VIVA LA FIFA

Case overview

Following a slew of bribery and corruption allegations over the past decade, the Fdration Internationale de Football Association (FIFA) entered into what appeared to be its biggest scandal yet in May 2015, when the New York Justice Department announced a 47-count indictment which pointed towards allegations of bribery, vote-buying, and questionable contracts over World Cup broadcasting rights, and arrested FIFAs top executives. Amidst it all, FIFA President Sepp Blatters abrupt decision to resign after 17 years in office generated further interest over FIFAs culture of corruption. Reforms were implemented to counter this, but only time would tell if FIFA could truly undergo a structural revamp. The objective of this case is to allow for discussion on issues such as corruption stemming from poor tone at the top; conflicts of interest between FIFA and its stakeholders; whistleblowing; transparency and disclosures pertaining to executive remuneration; and applicability of corporate governance principles and practices for listed companies to sports bodies

Kick-off 27 May, 2015, 6.39 a.m. Swiss plainclothes policemen streamed through the Baur au Lac a five-star hotel, the site of FIFAs annual committee meeting. The officers retrieved room numbers from the front desk and headed upstairs, where they arrested seven FIFA executives. Hours later, the Justice Department in New York held a 47-count indictment against 14 defendants, comprising FIFA officials, and sports marketing and broadcasting personnel. The indictment included charges of racketeering, wire fraud, and money laundering dating back to 1991, with bribes and kickbacks adding up to a tune exceeding US$150 million.2 It spans at least two generations of soccer officials who, as alleged, have abused their positions of trust to acquire millions of dollars in bribes and kickbacks. Attorney General Loretta Lynch3 Historically, FIFA had deflected widespread allegations instead of addressing problems at an institutional level.

Blatters reign

Sepp Blatter won the 1998 FIFA presidential elections only by a close margin over Swedish rival Lennart Johansson. This came after 17 years as the right hand man to then President Joao Havelange. Despite his victory, Blatters win was plagued with rumours of bribery.5 Subsequent presidential elections were also shrouded in suspicion regarding the legitimacy and transparency of results. I am the president of everybody, I am the president of the whole FIFA. Sepp Blatter6 Amidst the unravelling of FIFAs biggest scandal yet, Blatter was re-elected as its president for the fifth consecutive term, his 17th year running. However, just a week into his re-election, Blatter abruptly announced his resignation. This came in the wake of the FBI confirming that Blatter was now the focus of their corruption investigations.

Sentiments soar

On 2 December, 2010, Russia and Qatar were announced as hosts of the 2018 and 2022 FIFA World Cup respectively.7 Upon the announcement, Qatars Stock Exchange responded strongly, and neighbouring countries like Iran also showed excitement and enthusiasm for the opportunity to promote and develop football in the Middle East.

FIFA vows reform

After allegations of corruption dogged FIFA throughout the bidding and voting process for the 2018 and 2022 World Cups, there was significant pressure on FIFA to conduct reforms on an institutional level. With that, Blatter launched a governance reform process at the 61st FIFA Congress, June 2011, in Zurich, Switzerland.8 Blatter announced at the launch: This committee will strengthen our credibility and give us a new image in terms of transparency. I will take care of it personally, to ensure there is no corruption at FIFA. Sepp Blatter9 The aim of the proposals was to improve governance, transparency, and to eradicate misconduct on and off the pitch. This resulted in a two-year road map for the subsequent establishment of the Independent Governance Committee (IGC).10 This was initiated shortly after Blatter was re-elected into his fourth consecutive mandate, which was also his 13th year of service as president. During that election, Blatter was the incumbent candidate again, with the only other candidate, Mohammed Bin Hammam of Qatar, withdrawing from the presidential race just three days before the vote.

Whistle-blowing woes

Phaedra al-Majid was one of two whistle-blowers who spoke up on Qatar 2022. al-Majid was a former media officer on the Qatar bid team. If her corruption allegations surrounding the Qatar World Cup were true, Qatar could be stripped of its right to host the World Cup. After keeping mum for two whole years, she mustered up the courage to speak to Michael Garcia, then head of the investigatory arm of FIFAs ethics committee. al-Majids allegations revolved around top FIFA executives receiving bribes in exchange of votes for Qatar. In return for Garcias word that her identity would be kept confidential, al-Majid agreed to cooperate in the investigations of the 2018 and 2022 World Cup bidding process.

Unfortunately, in a 42-page summary of the investigations issued by HansJoachim Eckert, chief judge of FIFAs ethics committee, the identity of the two whistle-blower was revealed. Although the summary did not explicitly expose the women by name, it was not difficult to connect the dots based on the evidence cited, and al-Majids cover of anonymity was blown just hours after the summary was published. I kept my promise. Herr (Mr.) Eckert breached that confidentiality. I did not. The disciplinary committees avoidance of this undisputable violation is emblematic of its culture of self-protection. Phaedra al-Majid Not long after she came forward in 2011, al-Majid retracted her claims, and later added that she was coerced into it, citing fear for the safety of her family as the reason. Despite the withdrawal of the allegations, it sparked off investigations into the Qatar 2022 World Cup.

Side lined

Garcia also alleged that Eckerts summary misinterpreted the findings and presented a materially fragmented and fallacious view of the facts. This ultimately resulted in Garcia losing confidence in the independence of Eckert. On 17 December, 2014, Garcias appeal to the FIFA committee to have his original report published in its entirety was rejected. Garcia tendered his resignation, criticising the lack of leadership in the global football arena.

