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Inside the basketball black market that put Adidas in the FBI's crosshairs

Adidas-branded shoes and socks abound at an Adidas Gauntlet tournament in New York, part of the German apparel company's "grassroots" efforts.

ANTHONY GEATHERS/FOR THE WASHINGTON POST

By WILL HOBSON | The Washington Post | Published: October 1, 2018

Black banners embossed with the familiar white, three-stripe Adidas logo draped the banquet room of the SLS Las Vegas resort one morning in late January 2017. Adidas had flown managers of its more than 40 youth basketball teams to Las Vegas to discuss, among other things, upcoming recruiting battles with Nike and Under Armour.

The morning began with a presentation by NCAA staffers, who explained their efforts to keep teenagers in shoe-company leagues from breaking NCAA rules, which included a short video urging youngsters to never take money for their athletic talents.

A few minutes after the NCAA officials left, Chris Rivers, Adidas executive in charge of youth basketball, explained to the new faces in the room why a German apparel company spends millions of dollars on what the industry calls "grassroots."

"The only [expletive] reason we're here is for pro prospects," Rivers said, according to three people in the room who requested anonymity. "We are here to sign professional athletes."

Rivers is the former longtime No. 2 to Sonny Vaccaro, the famed former Nike, Reebok and Adidas executive considered the godfather of grassroots basketball. Dressed casually in Adidas gear, clothing that undersold his stature in college and professional basketball, Rivers warned Adidas team managers that the competition at Nike and Under Armour would "be doing things dirty," according to people who were in the room, and said if they needed assistance recruiting a prospect, to contact him or one of his top consultants, a group he referred to as his "elite crew."

"There are ways we can help," Rivers said.

Eight months later, Rivers watched with bewilderment as FBI agents swarmed the suburban Portland, Oregon, home of his boss, and neighbor, Adidas executive Jim Gatto. In South Carolina, agents led one of Rivers's consultants away in handcuffs. The next day, in New Jersey, agents streamed into the office of a prominent NBA agent who had considerable influence over Adidas grassroots. A few months later, in Massachusetts, another member of Rivers's "elite crew" also found himself facing FBI agents.

For more than two years, the Justice Department had been investigating basketball's shadow economy - the secretive dealings among shoe companies, college coaches, NBA agents and elite teenage basketball players and those close to them. Federal authorities also were looking into Nike and Under Armour, and at a news conference, a top FBI official suggested more arrests would come. The NCAA expressed outrage and acknowledged a need for systemic change.

A year later, however - as the first trial to stem from the probe starts Monday in New York - there is a growing perception among basketball insiders that the Justice Department investigation will not fundamentally alter college basketball or the black market that surrounds the sport, but instead will become the latest scandal to punish operators at the lower rungs of this shadow economy, while leaving the larger forces fueling it untouched.

This story is based on interviews with dozens of people at all levels of the basketball economy, including NBA agents, college coaches, grassroots coaches and shoe company consultants. Most spoke on condition of anonymity, to discuss their knowledge of dealings they thought were NCAA rule violations, not federal crimes.

Adidas, Nike and Under Armour declined to make any employees available for interviews. Rivers, who according to two people in Adidas grassroots has been placed on administrative leave, has not been charged with a crime, and did not reply to several voice messages and emails.

This week, in New York, federal prosecutors will try a case based on a disputed legal theory that makes it a federal crime to break NCAA rules. Two Adidas officials and an aspiring NBA agent face charges connected to accusations they brokered deals to pay the families of top recruits to steer players to Adidas-sponsored teams.

The alleged transactions - $100,000 for one Louisville recruit, $90,000 for one Kansas recruit - underscore the tension at the heart of college basketball: Star players are worth far more to shoe companies, agents and schools than they are permitted to earn by the NCAA, a multibillion-dollar entity that enjoys nonprofit status. Absent historic changes to NCAA rules, according to economists who've studied the sport, this tension will remain, fueling a black market long after FBI agents and prosecutors in New York lose interest.

"That machine's just going to keep on moving," one former Adidas grassroots coach said. "The NCAA's too big to fail.

