The FIFA Follies

Can President Blatter survive a rising tide of accusations?

The charges against Joseph S. Blatter just keep piling up. The 66-year-old Swiss who heads the Fédération Internationale de Football Association, or FIFA, the organization that oversees World Cup soccer, stands accused of nepotism, bribery, and cooking the books--on top of plain old mismanagement. The whistle-blower is Blatter's countryman and erstwhile ally, FIFA General Secretary Michel Zen-Ruffinen, who claims the financial health of the Zurich organization is in jeopardy thanks to his boss's shenanigans. "FIFA is in bad shape," warned Zen-Ruffinen in a May 3 report to FIFA's executive committee.

Blatter, who was not available for comment, has strenuously denied any wrongdoing (table). More important, the cries against Blatter are being drowned out by all the hullabaloo of the 2002 World Cup championship in Japan and Korea, which gets under way on May 31. The likes of Adidas-Salomon and Anheuser-Busch Cos. have shelled out millions for the privilege of emblazoning their logos on everything from stadiums to team jerseys. But corporate sponsors seem unfazed by the allegations. The grand pooh-bahs of the soccer world don't seem too bothered, either. In fact, Blatter stands a good chance of being reelected to a second four-year term when representatives from the world's soccer-loving nations descend on Seoul at the end of this month. "There is a lot of money for everyone involved," says one blasé executive for a company that has done business with FIFA. "Where there is a lot of money, there is usually some corruption."

Still, Blatter faces a serious challenge. Zen-Ruffinen, a 43-year-old lawyer and former referee, has no obvious axe to grind, and he enjoys widespread credibility in the sports world. Blatter also faces opposition from a narrow majority of FIFA's executive committee led by Lennart Johansson, a Swede who is the respected president of the Union of European Football Assns. This camp backs Issa Hayatou, a native of Cameroon who has pledged to end corruption and bring transparency to FIFA's operations. "I hope the world is waking up," says Per Ravn Omdal, a member of FIFA's (and UEFA's) executive board. But with millions of dollars in FIFA aid for soccer programs hanging in the balance, poor nations may be reluctant to oppose Blatter.

Even if he wins reelection, Blatter still faces plenty of trouble. Some of the charges are serious enough that FIFA's executive board has asked Swiss prosecutors to investigate. Among the allegations: that Blatter slipped an ex-referee $25,000 as a reward for digging up damaging information on an enemy. That kind of thing could prompt corporate backers to distance themselves from FIFA and its controversial president. At least one is already getting nervous. "We are concerned about the scandals. And FIFA's financial health will certainly be a factor for consideration when we decide on sponsorship for the 2006 games," says Cho Rae Su, head of Hyundai Motor Co.'s World Cup Marketing Group.

Coming hard on the heels of Enron Inc.'s meltdown, the FIFA scandal also could further damage the reputation of various accountants and consultants. Already, the Zurich office of McKinsey & Co. has come under scrutiny for its close ties to FIFA top management. Zen-Ruffinen claims that Blatter has steered business to McKinsey--more than $7 million since mid-2000--because Blatter's nephew, Philippe Blatter, is a principal at the firm. McKinsey says Philippe, who heads its European-sports practice, has been only peripherally involved in FIFA projects. His uncle retorts that all consulting work was bid out competitively. Whatever the case, the continuing scandal can only soil McKinsey's name.

Another potential casualty is KPMG International. While auditing FIFA's 2000 accounts, KPMG's accountants noticed that the organization had booked as income $190 million raised from the sale of securities based on future revenue from the 2002 and 2006 World Cups. KPMG criticized the practice, which according to Zen-Ruffinen dated back to at least 1998, but didn't resign the FIFA account. Then, when the FIFA executive board attempted its own audit, Blatter blocked the move. KPMG, already hit by accusations of sloppy auditing at several German companies, will no doubt come under even more scrutiny as Blatter's enemies press their case.

Indeed, the most damaging evidence against Blatter may lie inside FIFA's books. How bad is the organization's bottom line? FIFA claims it logged a surplus of $45 million in 2001 on sales of $519 million. But that's after it booked $223 million in future World Cup income. The organization concedes that it may post a $70 million deficit next year.

Zen-Ruffinen contends that his boss's mismanagement has cost FIFA some $500 million. He points out that Blatter sold U.S. broadcasting rights for the World Cup to Switzerland's ISL/ISMM Group (a sports-marketing outfit) and Germany's KirchMedia for $220 million. Another company, AIM International, offered $100 million more. So why did Blatter sell to ISL and Kirch? Blatter, in a written response, says he didn't believe that AIM would be a reliable partner. As it turns out, ISL and Kirch are now both bankrupt.

Blatter may have made another bad call recently when he awarded the European merchandising rights for World Cup 2006 to Germany's EM.TV & Merchandising. The terms of the deal were not disclosed when it was announced on Apr. 4, but industry insiders are left wondering why Blatter would choose EM.TV, which is struggling for survival, over the current World Cup merchandiser, London-based Copyright Promotions Licensing Group Ltd., a company that has handled such blockbuster lines as Star Wars. Sales of retail products, such as an Elvis doll, amounted to just 1% of EM.TV's revenue in the fist nine months of 2001. "I don't believe they have the expertise," says one industry source. EM.TV says that it will give the FIFA account more attention than a larger rival.

Even if Blatter prevails in Seoul, he will face the combined pressure of FIFA's internal reformers, the organization's mounting financial woes, and a possible criminal investigation. Blatter may not go away, but neither will his troubles.

By Jack Ewing in Frankfurt, with Moon Ihlwan in Seoul and Gerry Khermouch in New York, with bureau reports

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