Monday, February 16, 2009


No, no, this isn’t about a player. Sorry to disappoint.

This is about an ongoing story from the business world is that of Stanford Financial.

In the wake of the Bernie Madoff scandal and the controversial Troubled Asset Relief Program (a.k.a. The Bailout), Stanford Financial has undergone some intense scrutiny, though outside of the business media, there is little traction gained from this story. Stanford is being investigated by the Securities Exchange Commission (SEC) as well as the FBI for dealings through its offshore bank in Antigua. The SEC is trying to determine how Stanford can sell CDs (certificates of deposit) that offer yields of twice the industry average when many assets that the company invests in have rapidly eroded in the last two years.

Even though the alma mater provided a tremendous business education, I can still claim to be a complete idiot in the realm of finance, so it would be unfair to burden you with any more details without the wisdom or savvy to walk you through it.

Why is this important to Scribe?

BusinessWeek’s Unstructured Finance blog has been following this news closely along with its originator, the Wall Street Journal, Reuters, Bloomberg and all other important business media. Matthew Goldstein brought up Stanford’s sports marketing deals; most notably its arrangement with one of the best golfers in the world, Vijay Singh.

“One can only imagine how professional golfer Vijay Singh is feeling in the wake of the news that securities regulators and other federal authorities are investigating Texas-born billionaire R. Allen Stanford’s fast-growing financial services firm.
In January, Singh, one of the world’s top-ranked golfers, inked a marketing deal with the 58-year-old financier’s Stanford Financial. In return for an undisclosed sum of cash, Singh agreed to make the Houston-based company’s golden eagle logo the main brand appearing on his apparel clothes and golf bag. Trade publication Street & Smith’s Sport Business Journal, which first reported the deal, said the arrangement is expected to last up to five years.
The deal with Singh is just another in a string of high-profile sports marketing arrangements that Stanford Financial has struck in the US and in the Caribbean island nation of Antigua, where the firm’s controversial offshore bank, Stanford International Bank, is located. Allen Stanford has used the sports marketing deals to raise the international profile of his $50 billion firm and help attract wealthy buyers for the high-yielding certificates of deposit issued by its offshore bank.”
Recently, there was news that Citigroup, the naming rights holder for the new baseball field for the New York Mets, may consider severing their deal with NYC’s National League club to halt a simmering public relations disaster as it is one of the companies currently accepting bailout money from the American government. Whether or not Citi Field will remain as such remains to be seen (as of now, it will), however, it appears that for the second time this decade, sports sponsorships are coming into the forefront because of maligned (at best) companies.

It was between 2000 and 2002 that several high-profile accounting and securities fraud scandals broke out; the most notorious of all belonging to Enron. Before the house of cards fell, the Houston-based company purchased the naming rights – a thirty-year, $100 million deal – to the new ballpark for the Astros in 1999. It was Chairman and CEO Kenneth Lay who threw out the ceremonial first pitch in the building’s history. Of course, when the company was investigated by the SEC for irregular accounting practices (along with the former Arthur Andersen), the Astros relinquished the naming rights as a result of the public relations nightmare this scandal had become. The death of Enron Field gave way to the current Minute Maid Park, nicknamed the Juice Box.

Enron was not the only fraudulent company with naming rights as Adelphia Communications had a deal with the Tennessee Titans for what is now known as LP Field in Nashville. The cable company, once the fifth largest in the United States, also brokered their deal in 1999 after the team moved across the state from their temporary home in Memphis to start their after-Houston Oilers life. The Rigases (father John and sons Timothy and Michael) had hid $2.3 billion in liabilities from their books and apparently used the funds for personal gain. In the sports realm, what makes this scandal worse than Enron or Citigroup is that not only was John Rigas the majority owner of the Buffalo Sabres, but Adelphia created a regional sports network and a sports radio station in western New York.

That era produced several notorious naming rights and sponsorship fiascos evidenced here as many companies went belly-up because of corrupt management or overinflated value leading to the dot-com bust. You would think that history wouldn’t repeat itself so soon.

Unfortunately for some teams, individual athletes and leagues, they have to contend with these business calamities as their partners seem to bring more trouble than these long-term deals may be worth. Now with the current climate from Wall Street to 150th Street to everywhere else besides Main Street, the sports world has to be asking itself “is there anybody on the up-and-up?” Even more, the companies looking to sports as a promotional avenue (and an ego-booster of immense proportions) are becoming more wary of doing so to avoid the perception of having their more-than-ever finite cash flow invested somewhere not so feasible to the public.

And so, I pose this to all, regardless of your background: should companies cut back or eliminate their sports marketing programs?

Also, check the poll on the right.

No comments: