Friday, December 08, 2006

FIFA – a world few truly understand (or Herr Sepp and his Band of Merrymen)

Imagine if you will for a moment the National Football League facing two major business related crisis’s, both dealing with ethical business issues in the space of 24-hours. Roger Goodell faces challenges everyday as NFL commissioner, as does Bud Selig in his role as Major League Baseball commissioner, NBA commissioner David Stern and Gary Bettman NHL commissioner. Each man faces a unique set to challenges everyday, but are men of honor and integrity when it comes to ethical business issues. The same set of rule may not apply to an organization that on a world-wide level is bigger than MLB, the NHL and the NBA and in many ways nearly on the same level as the NFL -- FIFA (Fédération Internationale de Football Association).

Late Wednesday, FIFA’s ‘ethics committee’, an oxymoron if there ever was (An oxymoron (plural oxymora or, more commonly, oxymorons) (noun) is a figure of speech that combines two normally contradictory terms) announced the results of their investigation into charges FIFA senior vice-president Jack Warner had created his own secondary ticket market with tickets to this summer’s World Cup in Germany. According to FIFA’s own independent auditors, Warner allegedly profited close to $1 million in the reselling of tickets he had purchased.

Thursday, U.S. District Court Judge Loretta Preska granted a preliminary injunction filed by MasterCard, which had sought to block the Visa deal that was awarded last spring. Visa had agreed to pay $180 million for the sponsorship, which was to start in January and run through the end of 2014, according to legal papers.

The ruling and lack of action on the charges leveled at Jack Warner seriously throws into question how FIFA conducted their negotiations for one of the most coveted sponsorship categories – financial services and for that matter what business practices one of the sports world’s most important governing bodies follows!

MasterCard’s relationship with FIFA began in 1990. MasterCard contended in their lawsuit their current four-year agreement, which was scheduled to end on December 31, 2006, gave MasterCard the contractual right of first refusal for an extension. How important are FIFA sponsorship agreements? An Olympic sponsorship costs $20 million annually, FIFA sponsorship fees are pegged at $35 million a year. (Remember FIFA allows on-field event advertising, while the Olympics do not permit any commercial signage within any event facility). How important was this particular agreement, if MasterCard had lost Thursday, Visa effectively would have controlled the key global sports marketing properties.

In her ruling the Judge made it clear she wasn’t a happy judge. "Because MasterCard and FIFA agreed on all terms of the 2007-2014 MasterCard agreement and the 'final version' of that agreement was sent by FIFA to MasterCard for execution, and the duly executed agreement returned to FIFA, it is fair and equitable that FIFA be required to specifically perform the 2007-2014 MasterCard Agreement.," the judge wrote.

If you read the Judge’s ruling correctly what possible rationale could FIFA have used to have reached an agreement with MasterCard, only to ignore that contract and sign a new deal with MasterCard’s biggest competitor? Certainly FIFA had to be aware MasterCard had a right of first refusal included in their current agreement they negotiated with MasterCard. Why would any sports governing body fully understanding their contractual obligations decide they wouldn’t respect their own sponsorship agreements?

Sports Business News contacted FIFA, MasterCard and Visa Thursday; each group offered the following to SBN.

This first MasterCard, “We are delighted the court has ruled for MasterCard in recognizing that the actions taken by FIFA were a blatant and deceitful violation of our rights.”

“Judge Preska’s decision to issue a permanent injunction prohibiting FIFA from moving forward with an agreement with Visa, and directing FIFA to honor its commitment to MasterCard for the 2010 & 2014 FIFA World Cup tournaments supports our long-standing position.”

“The court clearly recognized the credibility and solid business ethics of our executives in contrast to the bad faith conduct of FIFA.”

“This ruling stands as a victory for sound business ethics over the deceptive and deceitful practices perpetrated by certain members of the FIFA management team,” commented Noah Hanft, General Counsel, MasterCard Worldwide. “We now look forward to reforms in FIFA’s business practices going forward.”

Visa’s reaction to Sports Business News inquiry was ‘interesting’ to say the least, “Visa negotiated and executed a global sponsorship agreement with FIFA in good faith. We were assured by FIFA that the agreement was valid and binding and did not conflict with any of MasterCard’s rights. During the trial, Visa was surprised and dismayed to learn that during the negotiations, FIFA had not been truthful with Visa regarding its obligations to MasterCard. Nevertheless, we are disappointed by the court’s ruling today and we are currently considering all of our options.” Michael Sherman Visa’s vice-president for Global Communications.

