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Adidas worried about effect of scandal on brand

Investors in Adidas are increasingly worried that the FIFA corruption scandal risks tarnishing the German sportswear brand after the company declined to join other major sponsors and demand the immediate departure of President Sepp Blatter.

Coca-Cola Co, McDonald’s, Visa and Budweiser-owner Anheuser-Busch InBev last week made a coordinated push for Blatter to quit after Swiss authorities opened a criminal investigation into him.

Ingo Speich

Ingo Speich

The 79-year-old Swiss national who has led FIFA for the past 17 years has denied any wrongdoing and said that he had no plans for an immediate resignation ahead of a scheduled February election to choose a successor.

Adidas, which has provided the World Cup match ball since 1970 and extended its partnership with FIFA until 2030 two years ago, stuck to earlier comments calling for FIFA to “implement fundamental changes for the sake of football”.

Ingo Speich, fund manager at Union Investment, which owns a 0.75 per cent stake in Adidas, is concerned.

“If you finance a corrupt system, the brand will suffer,” Speich told Reuters. “This is a glaring risk for Adidas. Consumer boycotts, fines or pressure from regulators could be the result.”

A survey in July showed that around 38 percent of Germans would consider switching from FIFA sponsors such as Adidas and Coca-Cola to alternative brands due to the scandal engulfing soccer’s governing body.

The survey of 1,000 Germans by consultancy Prophet found that 78 percent thought companies should end their sponsorship of FIFA and instead invest more in local initiatives, with 45 per cent saying the affair had hurt the sponsors’ image.

Adidas has said it has no intention of ditching FIFA in the next few years given its extended contract, but will consider how influential this kind of partnership is to its target consumer when it does come up for renewal.

The Deutsche Schutzvereinigung fuer Wertpapierbesitz (DSW), Germany’s largest association for private investors, said Adidas should do more to speak out.

“It casts Adidas in a bad light,” said DSW Vice President Daniela Bergdolt. “Adidas should put more pressure on FIFA. . . As a sponsor, Adidas has very considerable weight.”

However, others believe Adidas is well advised to keep a low profile given the importance of soccer to its business.

“At the end of the day, there is still a huge commercial upside in being involved in the World Cup,” said sports marketing expert Andy Sutherden of Hill+Knowlton Strategies.

The 2014 World Cup helped Adidas to boost its soccer sales by more than 20 percent to 2.1 billion euros ($2.4 billion).

“Adidas could not afford to boycott FIFA,” said an industry insider. “The means of exerting pressure are limited,”

Up until now, the scandal has not had a discernable impact on the Adidas stock, which is up almost 30 percent this year.

“At the moment I see no braking effect”, said Warburg Research analyst Joerg Philipp Frey.

Nevertheless, experts are afraid of longer-term damage, particularly in the United States, where Adidas is fighting to reverse a loss of market share to bigger rival Nike.

“Such topics make bigger waves than in the past,” said Speich. “These issues have a different status in the United States than in Germany.”

Source: (Reuters)

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