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The first thing you need to understand about the basketball black market is that all of it - the grassroots leagues where thousands play, the salaries for shoe-company consultants recruiting for those leagues, the handlers with their hands out and the runners for agents who saunter around hotel lobbies at grassroots events and, when asked who they work for, smile and say "independent contractor" - is fueled by the top 10 to 15 teenage boys playing basketball in each grade, across America.

Projecting the potential of teenage athletes is an inexact science in all sports, but less so in basketball, where scouts usually can spot professional-level talent by the time a player is 16 or 17. Of the top 15 high school seniors in the country in June 2017, according to ESPN's rankings, 12 were selected by NBA teams at this past June's draft.

For Nike, Adidas and Under Armour, grassroots basketball is an educated gamble - money spent in the hope that, among thousands of teenagers playing in their leagues, a few will become recognizable stars for their sponsored college teams and develop into NBA players worthy of endorsement deals. The overarching strategy is to cast a wide net and hopefully attract the next generational talent who will develop a lifelong affinity for the brand - and sell truckloads of shoes.

"Nike, Adidas and Under Armour say, 'Hey, if we allocate a few million a year, and it eventually gets us the next LeBron, then it's worth it,'" one former Under Armour coach said. "All it takes is one star."

The three companies do not publicly disclose how much they spend on grassroots leagues. In interviews, grassroots coaches in all three leagues said sponsorships range from $50,000 to $150,000 annually, with most teams on the lower end of the range. Using a conservative estimate based on these figures and the number of teams in each league, Adidas spends at least $2.5 million annually on grassroots, Nike $2 million and Under Armour $1.5 million.

Nike has long dominated basketball shoe sales, according to an industry analyst, because of its relationship with two megastars - Michael Jordan and LeBron James - and its control of college ranks.

"It's the kind of thing they've built over the years, and really nurtured," said Matt Powell, senior adviser for market research firm NPD.

In 2017, according to Powell, Nike captured about 74 percent of the $940 million American basketball shoe market, followed by Under Armour, at 12.1 percent, and Jordan brand - a Nike subsidiary - at 7.8 percent. Adidas was a distant fourth, with just 4.8 percent.

Nike's stronghold in college basketball - 56 of the 87 schools in the top seven basketball conferences wear Nike, compared with 18 wearing Under Armour and 13 wearing Adidas - is what incited the shoe-company-spending arms race to spread into youth basketball.

Collectively, the three shoe-company leagues act as a farm system for the next generation of college and NBA stars. And since their inception, these leagues have drawn the attention of people whose livelihood depends on getting close to those very same prospects.

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The offers from agents and their runners start to flow in shortly after the player ascends national rankings, the former grassroots coach said, but they seldom go right to the player. Instead, the offers go to whoever is seen as close to the player: a parent, an uncle or the grassroots coach.

The former grassroots coach, who worked for a team sponsored by one of the three companies, agreed to discuss the offers he received when one of his players, then 16, became one of the country's top 10 players in his class a few years ago.

The runner for one agent said he could get a prominent college coach to personally donate to the grassroots team - funding a significant salary increase for the grassroots coach - if the player promised to attend that school and then sign with the runner's agency.

One agent offered to call friends in the shoe company's grassroots management and convince them to commit to a multiyear, six-figure sponsorship for the coach.

Another agent said he had partners overseas who could direct star European teenagers to move to the United States and play for the coach's grassroots team, inciting a bidding war between the shoe companies for his sponsorship.

When it came time to discuss money, the former grassroots coach said, smaller, boutique firms were more likely to offer cash upfront, with the promise the player would sign when he went pro. One agent offered $25,000; another, $50,000.

"I don't really see what's wrong with an agent wanting to pay me $50,000 to help them land a player who might make them millions," the former grassroots coach said. "In any other industry, that's just good business."

Wealthier, veteran agents, with long rosters of star NBA clients, rarely offered cash upfront, the coach said, instead offering a "finder's fee" if the player made it to the NBA. Potential finder's fees ranged from 10 to 30 percent of the agency's income from the player over the course of his career.

An NBA agent, who also agreed to discuss these dealings on condition of anonymity, confirmed the offers the grassroots coach described are standard in the basketball shadow economy.

Finder's fees can become lucrative, or can amount to nothing, the NBA agent cautioned. Since competition is so fierce, many NBA agents waive their fees (normally 2 to 4 percent) for an NBA player's rookie contract, in anticipation of cashing in on a second contract.

