25th January, 2016

Adidas to terminate sponsorship deal with IAAF amidst doping scandal

Newly-installed president of the International Association of Athletics Federations (IAAF) Lord Coe faces a particularly difficult day at the office today, as the fallout from the doping scandal morphs from crisis into near catastrophe, writes Richard Fox.

As reports circulate worldwide about the early termination by Adidas of its eleven year sponsorship deal with the governing body, the media spotlight once again picks out the IAAF for all the wrong reasons.

It appears that the massive German sportswear group has been considering backing out of the contract since the publication two months ago of the World Anti-Doping Agency (WADA)'s first report on the illegal use of drugs.

The sport has of course witnessed the fall from grace of a number of top individual athletes, following drug abuse investigations, over many decades. These proven misdeeds, together with ongoing rumours of drug abuse, have compounded the undermining of its reputation. But such single instances of infractions of the rules pale into insignificance in comparison with WADA's allegations of "state-sponsored doping" of athletes by Russia.

Adidas' decision comes hot on the heels of the release of WADA's second report (see press conference below), which found that individuals at the governing body extorted money from athletes in exchange for covering up doping results.

"It is now important that the IAAF, under the leadership of Sebastian Coe, adopts the recommendations of the Report in full", said WADA President, Sir Craig Reedie. "For our part, WADA looks forward to working alongside the IAAF to strengthen its anti-doping activities and regain the confidence of its clean athletes worldwide".

As a company, Adidas appears in rude good health currently. Just a week ago, the Supervisory Board of adidas AG announced 53 year old Kasper Rorsted as successor for the long-standing adidas CEO Herbert Hainer, effective August 1st, 2016.

Adidas Group CFO Robin Stalker last month put out a bullish statement about the company's trading position. "We are well-prepared to cope with the cost pressure that the entire industry will be facing next year", he said. "On the one hand, our brands and products are enjoying strong momentum. On the other hand, we are optimising our processes throughout the Group and along the entire supply chain to drive further efficiency gains and we are continuing our structured hedging approach. We therefore have all the levers in our hand that will enable us to stay on our growth path in 2016 – and beyond".

When the reputations of sportsmen and women or organisations were called into question in the past, sponsors often stuck by them through the choppy waters of adverse media publicity, figuring that, after the hubbub died down, their investment would begin to pay off again. This is still the case in many areas. Indeed, adidas appears to be sticking by FIFA.

But increasingly major sponsors seem to be concluding that there is much more positive PR advantage to be gained from walking away from the bad odour of corruption and adverse publicity. Being seen to publicly shun and condemn such activities is seen more and more as a means of enhancing public perception of a brand.

Press speculation suggests that the total future value of the adidas deal to the IAAF is in excess of £20m (around $US 28.5m, 26.4m euros).

No doubt there will be many legal hurdles to surmount before the eventual result of this decision is finally known.

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