Why do sports seem so corrupt?
Yesterday Swiss police arrested six high-level International Soccer Federation officials as part of a global probe. Later, the US Justice Department unsealed a 47-count indictment against 14 defendants, alleging racketeering, wire-fraud, and money-laundering. Justice claims that FIFA executives received bribes in exchange for broadcast rights. The sums involved are huge: over $150 million over 25 years.
FIFA oversees international competition among national soccer associations. It doesn’t set the rules, but it is responsible for international tournaments and their promotion—especially sponsorship rights. In 2013, FIFA had revenues of over $1.3 billion. For years, there have been allegations of bribery and vote-rigging associated with deciding on the venue for soccer’s World Cup, held every four years.
But these indictments are only the latest in a long list of sports scandals: from Olympic bids to NCAA recruiting to steroids in baseball to blood-doping in bicycling to the Black Sox scandal to the Patriots and “Deflate-gate.” As long as people have competed, it seems, some have tried to cheat and enrich themselves in the process. If fact, one of the first instance of cheating occurs in one of the first recorded sporting events, in The Iliad. And there was prize-money involved there, too.
Professional sports associations are natural monopolies. The teams have to cooperate in order to arrange schedules, playoffs, and the rules of the game. As our societies have become wealthier the amount we’re willing to pay for this entertainment has grown larger and larger. Alternative sports leagues may try to break into the market from time to time—remember the XFL?—but the last time I recall this working is when the American Football League operated from 1960 to 1969.
Source: WR Hambrecht
So when big money meets big egos and natural monopolies, is it any wonder that bribes, corruption, collusion, and fraud follow? “Man is born to trouble as the sparks fly upward.” Yet, when it comes to scandal, the best disinfectant is sunshine. Let’s hope all the attention will encourage FIFA to clean house.
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!