If that player develops into a star like Stephen Curry, slated to make $37.5 million this season, then the finder's fee will be hefty: An agent's fee of 4 percent amounts to $1.5 million, and a 30-percent finder's fee comes to $450,000. But if the player fails to make it to the NBA, or makes it to the NBA but fails to get a second contract, a finder's fee is worthless.

In this way, the NBA agent said, the basketball black market creates difficult decisions for players who want to try to play in college, but whose families can't afford to wait for finder's fees in years to come.

"It's the poor kids and their families that get screwed," the agent said.

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In other industries, T.J. Gassnola, a former top consultant for Adidas in Massachusetts, would have had trouble finding work. Three larceny convictions, an assault conviction and an incident in which a man told police Gassnola flashed a gun and boasted of mob connections - which Gassnola denied - would have been viewed as disqualifying factors.

But in the basketball black market, Gassnola's ability to build relationships with teenage prospects and their families made him valuable. In the 2000s, Gassnola, a bulky figure fond of gold chains and vehicles from Mercedes-Benz, was twice the subject of newspaper exposés about the ills of shoe-company money flowing into youth basketball. In 2002, when a reporter from the (Bergen, New Jersey) Record observed Gassnola trying to use his cellphone to help a college coach talk to a recruit, in violation of NCAA rules, Gassnola told the paper in reference to the NCAA: "They can't do a [expletive] thing about it."

In 2006, when the Boston Globe reported that Gassnola's competitors suspected he paid his players, he conceded he had given one of his best players, who came from a poor family, $100 to spend when they visited Disney World.

"The kid has no money, so I'm helping him out," Gassnola told the Globe. "You want to throw me in jail for that? Go ahead."

Despite the negative press, Adidas kept sponsoring Gassnola and his team, the New England Playaz. Gassnola was protected, other Adidas grassroots coaches believed, because of his business relationship with NBA agent Andy Miller.

When asked why Adidas - and not Nike or Under Armour - is at the center of the Justice Department probe, several Adidas insiders gave a similar answer: because Miller, an agent with a reputation for flouting NCAA rules, gained powerful influence over the company's grassroots.

Miller's clout at Adidas, company insiders said, was due to the fact he represented some of the brand's biggest stars: Kevin Garnett and Chauncey Billups in the early 2000s and, in recent years, Kyle Lowry and Kristaps Porzingis.

In 2007, according to Wayne Simone, a grassroots coach in Connecticut, an Adidas executive tried to bribe him to help get Miller a new client.

Simone's team, Connecticut Select, had been sponsored by Adidas for more than a decade, he said, when he got an unusual phone call from Daren Kalish, then Adidas executive overseeing grassroots. Adidas was dropping its sponsorship of Connecticut Select, Kalish told him, unless Simone could convince Ryan Gomes, a former Connecticut Select player then in the NBA, to change agents and sign with Miller.

If Simone succeeded in coercing his former player into signing with the agent Miller, he said the Adidas executive told him, Adidas would renew his sponsorship, and include a $15,000 bonus for him.

"This is how it works, Wayne," Simone recalled the Adidas executive telling him. Simone cursed at Kalish and hung up. Connecticut Select hasn't been sponsored by Adidas since.

"I busted my ass for years, running my program, getting all my kids in school, thinking I was one of the coaches doing it for the right reasons - and then, because I wouldn't take a bribe, the rug got pulled out from underneath me," Simone said.

Kalish, who now works for a wealth-management firm that represents professional athletes, did not reply to several requests to comment.

In 2012, the NCAA banned three Adidas grassroots coaches when it learned about an email to them from Miller that appeared to show an explicit financial arrangement. Like several NBA agents, Miller was long suspected of secretly sponsoring various grassroots teams, which effectively acted as a farm system for him and his agency, ASM. One of the coaches on the receiving end of that email was Gassnola, the colorful Adidas consultant from Massachusetts.

And in 2016, when Merl Code, the longtime director of Nike's Elite Youth Basketball League, lost his job, Miller made a few calls at Adidas and helped get Code hired as a consultant, according to a person with knowledge of the discussions.

