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posted on 07 August 2015

FIFA's Loss Of Faith From Sponsors Could Be Very Costly

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Recently FIFA (Federation Internationale de Football Association) has dealt with repeated occurrences of scandal and fraud. While corruption has been somewhat rampant within the organization for some time, now the certainty and magnitude of it is alarming. In spite of this the organization has still been very beneficial to certain parts of the world, namely Asia and Africa.

According to FIFA's financial statements, between 2011 and 2014, 72% of all revenue was directly invested into soccer development and FIFA sponsored events.

Source: http://www.fifa.com/mm/document/affederation/administration/02/56/80/39/fr2014weben_neutral.pdf

Of this, 20% was spent on development in individual countries, meaning programs designed to build stadiums and promote growth through soccer mostly in less developed regions. This includes training for referees, classes to teach people how to build revenue and develop impoverished areas, how to manage teams, and the like.

Looking at the benefits FIFA can produce, when run correctly, there is promise for the organization. The problems started with FIFA's vague accounting procedures, which are commonly criticized as unusual and opaque. This includes incidents such as 1998, a year before the company KPMG became the main auditor, when FIFA destroyed financial documents. (http://www.nytimes.com/2015/06/06/sports/soccer/as-fifa-scandal-grows-focus-turns-to-its-auditors.html?_r=0) These sorts of instances have gone back as far as two decades. Due to the clear evidence of the corruption, however, FIFA has had issues retaining and finding new sponsors for their bigger events (http://www.bbc.com/news/business-33649448). Some of the largest sponsors, such as VISA and Coca Cola, claimed they hold little belief in FIFA's ability to reform under their current administration and called for a third party to effect changes.

Instances where failures by auditors and poor accounting standards have caused great companies to go under are not hard to find, such as Enron. So this is a make-or-break moment for FIFA, though much of this could be fixed through a stronger executive board and tighter regulations through accounting. If FIFA does not comply with their sponsors' requests they could face some big monetary setbacks. Top sponsors for FIFA give around $25-50 million a year with the mid and lower tier sponsors giving around $10-25 million. (http://www.forbes.com/sites/chrissmith/2014/06/12/the-biggest-sponsors-of-brazils-2014-world-cup/) Marketing rights make up the second largest source of income according to FIFA's financial statements, totaling up to $1,629 million between 2011-2014. If FIFA fails up meet sponsors' standards and loses this income is could cause huge issues for the organization, especially with their difficulty in finding new sponsors to replace those lost. These problems could be fixed though it will require swift action in their accounting practices as well as their executive board.

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