10th July 2019

EC investigation into Nike could cast light on corruption

The European Commission has requested details of all sponsorship contracts concluded by Nike’s European Operations headquarters with athletes and sporting teams from 2006-17, after concluding that the Netherlands provided illegal State Aid through Advanced Pricing Arrangements (APAs) with the sportswear company that resulted in it paying less tax. The Commission found that the APAs agreed by The Netherlands constituted a form of illegal State Aid under Article 107 of the Treaty on the Functioning of the European Union (TFEU), distorting competition in the internal market by allowing Nike to pay less tax. 

The Commission has also requested details of all financial transactions involving third parties conducted by five separate companies owned by Nike, including a Bermudan subsidiary, from 2006 to 2017. As such, its request may be of interest to US and French prosecutors investigating allegations of corruption regarding the awarding of sporting events.

In the ruling (PDF below – click to open), the European Commission has asked The Netherlands and Nike to provide details of all sponsorship and endorsement contracts concluded by four Nike companies: Nike European Operations Netherlands B.V. (NEON) from 2006-17; Nike International Limited (NIL) from 2006-2015; Nike International C.V. (NI CV) from 2015-17; and Hurley Phantom C.V. (HP CV) from 2006-17. NIL, based in Bermuda, owns the Nike trademarks for all non-US markets. As such, the Commission’s request covers sponsorship agreements in all European, Middle East and Asian (EMEA) markets for the dates concerned, apart from East Asia.

It is understood that the Netherlands based companies – NEON, NI CV and HP CV – paid tax-deductible royalties to NIL to use its trademarks in the EMEA market. The APAs approved a complex company restructure that included such royalty payments, which the Commission found were higher than they should have been, reducing Nike’s taxable income in The Netherlands and constituting a form of illegal State Aid. 

The European Commission’s findings are likely to be of interest to US prosecutors, who earlier this year issued subpoenas seeking information from the International Olympic Committee (IOC), the International Association of Athletics Federations (IAAF), the US Olympic Committee (USOC) and FIFA related to the hosting of sporting events, including the 2021 IAAF World Championships. They were awarded to Eugene, Oregon, without a bidding process taking place. 

Eugene is where Nike was founded – it has since moved 100 miles north to Beaverton. A duplicate of NIL’s Bermudan seal was kept in Beaverton, reports the International Consortium of Investigative Journalists (ICIJ).

Coe with Papa Massata Diack…

It has been alleged that IAAF President Sebastian Coe lobbied former IAAF President Lamine Diack for Eugene to host the event due to his connections to the sportswear manufacturer, which sponsored him for 38 years. Coe has denied the allegations. Sérgio Cabral, the former Governor of Rio, recently testified that Diack and his son, Papa Massata Diack, had requested US$2 million to secure the hosting of the Rio 2016 Olympics.

A French indictment document recently placed Papa Massata Diack at the heart of brokering agreements to secure votes for hosting sporting events, through a company named Black Tidings, based in Singapore. Diack has previously denied any link to Black Tidings.

In evidence given to the UK Parliament’s Culture, Media and Sport (CMS) Select Committee on 3 December 2015, Coe said that Diack had taken the decision to award 2021 to Eugene as “the funding arrangements, which I was aware of because of my work as the chair of the evaluation commission, would not hold together for very much longer”. The funding package was put together by TrackTown USA, which describes itself as ‘birthplace of the most storied and respected track and field program on the planet’, on an internet site designed to promote Eugene as a destination for athletics excellence. Coe told the CMS Committee that 2021 was awarded to Eugene due to the financial support package on offer, which was largely supplied through support from broadcaster NBC.

In his evidence given to the CMS Committee meeting, Coe answered “no” to questions on whether Nike was part of the funding package put together by TrackTown, or if it was putting any money in. However, as shown in the picture on the right, the footer of TrackTown’s internet site clearly shows a Nike logo. Mark Pilkenton, Nike’s Director of Global Brand Culture until August 2015, was also Marketing Director for TrackTown12 (U.S. Olympic Team Trials in ­Eugene, 22 June 22 to 1 July 2012) and Eugene 08 (2008 Olympic trials). Coe told BBC Radio 4 that Eugene’s bid to host the 2021 Worlds was put forward by USA Track & Field (USATF), which is sponsored by Nike.

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