- Former Infront executive under investigation for ripping off sponsors of the German FA; current member of staff suspended
- Scam shows how an agency executive can make millions by conning trusting clients
- Operatives say rip-off is not widespread in the industry but is still a wake-up call for brands
One second. Who’s going to notice one second? Nobody. Not for a long time anyway. Until someone did.
And that’s where the trouble began for the Infront agency. And for the Deutscher Fußball-Bund, Germany’s embattled football association.
On May 24, just as the Infront agency’s parent company, Wanda Sports, was gearing up for its New York initial public offering, Infront published a statement saying that it had been notified by the public prosecutor in Thurgau, Switzerland, of a pending criminal investigation into one of its former employees for “disloyal and unfaithful business management” in relation to contracts between sponsors and the DFB – contracts agreed by Infront.
The alleged scam worked like this: the agency sold multiple advertisers – DFB official sponsors and others – three minutes each per match of LED perimeter board time for Germany national men’s team home games, broken into six 30-second blocks. But instead of 30 seconds, many brands got 29 seconds.
Over 90 minutes, it freed up a further 180 seconds, or another valuable three minutes. This time was sold to other brands, with the executive allegedly diverting the funds into a private account.
In addition to the LED scam, Infront said it had learned that “gifts, at Infront’s cost, were provided by the former employee to employees of at least one of Infront’s clients that exceeded reasonable and customary values”.
The agency has “applied to constitute itself as a victim in this criminal procedure and is cooperating fully with the prosecuting authorities”.
On June 7, the prospectus for the impending Nasdaq IPO of Wanda Sports revealed Infront had offered to repay clients a total of €6m ($6.6m). The amount could have been higher but under the statute of limitations in Swiss law compensation is confined to a period of 10 years.
Infront told SportBusiness Review: “Many clients have already accepted our compensation offer and have been refunded. With some clients we are still in an ongoing dialogue. We do not discuss individual cases. The total estimated compensation indicated in the filing document is still accurate.”
The scandal has plunged the DFB and Infront into crisis. It also raises questions for the wider sports sponsorship industry.
Federation at the crossroads
The last thing the DFB needed was another scandal.
In November 2015, federation president Wolfgang Niersbach resigned following bribery allegations relating to the 2006 Fifa World Cup, which took place in Germany. The following July, Fifa’s ethics committee banned him from all football activities for one year.
Niersbach’s replacement, Reinhard Grindel, resigned in April this year after he was criticised for receiving a €6,000 watch from Ukrainian businessman and Uefa vice-president Grigoriy Surkis.
Fritz Keller, the 62-year-old president of Bundesliga club Freiburg, is expected to be confirmed as new DFB president later this month. He will inherit the LED scandal and is expected to take swift action.
A senior German football executive said one of Keller’s tasks would be to implement new compliance structures. “They are trying to be transparent, but they could be even more so. He’s a very good choice. Nobody can question Keller for having personal or political interests. No chance.”
Infront’s view is that it has “binding and valid agreements in place with the DFB and will continue to deliver the agreed services.”
But few in the industry expect the Infront marketing rights contract to survive. The question is whether it will be rescinded immediately or allowed to expire naturally. But there are lingering doubts in the industry that the kind of deep human relationships which underlie 40-year commercial relationships might be working against such an outcome behind the scenes.
As one well-placed source put it in a statement given to SportBusiness: “Under normal circumstances, you would expect the DFB to terminate the agreement straight away. The partnership should not be able to survive. But we’ll see. Anecdotally, over the years, we have all heard about agencies making higher bids than Infront for DFB rights and not getting the rights. It’s about people working with each other for a very long time.”
To date, no DFB executives or staff have been implicated in the scam, although German media outlets claim at least one member of staff has been sacked in connection with the case.
The federation has yet to say anything publicly about the scandal, but informed sources say it will do so at the end of the month.
Infront a bit behind
In 2011, the federation made Infront its global media-rights adviser, in a deal which covered media and marketing rights to both German national team games and the domestic cup competition. The large-scale centralisation of the media rights to European national teams by Uefa to create the European Qualifiers and Nations League later took a deep swathe of the value out of the deal for Infront but in 2015 the deal for the cup rights was extended.
These were the most recent deals in a relationship which stretches back to 1980, when the late Swiss entrepreneur Cesar W. Lühti began selling advertising for the federation. His agency, CWL Telesport, handled the sales and expanded the business to include other federations. CWL was bought in 1997 by the Kirch Group. When Kirch went bust in 2002, CWL was one of the divisions that was folded into the newly formed Infront Sports & Media agency.