And what of FIFA, the governing body, the object of MasterCard’s lawsuit, what about their reaction?

“FIFA is dismayed by the decision of the US Federal Court in New York which upheld MasterCard's complaint regarding the granting of the financial services category sponsorship package. FIFA will appeal this decision and fully expects to prevail.”

“FIFA remains convinced that at all times it acted in good faith and it will therefore continue to vigorously pursue its case. Furthermore, FIFA notes that the Zurich arbitration tribunal is competent to hear this dispute, and FIFA awaits the outcome of this proceeding.” FIFA’s Andreas Herren told Sports Business News.

Visa has to be “concerned” about their long-term relationship with FIFA. As part of the prospectus Visa released in October in advance of their planned IPO, Visa officials included a 22-page overview of the payments network. Among other attributes, Visa trumpeted their nearly $1 billion of sponsorship programs to promote its brand, including sponsorship of the World Cup.

A November Wall Street Journal reported suggested the key to Visa and MasterCard’s pursuit of a FIFA sponsorship is both companies interest in building their presence in soccer crazy Latin America. One of Visa’s key sports sponsorships remains is its long-standing Olympic sponsorship. While Visa (and other Olympic sponsors are unable to enjoy the benefits of event signage as part of their sponsorship agreements) Visa’s Olympic promotional focus in part focuses on Visa being the only credit card accepted at the Olympic Games and for the purchase of Olympic tickets.

MasterCard actively promoted the same benefit in relationship to its FIFA sponsorship agreement in advance of June’s World Cup in Germany. MasterCard also leveraged their $35 million FIFA sponsorship with contests and other consumer benefits with their banking partners. After the Olympic Games the biggest sports event in the World is soccer’s World Cup.

"There is no sponsorship platform anywhere in the world that rivals the FIFA World Cup in terms of the global reach and breadth of penetration it affords to sponsors," according to the complaint filed by MasterCard.

MasterCard and FIFA had enjoyed a 16-year relationship, which focused on a series of four-year agreements. FIFA decided they wanted an eight-year agreement with MasterCard when the two sides began negotiating an extension to their agreement late last year. MasterCard wasn’t pleased with FIFA’s insistence on an eight-year agreement, initially walking away from those discussions.

MasterCard and FIFA began talking again in early March, quickly reaching terms on the eight-year sponsorship agreement FIFA wanted. According to the court filings, citing a trademark issue, FIFA’s executive committee then refused to sign off on the MasterCard agreement. A few weeks later despite having agreed to an eight-year sponsorship agreement with MasterCard, FIFA announced an eight-year sponsorship agreement with Visa.

How important is their FIFA sponsorship agreement? Again when you consider Visa’s current Olympic sponsorship agreement runs through the 2012 London Olympics, if MasterCard lost their FIFA sponsorship Visa would have a lock on the global sports sponsorship market in the financial services category.

One of the most important issues that needs to be resolved following Thursday’s ruling is what next, and who exactly has the sponsorship rights? MasterCard’s Chris Monteiro, cited the following language from Thursday’s ruling when asked by Sports Business News late Thursday as whether or not MasterCard or Visa now control FIFA’s financial services sponsorship category.

“MasterCard Is entitled to permanent injunctive relief for the foregoing reasons, MasterCard is entitled to: a) a permanent injunction enjoining defendant Fédération Internationale de Football Association (“FIFA”) from implementing or otherwise proceeding with its purported 2007-14 “FIFA World Cup” sponsorship agreement with VISA or otherwise granting to VISA, or any other entity, any package of advertising and sponsorship rights, with respect to payment solutions products or services, in connection with FIFA soccer competitions during the period 2007 to 2014”

“b) a permanent injunction directing FIFA to specifically perform its obligations under section 9.2 of the Agreement by granting to MasterCard the package of advertising and sponsorship rights, which previously was offered to and accepted by MasterCard, with respect to payment solutions products or services, in connection with FIFA soccer competitions during the period 2007 to 2014; and 125.”

“In accordance with section 22 of the Agreement, judgment granting MasterCard all of its “costs and expenses in connection with its enforcement of its rights, including all reasonable legal fees, costs and disbursements.” Monteiro told SBN.

The alleged resale of tickets for this year’s World Cup should be considered nearly as troublesome by FIFA as the serious sponsorship issues the organization is being forced to deal with.

