Communication Plan for the NCAA Scandal

October 19, 2017

Group 1:
Bobby Blough
Chris Mason
Austin Nguyen
Lucas Sam
Nick Vagnozzi
Tianyi Zhao
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Table of Contents:

Executive
Summary........3

Introduction and
Situation4

Background and
Analysis.....4
Damage of the Scandal....4
Regaining our Employee Trust....5
Recovering our Relationship with our Investors.6
Continuing to Build our Customer Relations..7

Damage Control Options to

Consider........8
Repairing relationships with investors8
Our Recommended Action- Separation and Reconstruction..8
Silence.........9
Effects through the Silence Route.......9
Distraction.10
Effects through the Distraction Route.......10
Course of Action...10

Analysis and Budget for

Recommendations......11

Conclusion...............12

References......14

Appendix......16
Detail Budget Analysis for Recommendations.....16
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Executive Summary

Situation
As one of the current leading sports companies in the world, Adidas plans to build new
innovations to sell the best sports and fitness products. Our mission is to become the best sports
company in the world in product, service and experience; however, the recent damage from the
NCAA scandal may hinder our progress thus far. A few of our executives were arrested for
bribing up to $150,000 to new high school recruits towards their NCAA career. This issue
resulted in the administrative leave of several well-known coaches and college basketball
recruiters. The question at hand is how do we recover from this event and regain our
stakeholders trust?

Background and Analysis

We identified the main stakeholders affected by the NCAA scandal:

After reviewing each stakeholder group, we determined that this crisis involved only a few
individual actions that do not represent our company. Although we may only have 4% of the
market share in basketball, we cannot afford to have this scandal hurt our goal in increasing
overall shares in North America.

Damage Control Options to Consider

Our research showed three potential recommendations to minimize the damage on our image:

3. Separation
1. Distraction 2. Silence and
Reconstruction

The recommendations listed above are not immediate solutions our problem, but they are
practices that can be implemented. Over time, we can rebuild our company culture as a leading
sports apparel company and win back our stakeholders perceptions of our company.
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Introduction and Situation

It is in the best interests of Adidas to pursue further success in North America; however, our
expansion is being threatened following an ongoing NCAA scandal. In recent years Adidas has
demonstrated a true turnaround in company culture and brand recognition, resulting in record
growth, along with a dramatically increased market share in North America. With success in this
market that have been historically difficult, our current strides allow the opportunity for Adidas
to take place as an industry leader; however, facing recent controversy, this expansion may be
halted as we face ongoing investigation along with damaged company relations.

After an FBI investigation, it recently came to light that NCAA coaches were misappropriating
company sponsorship funds, taking a cut as both a salary and providing illegal stipends to
recruits. As the investigation is still ongoing, the problem seems to be isolated to a few key
individuals in both the NCAA and the Adidas corporation. Now all individuals have either been
removed from their positions or placed on administrative leave as the investigation carries on.

Adidas name has been in the press as the investigation is still ongoing because it was our funds
that were misappropriated. It is unclear to what degree the Adidas corporation was involved, or if
the problem was isolated only to individuals. Regardless, the current negative press threatens our
brand name, especially in the North American market, where weve worked so hard to gain
ground.

With a damaged brand name and association, growth becomes much harder as we must work
against the negative predispositions of our target audience. To distance our brand from the issue,
weve determined that the best reconstructive route to take is through separation while rebuilding
the relationships that weve already established.

Background & Analysis

Damage of the Scandal

Our company's key issue is revolved around in this question: how we can recover from this
scandal and continue being one of the top sports apparel? During our research, we discovered the
connection between our company, schools and the players. This is where the root of our
problems lies. The relationship starts with our company signing sponsorship deals with the
schools. The schools then proceed to sign players to athletic scholarships deals. The root cause of
this scandal is circled around three corporate employees. Further internal investigation is needed
to find every employee related to this case.

Our goal was to revive business in the US by being more aggressive with our strategy of going
after collegiate basketball players. The issue was that our company would pay these players
behind the scenes to influence their decision about the universitys commitment to our brand. We
discovered that our representatives were bribing up $150,000 to top recruits and coaches, and
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possibly even negotiated agreements for specific athletes to sign with Adidas when they move on
to the NBA.

In more recent disclosures, reported in the New York Times article that up to 98% of University
of Louisville head coach Rick Pitinos salary was paid through the money the school received
from its recently signed apparel contract with Adidas. Since this scandal, our company has been
swift in its actions by removing the lone wolf's responsibility.

Further investigation is needed to discover if more people were involved, but the scandal does
not reflect who we are as a company. We want to be known as a sportswear company that cares
about being sustainable, delivers quality products to consumers and cares about its employees,
Furthermore, we want to continue to distance ourselves from these headliners and make it clear
to the public that only a small group of individuals involved were acting on self-interest rather
than for the good of the company. Our focus moving forward is to regain back the trust we have
built with our employees, consumers and stakeholders.