In 1984, Lühti brought in Günter Netzer, the former German international and Borussia Mönchengladbach star. Netzer became the key man in the relationship between CWL/Infront and the DFB and, for many in Germany, remains so to this day. There is no suggestion that Netzer was involved in the scam.
There are few executives in the sports industry as obsessed with compliance as Infront president and chief executive Philippe Blatter. When SportBusiness visited him at Infront’s headquarters in Zug, Switzerland in 2016, he was at pains to point out the extent of the compliance procedures Infront had put in place. Yet the fact remains this happened on his watch.
Infront has already taken action to address what it has identified as “material weaknesses” in its internal compliance mechanisms.
In its IPO filing it says: “The first material weakness identified relates to our lack of dedicated resources and experienced personnel involved in the designing and reviewing of internal controls over financial reporting. A second material weakness in our internal control over financial reporting…relates to lack of segregation at Infront of duties between sales and execution of contracts, invoicing and implementation of services to prevent and detect fraud.”
The company is continuing to conduct its own investigation, which will focus heavily on Infront’s historic relationship with the DFB, one of the oldest in the industry.
Executives involved in similar business activities at other agencies say that it is inconceivable that the scam could have been carried out for so long by just one person, without the collaboration – or at least the knowledge – of other actors. There were simply too many transactions involved at too many levels.
An experienced sports lawyer told SportBusiness that “anyone who even knew it was going on and did nothing is liable for prosecution”.
In its IPO prospectus Wanda admitted that other Infront executives had been implicated by the former employee under investigation: “The former employee has made certain formal allegations involving certain senior Infront employees as to their involvement in the fraudulent activities, which we believe, based on Infront’s ongoing internal investigations, are without merit. The former employee may, in the future, continue to make these, or other, allegations.”
Infront provided the following statement on its own findings: “We assume that the former employee is responsible for the alleged fraud. To the best of our knowledge, all other persons – directly or indirectly reporting to the former employee – who were involved in the operational execution of the perimeter board advertising time reductions acted on the instructions of the former employee. Another employee has voluntarily reported his involvement in the case and is cooperating fully with the authorities. The employee had already been suspended.”
Lack of brand awareness
One obvious question which the case throws up is: how could the kind of sophisticated global corporations that sponsor the DFB get scammed in this way for so many years?
Here are two lawyers, one in the UK and one in Germany, who between them have worked on hundreds of European football sponsorship contracts:
Lawyer 1: “Brands have protections built into their contracts. But in my experience no one ever bothers checking. It’s all done on trust.”
Lawyer 2: “You can put anything you like into one of these contracts. But there is a 90-per-cent probability that nobody at the brands will check.”
The remarkable similarity in their answers would appear to point to a problem. As brands have become obsessed with evaluating ROI, measuring the impact of their inventory, they have taken their eye off the ball on something much more basic: checking they get the inventory they paid for. They trust the marketing agencies totally.
One of the lawyers breaks down the way brands are protected.
“Guaranteeing that your blocks of time have actually been displayed at the match is controlled in two ways. First, the agency will be required by contract to provide you with screen shots and a print-out of time during which the advertising is being displayed. It may also provide a DVD. The most crucial bit of LED is within the TV arc. Nowadays, all matches are filmed, even if not every game is broadcast live. The agency will get a recording from the TV company. There is other manually obtained evidence. Some agencies will send someone to matches with a stopwatch. The brand would usually have a right of audit. You build all these reporting mechanisms into the contract.”
Which is all fairly pointless if nobody is actually analysing any of it.
Lawyers and sponsorship consultants told SportBusiness that the scandal demonstrated brands need to start taking their advice. Their overall message is: Use your rights. Don’t put the contract in a cupboard and let it collect dust.
That includes things like:
- carrying out spot checks at matches to make sure you get the rights in your contract
- making sure you get the match tapes and checking them
- requesting an audit from the agency where you have any doubts
- employing a third party, like Nielsen, to carry out the analysis if you don’t have the time or resources to do it yourself.
Very few people working in football sponsorship believe that the kind of scam under investigation was or is widespread. Many think it was probably unique.
The window of opportunity for a scam involving national team LED time was relatively short. It started when LED boards started to become the norm, around 2005 to 2006, and ended when most of the signage inventory was centralised by Uefa ahead of the qualifiers for the 2014 World Cup.
But for clubs in domestic league competitions the bulk of LED inventory is still sold in this way. The potential for such a con still exists. And brands sponsoring football clubs need to wise up.
THIS ARTICLE WAS AMENDED ON SEPTEMBER 19, 2019, TO REFLECT COMMENTS FROM INFRONT WHICH HAD NOT ARRIVED IN TIME FOR THE ORIGINAL PUBLICATION