FIFA’s auditors Ernst and Young identified that World Cup tickets purchased by FIFA senior vice-president Jack Warner where resold for thee times their face value by Warner’s son Daryan. According to Ernst and Young the tickets where sold through the Trinidad and Tobago travel agency Simpaul, which is owned by Warner's family. The tickets where bought at face value by Jack Warner, and then resold by his son through an agency owned by Jack Warner and his family.

When the Ernst and Young report was released three months ago, FIFA Czar Sepp Blatter announced the formation of an ethics committee. The so-called ethics committee would be chaired by Sebastian Coe the head of the London’s 2012 Olympic Organizing Committee. How serious was Herr Sepp about dealing with the charges leveled against Warner? Consider Coe’s mandate -- he was not granted the authority to step in on cases retrospectively that predated his appointment. The ethics committee would have no power whatsoever to look seriously at any ethical issues that predated their appointment.

Nonetheless, earlier this week Herr Sepp released the following statement regarding the alleged ticket selling practices of one of Herr Sepp’s most trusted associates, Jack Warner.

"It could not be evidenced that Mr. Jack Warner had knowledge of the resale of these tickets at a higher price. The resale is certainly forbidden, but the person who did the re-selling is not subject to the FIFA jurisdiction, because it is the son of Jack Warner."

This despite ample evidence from FIFA’s appointed and independent auditors, that Warner had been at the center of a million dollar ticket reselling scandal. And if Herr Sepp is to be believed; how effective can Jack Warner be as a senior FIFA official when Warner (if Herr Sepp again is too be believed) wasn’t aware his own son was reselling tickets Warner had purchased for three times their face value. At the very least, Herr Sepp should dismiss Warner as FIFA senior Vice President.

Simpaul the travel agency owned by the Warner family reportedly sold World Cup tickets to British football supporters (among the most loyal fans in the world), for England’s quarter-final World Cup game against Portugal.

Mark Perryman, a member of England's official supporters' club, told London’s Daily Mail, after he learnt FIFA wasn’t prepared to seriously address Warner’s reselling of World Cup tickets: "FIFA are is quite right to punish fans for hooliganism. Touts and those corporates who take the tickets off fans are hooligans in suits and should be treated likewise. Jack Warner robbed fans of tickets. He is not the only one - he has got off very lightly.

"What we need FIFA to do - rather than protecting their own - is to launch a serious investigation into why hundreds of thousands of tickets - the numbers are almost unbelievable - are awarded to sponsors and VIPs at the fans' expense. There were virtually no instances of hooliganism at World Cup 2006 - a fact which should be celebrated - but the scandal of Germany 2006 was the story of those tickets in corporate hospitality pockets."

What could Sebastian Coe have been thinking when he agreed to head up an ethics committee for an organization that doesn’t understand the meaning of the word? Then consider the risk to Coe’s reputation? The 2012 London Olympics are in a spending free fall with the overall costs of the London Games nearing a projected $20 billion.

Perryman offered some advice for Coe to consider in trying to correct what’s gone very wrong at FIFA.

"What I hope Seb Coe will do is to listen to the experiences of fans. Sometimes, people think supporters are stupid but everyone accepts that if a company is going to sponsor the event they will receive some tickets.

"But can it be right that in the stadium which staged the Portgual versus England quarter-final in the World Cup, 30 per cent of the seats were occupied by corporates?

"Seb Coe portrays himself as a genuine football supporter. What I would suggest he does is to hold an open day so each supporters' group can discuss their issues with him and perhaps go forwards from there so that this is not allowed to happen again."

Another senior FIFA official, executive committee member Ismail Bhamjee of Botswana, was sent home from the World Cup in Germany for selling tickets. Bhamjee, 62, sold 12 tickets for England's match against Trinidad and Tobago for US$380 each, three times their face value.

There is no question whatsoever if Commissioners Goodell, Bettman, Selig and Stern had ever been involved in anything close to the allegations being leveled at the organization Herr Sepp runs (FIFA), Commissioners Goodell, Bettman, Selig and Stern would make the honorable resign and resign from their position or they would be fired by their respective organization. If a scandal of this proportion took place with any North American based sports organization, corporate America would run and hide. Evidently the same sets of rules do not apply when it comes to dealing with Herr Sepp and FIFA (Fédération Internationale de Football Association).

For Sports Business News this is Howard Bloom. Sources cited in this Insider Report: The Wall Street Journal and The Daily Mail

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