A Deeper Look At U of L’s Contract With Adidas

Oct 3, 2017

Credit J Tyler Franklin / WFPL

  The $160 million sponsorship deal between the University of Louisville and Adidas could be in jeopardy if the NCAA basketball scandal forces big losses on the court.

The 10-year sponsorship agreement isn’t set to start until next summer. But a pending FBI investigation, dwindling basketball recruit classes and possible NCAA sanctions could all impact its value — if the extension even survives long enough to go into effect.

U of L Interim President Greg Postel challenged the contract in a letter last week to the athletic director, saying Tom Jurich and Adidas negotiated it “without timely or appropriate consultation” with Postel. The contract extension also includes some key escape hatches for the apparel company in the event of a major catastrophe, not unlike the basketball scandal unfurling for Adidas and U of L right now.

An Adidas spokeswoman released a statement that the company is “committed to compliance and ethical business practices” and cooperating with the relevant authorities. James Gatto, the Adidas employee who was charged with federal bribery and fraud, is on leave, the spokeswoman said.

Here’s a look at what’s in the contract, and what’s at stake.

‘Elite’ Program Clause

The new contract includes a pretty major escape hatch for Adidas.

  A brand-new clause in the recent contract extension says that if U of L ceases to be considered an “elite” university compared to Adidas’ other schools, U of L would have to negotiate with Adidas “to remedy” the issue.

Ultimately, losing “elite” status could be cause for terminating the contract — a real fear as recruits decommit and the Cardinals breakout freshman, Brian Bowen, remains suspended while the payment scheme is investigated.

The clause isn’t unique to Louisville: the apparel company added a similar provision to its contract revision this year with the Nebraska Cornhuskers, its next-biggest sponsorship.

Smith College sports economist Andrew Zimbalist said the contract clause gives Adidas major leverage to push athletics departments for program changes. The FBI’s allegations that an Adidas executives was using bribes to help U of L land top recruits also casts that clause in a new light, Zimbalist said.

“They were trying to assure teams are going to be nationally ranked by rooting these kids — and that whole model is now being challenged,” Zimbalist said. “Without that model, they’ve lost that ability to think that ‘gee, if I sign a deal with Louisville I’m going to be able to make sure they’re a good team.’”

Ultimately, Zimbalist thinks U of L will keep its relationship with Adidas or get scooped up by someone else: colleges with competitive sports programs have sponsorships, period. The school has consistently ranked among one of the most valuable in college sports, and more basketball teams are expected to be ensnared in the FBI’s investigation.

“Louisville has got a little bit more mud on its face than others now, but in five months, other schools will have more mud,” Zimbalist said.

But if the meteoric rise in sponsorship deals was based — at least for Adidas — on an illegal scheme, Zimbalist said, it’s reasonable to expect a crash in value as the investigations continue.

Perks For Adidas

The extension gave U of L another new perk: free consulting services from companies tied to Adidas.

The apparel company was going to pay for the Cards to use sports medicine and performance consultants P3 and EXOS, so long as those companies maintain relationships with Adidas. EXOS recently announced that it acquired D1 Sports Medicine, a chain of rehab and training facilities that caters to athletes, including collegiate. One of its 70 locations is in Bowling Green.

Adidas also got some new perks in the deal. While the old agreement included some sports tickets, the new agreement added sideline passes and a suite for football as well as dozens more ticket to basketball championship games — including 20 Final Four tickets for Adidas.

NCAA Sanctions

Adidas could drastically cut the value of the contract if the NCAA levied a severe penalty on U of L.

In the 2014 contract, Adidas and U of L agreed that the school’s base compensation could be cut in half if an NCAA probation results in “the prohibition of television appearances by University’s Football or Basketball Teams.”

 

  U of L men’s basketball is already on NCAA probation due to a recruiting sex scandal.

It’s too soon to say what might happen as a result of this new investigation. But if the NCAA were to dust off its most rarely-used penalties on the basketball team in 2018-19 — either the death penalty, or a ban on television appearances — U of L’s base pay would drop from $10 million to $5 million.

The death penalty hasn’t been used since 1987. Kentucky fans might remember the television ban from 1990, when its basketball team was booted from TV appearances after recruiting violations. But the TV ban has been on the shelf for the last 20 years.

Potential Conflict Of Interest

Athletic Director Tom Jurich’s daughter Haley works for Adidas as an NCAA brand manager, as the Courier-Journal first reported. A spokeswoman for the company declined to comment beyond a written statement that didn’t address her.

According to her social media accounts, she was hired in March, just months before her father announced the school’s latest Adidas contract.

In an email, U of L athletics spokesman Kenny Klein said Haley Jurich is “simply an impressive person” who got the job on her own merits.

Klein did note that Haley Jurich “had some interaction” with U of L as part of her Adidas job.

Her father didn’t disclose her job on the conflict of interest form he filed for 2016-17.

Based on the questions U of L asks its staffers about conflicts, it’s not clear Jurich even needed to disclose that his daughter was working — and interacting with U of L — through her role with U of L’s sponsor.

The questions focus on companies that the staffer or family members play major roles in. It’s unlikely Haley Jurich’s position at a global company like Adidas would’ve met the parameters, which include 35 percent ownership, partnership or serving as a key employee of an entity doing business with U of L.

Klein said he doesn’t know anything about Jurich’s conflict of interest form.

Kate Howard can be reached at khoward@kycir.org and (502) 814.6546.