team. For more information on our various product offerings please click here.

*  *  *  *  *  *  *

In case you somehow missed it, seven FIFA officials were arrested in Switzerland earlier this week as part of a global bribery scheme centered around illegal cash payments and marketing/broadcasting rights.

Why #FIFA Allegations Could Hurt Nike and Help Under Armour | $NKE $UA - sosff

Nike appears to be caught in the fray, identified in the indictment as 'Sportswear Company A'. For starters, the relationship with the Traffic Group (NKE paid the company $30mm from 1996-99) looks questionable. The owner and founder plead guilty to racketeering and money laundering charges late last year and forfeited about $150mm.

The way the scheme worked, Traffic would acquire marketing rights for large soccer events and then auction them off the broadcasting and marketing rights to the highest bidder (or best connected bidder). The fact that the relationship with Traffic kicked off just days after Nike signed a deal with the Brazilian Soccer Federation adds a little fuel to the speculation fire.

We actually view this to be not entirely dissimilar to the zoning/real estate bribery scandal Wal-Mart battled in Mexico and the fraud Reebok 'allegedly' committed in India. We'd never in a million years say that this is 'part of doing business' overseas for any multinational. But it absolutely underscores the risk management procedures that are necessary once companies move beyond US borders.

As it relates to any financial impact, we're not too worried about Nike's exposure. We're more concerned about changes in regulation around FIFA and other leagues that deal with product and broadcasting licenses. In Nike's case, regulation is bad. It has a clear financial edge over any other sportswear company anywhere in the world, which is a major asset in a deregulated licensing environment. 

But if the field of play is more standardized, then we'd argue that it could accrue disproportionately to smaller brands like UnderArmour.