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IAAF tries to draw a line under Diack legacy

  • Controversial 10-year deal agreed by outgoing president Lamine Diack in 2014
  • Former chief executive Olivier Gers resigned over the agreement
  • IAAF was not authorised to audit sponsorship deals, or calculation of profit share

The International Association of Athletics Federations (IAAF) has renegotiated sections of its controversial global media and marketing rights partnership with Japanese marketing agency Dentsu agreed by its former president Lamine Diack.

Diack renewed the IAAF’s 10-year partnership with the agency, from 2010-19, into a new 10-year deal, from 2020-29, shortly before he left the organisation. The former president acted unilaterally and agreed the deal without an open tender process. Both of the contracts have been referenced in a French criminal investigation that is due to go to trial later this year or early next.

SportBusiness understands the original agreements were the reason Olivier Gers resigned as the chief executive of the IAAF in March last year. In a press conference to announce his surprising departure, just 18 months after he had taken up the position, Gers said: “While I’m sorry to be leaving, the pre-existing commercial framework makes it difficult for me to apply my talents and fully leverage the assets of the IAAF in the way I would like.”

Now it has emerged the new leadership at the governing body, mandated by the IAAF Council, renegotiated the 2020-29 deal in 2018, sometime after Gers left, even though it was not due to expire until 2029. The changes are thought to relate to the profit share mechanism, costs and the level of collaboration between the agency and the rights-holder in the contract. No further details of the renegotiation have come to light.

‘Unusual provisions’

SportBusiness has seen copies of the original contracts negotiated by Diack, which are attached as supporting evidence in a written exchange between the IAAF’s lawyer, Régis Bergonzi, and Renaud Van Ruymbeke, the French judge investigating the previous regime. In the exchange, dated July 2017, Bergonzi revealed that the 2020-29 agreement included many “unusual provisions” that were not standard market practice.

In the first deal, from 2010 to 2019, Dentsu agreed to pay the IAAF a $180m (£147m/ €162m) minimum guarantee for global rights to the World Athletics Series (WAS), a group of athletics competitions including the World Athletics Championships, the World Indoor Championships, the World Youth Championships and the World Cross Country Championships. The $180m figure was effectively split between two deals: one worth $70m for the WAS media rights in Japan with Tokyo Broadcasting System, and one worth $110m for the global media and marketing rights for the rest of the world, excluding Europe.

In the new 10-year deal from 2020-29, renewed in September 2014 by the outgoing president, Dentsu agreed to pay a $220m guarantee for the same rights, effectively assuring the IAAF of a minimum average revenue of $22m a year.

Both of the deals agreed by Diack defy the prevailing industry orthodoxies. In many modern representation deals – and especially the new generation of long-term joint ventures between agencies and major sports rights-holders – the rights-holder retains its intellectual property while the agency acts as a sales agent for its rights. Although an agency will seek out partnerships with broadcasters or sponsors in these types of partnerships, the rights-holder, or at least the joint venture, is normally a signatory to the final deal agreed with the sponsor or media company in question. In the 2010-19 agreement, and the original 2020-29 deal signed by Diack, the Japanese agency bought out the IAAF’s sponsorship and marketing rights in their entirety for the duration of the contracts. This meant the agency, rather than the federation, would be signatory to all marketing and broadcast partnerships and the IAAF would be unable to audit the sums involved. Just as significantly, the deals meant the federation no longer controlled its own IP.

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The lack of an audit right would have become especially problematic given that there were profit-sharing mechanisms in both of the deals. Contracting party net revenues (the profit shared between the agency and the federation once the guarantee had been exceeded) were calculated after the agency’s fixed ‘operational expenses’ were deducted. After this point, the agency was to share 40 per cent of the over-performance with the IAAF, keeping 60 per cent for itself. There were no performance incentives in either contract to encourage the agency to exceed the cost and minimum guarantee threshold by greater margins.

In the 2010-19 contract, the agency’s expenses were fixed at $4.37m a year ($43.7m over the 10-year cycle). In the 2020-29 deal, the agency’s costs were fixed at $6.5m a year or $65m for the duration of the deal. This meant the agency would have had to generate more than $285m (the $220m guarantee plus $65m costs) in the original 2020-29 contract before it shared any additional revenues with the IAAF.

Bergonzi complained that the money accruing to the IAAF was calculated “solely on the money actually received by Dentsu” and there was effectively nothing in the contract to prevent the agency from declaring whatever it wanted when calculating the profit share.

“The IAAF is not authorized to carry out an audit of Dentsu for any reason whatsoever, neither on the calculation and the payments of sums which are due to it, nor on the authorisation of its rights of ownership to its intellectual property,” he wrote.

He added that “a reasonable and customary contract would calculate the share of profits on the revenues actually generated at source and, in particular, would include the value of payments made in kind (e.g. value of the provision of services and products directly from sponsors).”

‘Third parties’

Rather more seriously, the IAAF’s lawyer suspected that the lack of an audit right, and the lack of clarity about the allocation of the rights, were being exploited by others to siphon profits away from the organisation.

