Is Nike (NYSE:NKE) likely guilty of something like the bribery accusations being levied against it? Maybe. Does its accuser, now-infamous attorney Michael Avenatti, have a credibility problem? Absolutely. Is this something owners of Nike stock need to worry about? Nope.
This past weekend, lawyer Michael Avenatti followed through on a threat to publicly release what he described as “evidence showing Nike bribed players to attend ‘Nike’ colleges.”
The development extends an ever-lengthening saga. In March, Avenatti was arrested for extortion of Nike, embezzlement, and defrauding a bank. Hid demand of $20 million from Nike was in exchange for not releasing what he deemed to be documentations of Nike’s wrongdoing. That document is publicly available via dropbox, and even if only half-true, is still rather damning.
On the other hand, even if true, it’s not exactly shocking, nor is it game-changing. Avenatti’s involvement itself may further muster public support of Nike.
Extortion Claims and Nike Stock
If the name rings a bell, there’s a reason. Michael Avenatti is the same lawyer that represented porn film star Stormy Daniels in her legal battle against President Donald Trump. Avenatti also represented Brett Kavanaugh accuser Julie Swetnick.
His recent track record is less than solid. Kavanaugh became a Supreme Court justice, and Daniels now owes Trump nearly $300,000 in legal fees over a now-dismissed defamation lawsuit.
Somehow high-profile scandals seem to find the attorney. Or, he finds high-profile scandals.
The latest row with Nike looks and seems like the latter.
That is, in March, Avenatti publicly threatened to release what he claimed was proof of bribery unless Nike wrote Avenetti a check for as much as $20 million in exchange for his silence on the matter.
In a private phone conversation with Nike’s attorneys, allegedly heard by law enforcement officials, Avenatti went on to threaten doing damage to the sports apparel company’s market cap by reducing the value of Nike stock.
Though the court of public opinion may be even more powerful than the judicial system in this era, it’s still a poor legal strategy. Avenatti was not acting on behalf of anyone claiming to be injured by Nike’s actions. It appeared, for all intents and purposes, he had gathered data for the sole purpose of forcing Nike to pay him a large sum of money.
Going public with the claim rather than approaching Nike privately only forced the organization to double down on its defense.
His arrest in March suggests federal prosecutors are thinking along those same lines.
Allegations and Response
The 41 page document appears to show email exchanges, text messaging threads, banks statements and other evidence involving Nike Elite Youth Basketball executives Carlton DeBose and Jamal James. The document also implicates Gary Franklin, of California Supreme Youth Basketball, as the person who largely carried out what’s roughly $170,000 worth of bribes made over the course of the past several years.
The document also alleges Nike paid money to Zion Williamson’s mother, Sharonda Sampson.
Williamson, a freshman, played basketball for Nike-sponsored Duke University this season, and is widely expected to be a first round NBA draft pick later this year, where he’s almost assured a lucrative endorsement deal.
Under Armour (NYSE:UAA, NYSE:UA), Puma and Adidas (OTCMKTS:ADDYY) are all potential brands Williamson could partner with, though through Duke he’s clearly familiar with Nike.
Nike’s response thus far has been modest, but effectively so. The company has only commented:
“Nike will not respond to the allegations of an individual facing federal charges of fraud and extortion and aid in his disgraceful attempts to distract from the athletes on the court at the height of the tournament. Nike will continue its cooperation with the government’s investigation into grassroots basketball and the related extortion case.”
The sports apparel organization may be hoping the media and Avenatti’s dinged reputation will be enough to deflate the matter. It’s not a bad bet.
But, are any of the accusations true?
That remains to be seen, though it would be bold for Avanetti to fabricate an entire 41 pages of false documentation, particularly given he’s facing up to 100 years in jail if extortion charges against him stick.
But, bolstering his argument are the October revelations of the findings from an FBI investigation that sought to identify how, and to what extent, athletes were being compensated beyond scholarships to play for a particular school. The under-the-table cash payments are, to put it bluntly, sizeable and not abnormal for most schools and brands.
Bottom Line for Nike Stock
Though ugly, the matter is neither surprising nor troubling for investors and consumers that have largely become desensitized to questionable decisions. While two wrongs don’t make a right, a series of wrongs at least levels the playing field. It would be surprising is Nike wasn’t doing something akin to what Avanetti has alleged.
It’s just the nature of the beast. There’s very little left that’s “amateurish” about collegiate sports, which has become a multibillion dollar business as well as a proving ground for potential professional sports stars.
For better or worse, this has all been quietly, tacitly built into the price of Nike stock. Avanetti’s claims aren’t something investors didn’t quietly suspect already. It simply lays out more details of those suspicions.
Avanetti’s name being attached to the accusation only weakens the accusation.
It’s not a matter that’s going to do grave damage to the company’s stature.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.