Regaining our Employee Trust

Our first key stakeholder is employees. The big question is how did this scandal affect the
company culture? James Gatto, Merl Code, and Jonathan Brad Augustine were the three
employees directly involved in the scandal. With the information, we have now the three acted as
lone wolves of the company. Display 1 shows the process these affiliates utilized to reinforce
player commitment.

Display 1

https://www.nytimes.com
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The effect on the employees is the stigma that now comes with working for Adidas. An
interview with an Adidas employee stated that Many of the employees believe that we are now
working for a company that does not stand by its mission statement. The employees that work
for us care about our message of being a sustainable sportswear company that delivers quality
products to our consumer.

Many employees have lost trust in this mission and our reputation for what we stand for. This
raises the question of how is the corporate culture? Ultimately, we must figure out a plan that can
distance our company away from this scandal and continue the trend of growth we have been on
for the past three years. This will enable us to earn the trust back for current and future
employees.

Recovering our Relationship with our Investors

The second key stakeholder group is our investors. This scandal may affect more than just our
American investors because our company is a worldwide brand. The scandal has affected our
profitability today and may affect future revenue. Our investors were not happy with this scandal
as our stock dropped by 3% from the day of scandal; however, we have been able to recover
about 1.5% by labeling the three offenders as lone wolves and dampening the effect on our
companys image. Display 2 demonstrates the stock market action during the scandal.

Display 2

https://www.cnbc.com
ttps://www.cnbc.com
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Strategic press releases were key in securing the fact that Adidas was not a part of this scandal
helping distance our name from any news articles. This allows us to keep our foothold on being
the second-best sportswear company. We want to continue to keep pace with our projected
growth which has kept our investors happy. Investors are also pleased with how we have handled
this situation. How we move forward is key because of the money they may put back into our
company.

Continuing to Build our Customer Relations

Consumers are the last stakeholder group affected because of this scandal. Consumers are the
public mixed with our sponsorship deals with schools and other organization. They are a huge
stakeholder in our company because theyre our direct line of revenue. Our company found that
not many of our general consumers care about this scandal because we are still able to deliver the
same products needed.

The consumer group that this scandal is directed towards are our major school sponsorships.
Luckily, five out of the seven schools mentioned did not have our sponsorship. The effect of the
relationship with these major schools is that we lose even more foothold in the US basketball
market share. Adidas only hold 4% of the market share in basketball shoes. Below is Display 3,
demonstrating the market share of Adidas basketball shoes.

Display 3

https://www.bloomberg.com

The actions taken by all schools have essentially followed the same procedure. They started with
press conferences stating that the schools will not stand for these actions while terminating all
employees involved including the head or assistant coaches. They follow this by stating all
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people involved were acting on self-interest and not for the betterment of the school. These
schools are now committed to following NCAA protocol when it comes to present and future
sports recruitment.

The direct consumers we are targeting are the schools moving forward and how we rebuild our
sponsorships deals, relationship with current and future schools. We use these sponsorships with
schools, to continue the expansion of our brand in the North American market.

Damage Control Options to Consider

Moving forward there are many further courses of action we could take. We have narrowed our
brainstorm down to three options that could be beneficial in repairing our relationships with our
key stakeholders. Display 4 shows us the options our company can take to minimize the damage
done thus far.

Display 4

Our Recommended Action- Separation and Reconstruction

The damage control route is the first course of action we recommend that our company takes.
This is a cookie cutter response utilized by many corporations implicated in similar scandals in
the past. This route consists of the distancing of our brand from individuals involved by publicly
stating our disgust towards the actions of the individuals involved.

We would further bolster the effects of this statement by explaining the findings of our internal
investigation to the public and being as transparent as possible throughout the process. These
actions would be taken to appease our investors who expect this kind of response from us.
Additionally, we believe this would have a positive effect on our and employees and consumers
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by earning back some of their trust we have lost over the course of the past few weeks. The
effects through the separation and reconstruction route are broken down as seen in Display 5.

Display 5

Silence
The title of this alternative course of action speaks for itself. This response is essentially
weathering the storm of this scandal by remaining silent about it as much as possible and
denying our involvement when necessary to deflect attention. This route counts on our
stakeholders having short memories about the corporate controversy in the hopes that the crisis
we are in will soon blow over if we leave it alone.

Our communication would focus on our employees to keep them in the loop about the
controversy and ensure they will be consistently silent if asked questions about what they know.
The consumers and investors would not be communicated within this course of action. Nike is
currently utilizing this communication plan, as they have been indicted in the same scandal we
are implicated in. It is too soon to understand how effective it has been for them.

