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Avenatti's Nike extortion case puts basketball's dark side back in view

March 25, 2019

Nike Inc. may have prevailed over lawyer Michael Avenatti’s alleged attempt to extort the company. But the case has shifted the spotlight back to an uncomfortable place for the sneaker industry: corruption and improper payments in youth basketball.

Avenatti claimed to have information about Nike employees funneling money to elite high school basketball players. If that sounds familiar, it’s likely because there’s an ongoing federal probe into similar actions that continues to bring more embarrassment to college hoops. Already, the investigation has led to multiple arrests and jail sentences for three men—one a former executive at Nike rival Adidas AG.

The latest revelations will do little to quell broader concerns about how youth basketball operates. And the timing—just as fans celebrate the apex of the season—brings another potential distraction to the Indianapolis-based National Collegiate Athletic Association with no shortage of them.

Avenatti was charged Monday by federal prosecutors on both coasts, accused in New York of trying to extort millions of dollars from Nike and in Los Angeles of embezzling money from a client and defrauding a bank.

The charges depict a lawyer desperate for cash and willing to exploit his own clients. In California, prosecutors say, he stole a client’s $1.6 million settlement and used it to cover expenses. In New York, he’s accused of telling Nike he’d cancel a press conference accusing the company of making illegal payoffs to promising basketball players. In exchange, he demanded $1.5 million for an unidentified client, and as much as $25 million for him and another attorney to conduct an internal investigation.

Instead, Nike went to prosecutors. Within a week, Avenatti, 48, was arrested, nabbed on Monday as he was arriving for a meeting at the New York offices of Boies Schiller Flexner LLP, according to a person familiar with the matter. The firm was representing Nike, and its lawyers wore wires to secretly record their conversations with Avenatti, the person said.

Prosecutors on Monday issued an 11-page complaint detailing Avenatti’s repeated attempts to get Nike to pay millions to suppress allegedly damaging information. He claimed to know about Nike employees channeling money to high school players, they said. But the complaint is notable for what it doesn’t say: It makes no judgment on the accuracy of the information Avenatti held about the world’s largest athletic brand.

Prosecutors say Avenatti reached out to Nike earlier this month with details from a client, identified simply as the coach of an Amateur Athletic Union, or AAU, team in California. The squad had a sponsorship agreement with Nike worth about $72,000 per year that Nike had recently decided not to renew.

Avenatti told Nike’s lawyers that his client had evidence that one or more Nike employees authorized and funded payment to the families of top high school basketball recruits, and tried to conceal the payments. The complaint says Avenatti identified three former high school players—who weren’t named—and made reference to others.

In a statement Monday, Nike said it alerted federal prosecutors when Avenatti allegedly tried to extort money from the company. Meanwhile, it’s cooperating with a broader government investigation into NCAA basketball.

“Nike will not be extorted or hide information that is relevant to a government investigation,” the Beaverton, Oregon-based company said. “When Mr. Avenatti attempted to extort Nike over this matter, Nike, with the assistance of outside counsel at Boies Schiller Flexner, aided the investigation.”

Originally announced in September 2017, the federal probe shed light on an underground economy for youth basketball talent that had become an open secret of sorts inside the sport. Money was funneled to top recruits and their families in order to sway their decisions on which school to attended, or which shoe company to sign with as a pro.

That investigation spurred debate about the outsized role that sneaker companies like Nike, Adidas and Under Armour Inc. have in shaping youth basketball. Club teams, like those that compete in the AAU, are often sponsored by those companies and frequently play at tournaments organized by Nike or Adidas.

The sneaker giants also pay tens of millions each year to outfit colleges across the country and—further along in the ecosystem—sign pros to million-dollar endorsement deals.

While no Nike employees have been implicated in that investigation, the company’s grassroots youth basketball division was subpoenaed in connection to the probe.

The scandal prompted some action from college sports’ governing body. The NCAA commissioned a college basketball task force to make recommendations about how to clean up the sport. Chaired by former Secretary of State Condoleezza Rice, the task force called last year on Nike, Adidas and their peers to show more financial transparency regarding business interests in youth basketball.

An NCAA representative declined to comment.

The timing of the Avenatti news couldn’t be worse for college basketball, and not just because its annual men’s tournament is underway. The sport’s business model—having top athletes play for free in front of millions of fans—is facing an unprecedented level of scrutiny.

In the past few weeks alone, the NCAA has been hit with a high-profile antitrust ruling, a congressional bill proposal, and a new admissions scandal—where families were caught bribing coaches to using their admissions sway to help admit non-athletes.

Louisiana State University is playing in the Sweet 16 round of the tournament while its coach is suspended indefinitely because he’s caught up in the federal probe.

Regardless of the outcome of the Nike extortion case, it’s hard for the beleaguered NCAA to see it as good news.

Avenatti gained notoriety by representing the porn actress Stormy Daniels in a lawsuit against President Donald Trump, with whom she claimed to have had an affair. He capitalized on his raised profile by repeatedly assailing Trump and his former attorney, Michael Cohen. He even floated a possible presidential run for himself.

Soon after the arrest, Donald Trump Jr. celebrated the announcement in his own tweet, saying: "Good news for my friend @MichaelAvenatti, if you plead fast enough, you might just get to share a cell with Michael Cohen!"

Avenatti faces years in prison in the two cases.

 

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