NCAA bribery scandal could not come at worse time for Adidas

An elaborate FBI sting operation uncovered a stunning new corruption scandal in college athletics by using an undercover “cooperating witness” who was in the room for certain meetings and deals.

Now, the US Attorney for the Southern District of New York is bringing charges of bribery, wire fraud, and money laundering against assistant basketball coaches at four Division I universities—and a basketball executive at Adidas.

The schools are the University of Arizona, Auburn University, Oklahoma State University, and the University of Southern California. But the true center of the scandal is Louisville, though the school is not specifically named in the complaint.

The Adidas executive is James Gatto, head of global basketball marketing, though Adidas is referred to as “Company 1” in the complaint.

The assistant coaches named as defendants in the complaint are Emanuel Richardson of Arizona, Chuck Person of Auburn, Lamont Evans of Oklahoma State, and Tony Bland of USC.

Adidas is red hot, has its eyes on more college sponsorships

Certainly this news will rock NCAA college basketball to its core. Many are identifying it as a validation of what people have suspected for years: that behind closed doors, high profile high school athletes are given money or other gifts to lure them to commit to a certain school.

But this scandal is also particularly debilitating for Adidas.

It comes at a time when the brand is flying, and actively focusing on signing more big universities to long-term sponsorship deals.

The German sportswear giant is on an incredible hot streak in America right now, at last, after seeing its footwear and apparel market share decline in the States for five years straight, up until 2015.

Just this month, Adidas achieved a new milestone in sneakers: it regained the No. 2 spot in the US athletic footwear market, by share of dollars spent, over Nike-owned Jordan Brand. It marked a stunning comeback.

At the same time, Adidas has aggressively ramped up its signing of long-term sponsorship contracts with big universities. It has long-term, full-school apparel deals with Kansas and Indiana — both basketball powerhouses — and Nebraska, Mississippi State and Texas A&M — all big football schools.

This past summer, Adidas announced an unprecedented, long-term partnership with Arizona State University that will involve studying athlete health and science in a permanent, on-campus location. The school and the brand are calling it the “Global Sport Alliance,” and Adidas even lured a Wharton sports business professor, Ken Shropshire, away from Wharton to work at ASU as part of the “Global Sport Institute.” ASU switched from Nike to Adidas in 2014.

[MORE: Does the NCAA make its money from ‘indentured servants’?]

There is legitimate reason to believe that Adidas’s drive to sign new collegiate deals was a key factor in what the FBI alleges: none of the four schools mentioned in the complaint are Adidas-sponsored schools. Arizona, Oklahoma State, and USC are Nike-sponsored, while Auburn is with Under Armour. Two of them, Oklahoma State and USC, appear to have contracts with Nike that expire in 2017. No extension of those Nike deals has yet been reported.

And then there’s Louisville.

The University of Louisville is not named in the complaint, but the language mentions a student who allegedly received $100,000 to attend a school in Kentucky. The enrollment numbers and timeline referenced match up with Brian Bowen, an All-American basketball player who committed to Louisville in June.

The Louisville connection is clear enough that on Wednesday, Louisville fired longtime head basketball coach Rick Pitino and athletic director Tom Jurich.

This year, Louisville signed a 10-year, $160 million extension contract with Adidas. And it has since emerged that Adidas hired Jurich’s daughter just months before the apparel extension was signed.

While Nike has an obvious “flagship program” in the University of Oregon and Under Armour CEO Kevin Plank started his company at the University of Maryland, Adidas has no clear flagship school. Some argued the Louisville deal effectively made the school the Germany-based company’s flagship.

So, it looks possible that an Adidas rep took unethical and criminal steps to help his employer’s college sponsorship business. The question is: if that did happen, was it one single executive acting alone, or a systemic problem?

Adidas, for its part, says, “We became aware today of the allegations and intend to cooperate with the relevant authorities. The employee has been put on administrative leave and the company has engaged outside counsel to conduct a thorough investigation.”

As it focuses on the internal investigation, and as the media dissects the scandal, look for the run of positive buzz for Adidas in America to quiet down.

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Daniel Roberts is the sports business writer at Yahoo Finance. Follow him on Twitter at @readDanwrite.

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