In November 2016, according to court documents unsealed this past week in New York, one of the nation’s top high school basketball players and his mother signed forms so the player could accept an athletic scholarship from Kansas.
In the forms — similar to those signed by more than 460,000 athletes at NCAA schools each year — both the player and his mother asserted they had no knowledge of any violations of NCAA rules regarding amateurism. Over the years, the NCAA has interpreted amateurism rules to prohibit a long list of benefits for players and families, ranging from luxury cars and duffel bags full of cash to more modest perks, such as gas money and free meals.
When the player’s mom signed those forms, she was lying, according to federal prosecutors, who did not identify her or her son in court documents. Just days before, prosecutors allege, the mother had met with an Adidas consultant in a hotel in New York and accepted $30,000 in cash — routed through one of Adidas’s grass-roots teams — meant to ensure her son enrolled at Kansas, one of Adidas’s premier endorsed college programs, and if he made it to the NBA, signed an endorsement deal with the apparel company.
In college basketball circles, this allegation, contained in an indictment charging an Adidas executive with wire fraud for arranging the payment, was the latest sign that the Justice Department probe of the basketball black market is far from over.
To economists and lawyers familiar with both federal law enforcement and college sports, however, this past week’s charges brought into sharper focus an aspect of the investigation that has puzzled them for months: The FBI and federal prosecutors in New York are trying to put people in prison for paying college athletes and their families.
“I still can’t figure out why the FBI is involved with this,” said Dan Rascher, a California economist who has consulted for college athletes on lawsuits challenging NCAA rules. “There’s literally no problem at all with people being paid for their skills to provide value to an educational institution — except if the people we’re talking about are college athletes.”
By making money from her son’s talent and lying about it, prosecutors allege, the mother conspired with Adidas officials to defraud Kansas, which could have faced fines and other sanctions if the NCAA learned of the payments. This theory of fraud, which casts the schools as victims because players or their parents have secretly taken money, is rare but has been deployed at least twice by federal prosecutors: in a 1980s case involving a sports agent with ties to the mafia and in a 2000s case involving a convicted cocaine dealer making it rich as an AAU coach.
Six months after the first arrests, however, the FBI and prosecutors in New York have yet to make public any allegations involving mob ties or drug dealers — or even tax evasion, which some legal experts expected eventually would emerge, offering justification for the public money spent.
A spokesman for prosecutors in the Southern District of New York, who are overseeing the investigation, declined to comment.
In the scenario involving the Kansas recruit, according to prosecutors, the fraud occurred when the mother signed those forms despite knowing she had taken money for her son’s talents, a violation of NCAA rules. The mother, according to court documents, is an unindicted co-conspirator of the Adidas executive.
The victim of this fraud conspiracy, according to prosecutors? Kansas, a school with one of the wealthiest college basketball programs in the country, whose coach makes nearly $5 million annually to oversee an amateur team that is regularly one of the star attractions in the Big 12 Conference (which has packaged basketball and football television rights to help generate $371 million in annual revenue) and in the NCAA tournament (which generates more than $850 million for the NCAA and member schools each year).
The mother was not charged with a crime, but according to experts familiar with federal investigations, she probably will be threatened with the prospect of arrest by prosecutors, if she hasn’t been already, as they seek her testimony against Adidas officials.
The latest charges, which also involve a recruit whose father allegedly took $40,000 from Adidas to secure his son’s commitment to North Carolina State, rest entirely upon the same NCAA rules that are the subject of a federal antitrust lawsuit in California. Lawyers representing athletes in that case, set for trial in December, are portraying the NCAA and schools as a cartel that colludes to cap the earnings of college athletes at the value of a scholarship, sending hundreds of millions of dollars in excess revenue into school coffers and paychecks for coaches and administrators.
The NCAA, on its website, defends amateurism as a “bedrock principle of college athletics.” Amateurism rules, the NCAA states, “ensure the students’ priority remains on obtaining a quality educational experience and that all of [the] student-athletes are competing equitably.”
If the NCAA permitted college athletes to sign endorsement deals with shoe companies — as Olympic organizations do with their athletes, legal experts noted — prosecutors would have been unable to file the wire fraud charges announced this past week against Jim Gatto, an Adidas marketing executive who faces charges for similar allegations of arranging payments to steer recruits to Miami and Louisville.
“There are no true victims here. It’s a derivative crime based on alleged violations of a private, nonprofit entity’s internal bylaws,” said Don Jackson, an Alabama attorney who has represented athletes in NCAA rules compliance cases. “This would be like someone lying on an application to the 4-H club and getting charged with wire fraud.”
Jackson is among many who note that even the NCAA has struggled to determine when shoe-company money flowing into a youth team is against its rules.
Among those who run grass-roots basketball teams, the key to procuring shoe-company money has long been clear: Get the top high school players. Such a star often can bring his team a shoe-company sponsorship, which can run as much as $100,000 or $150,000 per year, to engender the kind of loyalty that will lead the player to choose to play for one of the college basketball programs that are sponsored by the company and, ultimately, to sign an endorsement deal with the company if he makes it to the NBA. Nike, Adidas and Under Armour are the dominant spenders in the grass-roots market.
In 2009, Jackson represented Renardo Sidney, a Mississippi State player who drew the NCAA’s attention because Reebok had sponsored his grass-roots team and had hired his father to a consultant’s position. The NCAA ultimately suspended Sidney for a season, ruling, among other violations, that Sidney’s father couldn’t properly account for money that had flowed into a nonprofit foundation he had created that was connected to the Reebok-sponsored team.
This year, however, the NCAA approved Duke freshman star Marvin Bagley III as eligible, even though the circumstances surrounding his father’s relationship with Nike raised questions around grass-roots and college basketball. As reported by the Oregonian last month, Bagley’s family was struggling financially a few years ago, shortly before Nike agreed to sponsor Phoenix Phamily, the grass-roots team featuring Bagley III as a player and his father, Marvin Bagley Jr., as coach and team director.
In a 2016 interview with Sports Illustrated, Bagley Jr. — who did not return a request for comment — said the family was relying on the Nike sponsorship and a fledgling apparel company he had created to “make ends meet.”
Bagley III attended Duke, one of Nike’s premier endorsed college teams, and after one year with the Blue Devils, he declared for the NBA draft and is expected to be among the first players selected. He has not made his shoe endorsement plans public, but he is widely expected to sign with Nike.
Duke basketball officials declined to comment when asked about Bagley’s eligibility. The NCAA also declined to comment.
There are significant differences between the details publicly known about Nike’s dealings with the Bagleys and the specifics alleged in court documents of Adidas’s dealings with representatives of recruits. Nike signed Bagley’s team to a publicly announced sponsorship. Adidas’s Gatto is accused of arranging cash handoffs to families of recruits through an Adidas consultant who oversaw several grass-roots teams and, at N.C State, through an assistant coach who has not been identified.
The economic realities of these deals are basically the same, though, economists noted. Top high school recruits have more financial value — to shoe companies, agents and financial advisers — than NCAA rules allow them to earn.
After the first round of arrests in September, the NCAA created a commission, led by former secretary of state Condoleezza Rice, to propose rules changes in college basketball. Unless the commission recommends Olympic-style rules permitting athletes to sign endorsement deals, economists and legal experts doubt it will have a significant impact in reducing these secret dealings that prosecutors in New York argue are defrauding major colleges.
“When you have a system that generates billions of dollars in revenue and you have an unpaid labor force, you’re going to breed a black market,” Jackson said. “That’s just a fact.”