The heated decision on Qatar

Yes, it was a mistake of course, but one makes lots of mistakes in life, the technical report into Qatar said clearly it was too hot but the executive committee with a large majority decided all the same to play it in Qatar. Sepp Blatter20 Since the announcement that Qatar would be hosting the 2022 World Cup, there had been much speculation over the landslide victory. Outcry over Qatars win arose over reasons such as its searing summers, strict alcohol restrictions and the lack of a developed football culture.

The 2022 World Cup bid attracted interest from Australia, Japan, Qatar, South Korea and the United States, and the final decision was voted on by FIFAs executive committee, where 22 members had one vote each. During the bidding process, Qatar promised an advanced air-conditioning technology that would cool down the stadiums, training pitches and fan zones to a cool 23C. This was in response to Dohas stifling summer heat, where average daily temperatures could range from low to mid 40C in June.22 Skepticism toward this ambitious technology was assuaged by Qatars World Cup organising committees confidence that the event would proceed as planned in summer under cooled conditions. However, in March 2015, FIFAs Task Force decided that moving the tournament to end-November or December would be best. Furthermore, amidst the heavy media coverage on the bidding process over the 2022 World Cup, allegations against Qatari Mohammed bin Hammam quoted involvement in bribes to secure votes for Qatar. Following this, FIFA commissioned a report over the allegations and cleared Qatar of all suspicions. However, this report was never published.

Waka Waka (This time its Africa)

Investigations into FIFA uncovered other skeletons in the closet, this time pertaining to the 2010 World Cup hosted by South Africa. Jack Warner, then vice-president of FIFA, became the centre of allegations involving a US$10 million bribe paid by South African officials in return for securing the rights to host the 2010 World Cup. The monies were traced to accounts controlled by Warner. However, South Africa denied payment of any bribe in relation to the securing of the 2010 World Cup. Instead, sports minister Fikili Mbalula categorically denied the allegations, citing that the monetary payment went towards an approved program to help the development of football in the Caribbean.24 However, in another inquiry, Mbalula harped on the fact that the money did not constitute a bribe, but rather a donation to support the African diaspora.

Secret profits

It was not long before Blatter was also dragged into the scandal. Further investigations uncovered evidence pointing to Blatters approval of a suspiciously small contract in relation to the 2010 and 2014 World Cup television rights. This allegation pointed to Blatter awarding the rights to the Caribbean Football Union (CFU), which was under the control of Warner who had his own fair share of corruption allegations. The contract dating back to 2005 was uncovered by Swiss broadcaster Schweizer Radio und Fernsehen (SRF), which documented the sale of the 2010 and 2014 World Cup broadcasting rights to the CFU for US$600,000.26 This was a mere 5% of its true value. Warner subsequently sub-licensed the rights to his own company J & D International (JDI), whereby his subsequent profit was estimated to be about US$16.5 million

Blatter gets a yellow

The initial investigations unraveled one suspicious transaction after another. The Swiss police chased down a lead regarding a US$2 million payment made by Blatter to Michel Platini, then vice-president of FIFA and president of UEFA (Union of European Football Associations), just three months before he won his fourth term of office in 2011. Blatter asserted that the money was related to an overdue payment owed for work done by Platini in 1999. Similarly, Platini responded by insisting that the money was for work which he had previously performed. However, he did not address the issue of the near decade-long delay in receiving it.

A very profitable non-profit

Contrary to FIFAs establishment as an association of associations with a non-commercial, not-for-profit purpose, their commercial dealings rake in billions of dollars in revenues every year.29 FIFAs expenditures, particularly the remuneration of top executives, are also ambiguous and poorly defined. In its 2014 financial report, FIFA showed a total of US$88.630 million in wages and salaries, of which US$39.731 million was paid to its top 13 executives. Despite immense pressure for greater disclosures in all aspects of FIFA operations, the organisation had yet to publicly disclose the exact amounts earned by FIFAs top echelon.

Extra time

FIFAs proposed reforms first saw the light of day on 11 August 2015, when the new 2016 FIFA reform committee was established with the appointment of a fresh face as the Independent Chairman. This was meant to build upon the reform work undertaken since 2011. There had also been unprecedented stress on FIFA to enhance and improve their corporate governance in order to restore its reputation as the governing body for world football. We need reforms now, we cannot wait. FIFA works very well operationally and has not come to a halt. But this is a watershed in terms of role going forward Domenico Scala34 As at 2016, the ball had been set in motion. However, it would take a long while before any conclusive evidence can establish that the reforms have been effective in addressing the governance issues plaguing FIFA. Only time will tell if the reforms would truly score.

Substitution: Blatter out, Hayatou in 8 October, 2015.

After years of deflecting corruption allegations and side-stepping his way out of the most convoluted scandals, Blatter faced a 90-day ban from all football activities, an order enforced by FIFAs Ethics Committee, following which he was relieved of all presidential duties with immediate effect. Issa Hayatou, the longest serving vice-president on the FIFA Executive Committee, filled the gap and took over as acting president of FIFA for the interim period prior to the following presidential elections in 2016.

Question 1

(i) In what ways are governance challenges in sports bodies like FIFA similar or different from those in listed companies? Should corporate governance rules applicable to listed companies also apply to FIFA? (25 marks)

(ii) In the case of companies, shareholders, directors, regulators and other stakeholders all play a role in raising corporate governance standards. To what extent does this apply to FIFA and other sports bodies? (25 marks)

(iii) If you are engaged as a consultant and asked to recommend the setting up of a proper governing board, what would you recommend in terms of structure and composition of such a board? What qualifications, skills and experience would you recommend? How would the concept of independent directors apply to such a board, if at all? (50 marks)