Louisville, Kansas and NC State Victims Ruled Victims in NCAA Basketball Corruption Trial

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Two former Adidas employees and a former sports marketing executive were found guilty of wire fraud and conspiracy to commit wire fraud in the first of 3 separate NCAA basketball corruption-related trials (the others involve coaches steering players to programs in exchange for kickbacks). A Manhattan federal court determined on Wednesday that former Adidas head of global basketball marketing James Gatto, former Adidas consultant Merl Code Jr. and former sports Christian Dawkins had “deceived universities (Louisville, Kansas and NC State) into issuing scholarships under false pretenses (players would have been ineligible if they took money)”, by funneling Adidas money to elite prospects. Sentencing is scheduled for May 5th.

Howie Long-Short: The jury’s unanimous guilty verdict would be laughable, if the 3 men weren’t facing 2-4 years in jail for compensating H.S. basketball recruits. The schools referenced weren’t defrauded by the defendants, they were complicit in a conspiracy (see: allegations that Bill Self asked an Adidas employee to pay the guardian of Silvio de Sousa) that provided them with 5 star prospects.

The ruling is unlikely to impact the Adidas’ bottom line, few believe the defendants are guilty of anything besides violating NCAA bylaws

Adidas (ADDYY) issued Q2 earnings back on August 9th, reporting sales rose 10% YoY (to $6 billion) during the most recent quarter; North America (+16%), Greater China (+27%) and the e-commerce sector drove the growth. ADDYY’s has managed to grow the top line without resorting to discounts to sell shoes, reporting gross margins rose +2.2% (to 52.3%) in Q2 ‘18. Shares are up +6.5% (to $117.78) since the company reported. ADDYY will post Q3 financials on November 7th.

Fan Marino: There was so little coverage of Wednesday’s shocking verdict that it’s hard to believe the jury’s decision will impact college basketball’s black market. The financial incentives to sign top players remains (for both schools and sneaker companies) and the amateurism rules that prevent elite prospects from realizing their true value, still apply.

Earlier this week, we noted that the NBA was offering elite H.S. basketball prospects a new “professional path”; a six-figure payday (among other benefits) to forego collegiate basketball and play a single season in the G-League. While in theory the G-League’s new “professional path” offers players the opportunity to get paid (without anyone violating federal law), players projected to be selected in the top 24 picks of the NBA draft would be better off sitting out the season than taking a step up in competition; falling a single slot in the draft would cost the player more (over the first 2 years of their deal) than the $125,000 they’d receive for playing the entire season.

A federal court may have found Louisville, Kansas and NC State to have been defrauded, but that’s not a “get out of jail free” card if/when the NCAA comes knocking. Once the criminal investigations/trials are complete, the NCAA could pursue violations of their bylaws and all 3 programs involved in this case are guilty; defense attorneys acknowledged as much (while denying they had committed federal crimes), stating each school paid the families of high-profile players (Brian Bowen – Louisville, Billy Preston – Kansas, and Dennis Smith Jr – NC State).

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Author: John Wall Street

At the intersection of sports & finance.

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