NEW YORK — Two Adidas officials and an aspiring NBA agent were found guilty of fraud charges Wednesday in connection with schemes to secretly pay the families of top basketball recruits to secure their commitments to Adidas-sponsored college teams.
The jury’s verdict, which came after more than two days of deliberations following a three-week trial, delivered a victory to federal prosecutors and FBI agents in New York City, who have spent more than three years investigating the college basketball black market and have two more trials stemming from the probe scheduled for next year.
In siding with prosecutors, the jury embraced the government’s theory that, by paying the families of five top recruits amounts ranging from $2,500 to $90,000, in violation of NCAA rules, the men defrauded Louisville, Kansas and North Carolina State. The schools would not have awarded scholarships to those recruits if they had known about the illicit payments, prosecutors argued, and now face possible NCAA sanctions and financial penalties as a result.
The defendants — Jim Gatto, a veteran Adidas basketball marketing manager; Merl Code, a former consultant for Adidas basketball who formerly worked for Nike; and Christian Dawkins, a former recruiter for ASM, a prominent sports agency — each face potentially lengthy prison terms for convictions of wire fraud and wire fraud conspiracy.
The convictions carry potential sentences of up to 20 years, but actual sentences can vary widely depending on a judge’s discretion. Legal observers of the case are not expecting Gatto, Code and Dawkins to receive sentences in excess of a few years each. Gatto will appeal, his lawyer said, and will likely request to remain free pending the outcome, which could take several years. Code and Dawkins, however, still face second trials next year in connection with other illicit payments they allegedly arranged, and now they have more incentive to enter into plea agreements, if prosecutors offer them.
The trial offered a detailed view of what one witness termed “the basketball underground,” the interconnected network of people seeking to influence or profit from elite teenage basketball players: shoe company employees, business managers, recruiters for NBA agents — commonly known as “runners” — and others.
On the stand, Brian Bowen Sr. — whose son “Tugs” Bowen eventually committed to Louisville last year — testified to the bidding war that led up to his son’s college decision. Schools including Creighton, Oklahoma State, Arizona and Texas offered cash amounts ranging as high as $150,000, Bowen Sr. testified, but he ultimately settled on the $100,000 offered by Adidas officials for Louisville, because he felt it was the “best basketball fit.” Bowen Sr. also acknowledged earning thousands in side income off his son’s basketball talents in high school, taking money from Adidas- and Nike-sponsored youth teams, as well as from a high school coach.
Bowen Sr. received just $25,000 from Adidas for his son to play at Louisville, because federal authorities arrested Gatto and the others last September, before the remaining $75,000 was due to be paid in installments. His son never played college basketball and is now playing professionally in Australia. Days after the arrests last September, Louisville effectively fired former coach Rick Pitino, who has adamantly denied knowledge of the payments.
Defense attorneys tried to argue that secret payments to top recruits is common in college basketball, where head coaches make millions of dollars per year, the NCAA rakes in more than a billion, but the players are prohibited from getting paid. The judge, however, prohibited any discussion of the economics of major college sports, and also barred discussion of similar illicit payments arranged by officials at Nike and Under Armour, leaving the defense without much of a case.
And while defense attorneys argued that their clients were acting secretly when arranging these payments only to avoid notice by the NCAA, whose rules are not federal laws, prosecutors had significant evidence of the defendants acting as if they thought they were breaking the law. In wiretapped phone calls and videotaped sting meetings, the defendants explained that cash payments were better, because they are harder to trace. In an email, one Adidas executive referred to these payments as “black ops” and discouraged others from describing them in writing. When Gatto approved the payments for recruits, they were always in sham invoices, for fake expenses, suggesting he didn’t want his superiors at Adidas to know where the money actually went.
“We have strengthened our internal processes and controls and remain committed to ethical and fair business practices,” Adidas said Wednesday in a statement.
Shortly after the verdict was read Wednesday, Dawkins, the youngest of the defendants in his mid-20s, broke down in tears as he hugged his father, Lou Dawkins, an assistant basketball coach at Cleveland State. Gatto, 48, remained emotionless, consoling his wife as she wept. Code, 44, and his father — Merl Code Sr., a judge who served as his son’s attorney — sat still, staring straight ahead at the front of the courtroom for several minutes.
The judge set sentencing for March 5, just 12 days before the unveiling of the field of the annual NCAA men’s basketball tournament, which will again generate more than a billion dollars in revenue and provide a premier showcase on national television for the apparel companies whose shoes and jerseys are worn by the top teams.
In a statement, deputy U.S. Attorney Robert S. Khuzami praised Wednesday’s verdict.
“The defendants not only deceived universities into issuing scholarships under false pretenses,” Khuzami said, “they deprived the universities of their economic rights and tarnished an ideal which makes college sports a beloved tradition by so many fans all over the world.”