“Dentsu has, on several occasions, assigned its rights to third parties,” he wrote. “This could mean that these corporate strata have in turn taken significant shares of the profits from the rights granted.”

Bergonzi’s suspicions fell on Athletic Management Services (AMS), the Swiss company made up of ISL alumni which was mandated in both contracts to help Dentsu manage the IAAF’s rights after the ISL scandal and bankruptcy in 2001 forced the organisation to seek a new agency partner.

The clause in the contract that shows Dentsu was committed to working with Athletic Management Services (AMS) to exploit the rights ceded by the IAAF under the agreement.

The lawyer alleged that AMS took “significant and hidden shares of each payment made” and that Papa Massata Diack, the son of the former president, also profited in several ways from the deals through his company Pamodzi Consulting (PMD).

According to Bergonzi, IAAF sponsorship and media rights bought by Samsung, Chinese petroleum giant Sinopec, Russian bank VTB, Chinese broadcaster CCTV and Abu Dhabi Media were first assigned to AMS, then to PMD before finally being sold to each of the licensees in question. This allegedly allowed Diack junior to receive a commission on each of the transactions. There is no suggestion that any of the broadcasters or sponsors were involved in any wrongdoing.

In a meeting of the IAAF steering committee in 2016, Bergonzi reported that AMS’s owner and the former head of athletics and basketball at ISL, Stephan Brubacher, explained that in some transactions AMS did not deal with the sponsors or media companies directly, working instead with PMD, which had the right to grant a “sub-licence” of the rights to the partners.

The IAAF’s lawyer wrote that he was bemused that the structure was adopted, “despite the fact that Dentsu and AMS were well aware that Papa Massata Diack had entered into a consulting contract with the IAAF, and was working as a sales agent for AMS, and would therefore benefit from both sides of the transaction.”

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Legal assistance request

It has now emerged that the French investigators signed a legal assistance request in May 2018 calling on Swiss authorities to raid AMS’s offices and question its executives but that the authorities have yet to act on the request. Reuters reports that Judge van Ruymbeke asked the Swiss to secure contracts between AMS and Dentsu, AMS and PMD and contracts relating to broadcast and sponsorship deals with the five companies mentioned. The publication reported that the indictment alleges Diack kept $10m of a $30m sponsorship deal with VTB’s agent, Russian sports marketing agency Sportima, for the bank to sponsor IAAF events from 2007 to 2011.

Diack senior and his son have now been charged in France with embezzling from sponsorship and broadcast deals but have consistently denied any wrongdoing.

SportBusiness approached the IAAF to ask about the new allegations. The organisation responded with a statement saying: “The IAAF has, and continues to, provide all information requested by the French prosecution in all areas of their investigation and advises all organisations associated with the IAAF to do the same.

“As ‘partie civile’ [victim] to the case, we are not able to comment on any specific allegations or information provided but believe the French prosecution is best placed to investigate, substantiate and ultimately bring to a conclusion any and all allegations.”

The organisation confirmed that the original contract had been renegotiated but refused to expand on the minutiae of the updated agreement.

“The IAAF can confirm that its current contract with Dentsu was signed in 2014, with an agreed amendment to the original contract signed in 2018 which included some changes to the terms of the original contract. The contract expires at the end of 2029.”

It is extraordinary to think that Lamine Diack would have signed over control of the IAAF’s rights 15 years into the future. The original 2020-29 contract he negotiated stipulated that the $220m minimum guarantee should be paid in quarterly instalments of $5.5m for the duration of the contract. The first payment on the 2020-29 deal – agreed nearly five years ago – would not have been due until March next year. Equally, the first profit share payment under the original terms of the deal was not due until 2024.

At the time the agreement was announced Nick Davies, then deputy secretary general of the IAAF, said the outgoing president “was very keen to leave a legacy of financial security – a platform for the new president, who won’t have to worry about renegotiating these rights.” The second part of his statement has proven to be untrue.

As to whether the original minimum guarantee represented value for money, Dentsu is known to have exceeded its $180m threshold, and its $43.7m in costs, halfway through the 2010-19 contract. Bergonzi relates in his 2017 letter how Dentsu made two ‘surprising’ advance profit-share payments of $3m in 2013 and $12m in August 2014, just before the 2020-29 contract was renegotiated. This, despite the fact no such payment was due until 2020 in the earlier agreement.

“The IAAF’s consolidated accounts at December 31, 2014 showed a revenue of $3 million in 2013 (the year before the new agreement was signed) and $12million in 2014 under the title “Dentsu profit share,” wrote the lawyer.

“The reason why the terms of the initial IAAF Dentsu agreement were renegotiated on this basis remains at the very least obscure,” he added.

Reuters recently reported that some of the commercial contracts agreed by Lamine Diack could come under further scrutiny in a second, ongoing French enquiry into bribes related to the awarding of the 2020 Olympics and the World Athletics Championships. Closure is likely to prove elusive for the IAAF while the investigation continues.

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