A few months later, in the spring of 2017, FBI agents started wiretapping the phone of Christian Dawkins, a runner for Miller who was trying to start his own agency. Not long after, agents were wiretapping Code's phone as well. Then came the wiretap for Gatto, the Adidas executive, who was also a friend of Miller's.

Last September, the day after arresting Adidas officials and Dawkins, FBI agents raided the New Jersey office of ASM. Miller relinquished his certification as an NBA agent by the player's association but has not been charged with a crime.

In April, court documents revealed that Gassnola had accepted a plea deal and agreed to become a cooperating witness for federal prosecutors. At the trial, Gassnola is expected to testify about secretive payments he helped arrange for Adidas that secured top recruits for Kansas and NC State.

Miller, the wealthy retired agent who personally profited from the recruiting services of Gassnola and Dawkins, declined to comment. He has not been charged with a crime, one of the many unresolved curiosities about the Justice Department investigation.

This could be because Miller is secretly cooperating and providing evidence against others.

Or it could be because federal prosecutors are concerned about weaknesses in their case, which is based on a controversial theory that anyone trying to pay college athletes, in violation of NCAA amateurism rules, has committed a crime.

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After the arrests last September, legal experts predicted the probe would quickly expand the same way many federal criminal investigations do: Those arrested would take plea deals rather than risk trial, and they would provide incriminating evidence against others.

In court documents, FBI agents accused former Louisville coach Rick Pitino and Miami Coach Jim Larranaga of involvement in deals to steer recruits to their teams, accusations both adamantly denied.

A year later, however, the expected wave of plea deals has yet to occur. Federal prosecutors have not charged Pitino or Larranaga with any crimes, nor have subpoenas sent to Nike and Maryland - one of Under Armour's flagship schools - resulted in new arrests.

And so, this month in New York, federal prosecutors will try to convince a jury that three men should go to prison for conspiring to funnel amounts ranging from $40,000 to $100,000 to the families of college athletes, whose coaches and schools stood to rake in millions from their on-court performance.

Adidas officials Gatto and Code, and the former runner Dawkins face charges of wire fraud, in connection with deals to steer recruits to Kansas, Louisville, Miami and N.C. State. According to the legal theory espoused by prosecutors, these payments, which ranged from $40,000 to $100,000, defrauded the universities, who could have lost money and scholarships due to sanctions if the NCAA learned of the payments.

Economists who have studied college sports have been sharply critical of the Justice Department's decision to portray schools as victims.

"These schools are getting tremendous deals. . . . This doesn't make any sense," said David Berri, a professor of economics at Southern Utah University who has calculated the economic impact of highly touted recruits for major Division I colleges to be at least $1 million - and in some cases as high as $3 million.

This summer, the NCAA adopted policy changes intended, in part, to reduce the role of shoe companies on the recruiting process. Among them: The NCAA plans to launch its own summer camps for America's best high school players.

Chris Rivers, the Adidas executive who led that Las Vegas meeting, is no longer in charge of Adidas grassroots, according to two people with knowledge of the company's operations. He was absent at Adidas events across the country this summer.

While Rivers did not reply to requests for this story, he has spoken publicly in the past about the NCAA's efforts to curtail the influence of shoe companies in youth and grassroots basketball.

In a 2008 column for Basketball Times, a newsletter for hardcore grassroots insiders, Rivers mocked an NCAA effort to regulate shoe company events for star college players.

"Maybe the NCAA wants to be sure that if any organization is making money off the talents of college players while they are in school, they dictate who it is," Rivers wrote, "or get at least a cut of the profits."

In "At All Costs," a 2015 documentary about an Adidas grassroots team, Rivers jokingly compared Nike and Adidas to rival gangs, and was asked to discuss the future of shoe company recruiting battles in youth basketball.

"Ultimately, we all want one thing: We want to drive retail; we want to drive sales," Rivers said. "As long as kids are playing basketball and kids are buying shoes, you're going to have companies like Adidas that are going to want to have involvement."

The Washington Post's Roman Stubbs, Jesse Dougherty and Julie Tate contributed to this report.
 

Players wear Adidas-branded backpacks at the Adidas Gauntlet tournament in New York City.
ANTHONY GEATHERS/FOR THE WASHINGTON POST

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