Effects through the Silence Route

This course of action can be justified by the success of other companies who chose it. An
example of this success is Ford who remained silent when its Pinto model was found to have
flaws that were lethal for their consumers. They remained as one of the powerhouses in their
industry. This demonstrates that people have short memories. Us taking this route would help our
investors and consumers forget about our alleged wrongdoings quicker than they would have if
we use an active communication plan. Additionally, it would relieve our employees of answering
potentially tough questions.
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The net effect is our relationships with our stakeholders would return to their state of health
before the controversy except for the few consumers directly involved with it.

Distraction
Another potential alternative course of action expands on some aspects of the damage control
route in a way that could be more beneficial in repairing our public image and how our
customers perceive us. This would also include transparency in our efforts and distancing
ourselves from the individuals. Unlike traditional damage control, this route could offer a better
net effect on the public by sparking conversation about our brand that overshadows what people
are currently saying about us. We can achieve this by distracting the public by speaking out on
the issue at the core of the scandal, the lack of compensation for valuable NCAA athletes.

Effects through the Distraction Route

If there is anything we have learned in recent years, it is that one of the most effective ways to
control how an entity is being discussed by the public is to spark a debate among the people. We
could utilize this by taking a stance on the issue or having the individuals allegedly involved do
so. This is something we feel that the masses would agree with and look favorably upon,
especially among the communities within which we seek to grow our brand.

According to a recent poll by the Washington Post, 66% of people believe athletes deserve
compensation. If the discussion or debate about our company was regarding former employees
agreeing with the public rather than about the scandal itself, our consumers could see us in a
more favorable light than if we merely do damage control.

On the other hand, our stockholders would not be as likely to embrace this reaction, as higher
income brackets are less in favor of paying college athletes for their value as icons. At the same
time, they could see the positive effect it has on our public image by understanding why we
chose this course of action, though they may not agree with the stance we would be associated
with.

Course of Action
The course of action we feel will be most effective for our company is the separation and
reconstruction route. That is the separation of our brand from the controversy and reconstruction
of relationships we built with key stakeholders involved in this issue. We need to answer to our
employees, investors, and consumers in that order. We will go into detail about how we plan to
communicate with them below.

The first stakeholder group we should address is our employees. They need to know that they
can trust us and are our most valuable assets. We can demonstrate this by distributing a memo to
all our employees via company email. This message should outline the steps we will be taking
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moving forward, informing them what we know about the controversy so far, and establish
channels for them to receive further information to better understand the situation and what it
means for them. Our employees should be prepared to constantly answer questions once they
read this memo and feel confident in us as we proceed.

The second group we should address is our investors. Their money is invested in us and our
response to this scandal so they deserve consideration in our process. We should write and post
an article on our investor relations website that replenishes their faith in us as a good investment
for them. This article should explain the steps we will be taking to protect our company and their
investments, state that their investments are assets we will be caring for in our process, open
avenues for them to communicate with us, and schedule a webcast featuring our executive(s) that
would offer a face to reinforce the words we post. This would demonstrate that we are listening
to them and value their opinions moving forward.

Third, we should communicate with the public. Our spokespeople should release a written
statement highlighting the management change steps we have already taken, explaining that we
are cooperating with external investigators and hiring internal ones, and distancing our brand
from the controversy itself and the individuals who have been implicated. This would be best
distributed through our company website, email/paper newsletters, and social media accounts
because it would reach most of our intended audience as a result.

Once we have taken these steps in our communication plan, we should continue to bolster the
results of it by keeping our employees informed of new developments, hosting the webcast on
our investor relations site, maintaining our transparency with our stakeholders, regularly
updating our websites with new developments, and seeking feedback from our stakeholders by
opening surveys on our company and investor relations websites.

These surveys will allow us to listen to what our consumers and investors feel about the process
we have undertaken and how effective it has been from their perspective. We can utilize this
feedback moving forward to help us continue to respond in a way that serves us and, more
importantly, them well.

Analysis and Budget for Recommendations

ROI = Gain from investment-Cost of investment/Costs of investment

As we talked about before, we have already scheduled all the plans, budgets and ROIs to each
action. We are expecting a dividend payout ratio between 30% and 50% soon to match with our
competitors. Chart 1 shows that there are five steps to deal with this NCAA scandal in following
weeks.
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Chart 1

We will deal with this scandal with three steps. We will first do a conventional response which
can help us distance ourselves from involved individuals. Second, we will do damage control to
cooperate with investigators and maintain good relationships with universities and sponsorships.
Finally, we will do damage repair to rebuild our public image. In addition, transparency will be
the most important thing though of the proposals.

PR conferences are the most effective ways to control damage, because we can not only distinct
our brand from involved individuals but also can keep good relationships with universities and
investors. The following two weeks are the most effective for our audiences because they are
focused on the news. We estimate a total budget is around $5,200,000 for all the actions. In the
appendix, there are more details about the budget for our recommendations.

Conclusion

Over the past few years, we as Adidas have made tremendous progress in taking over a greater
market share in the sportswear industry and gaining back the ground we had lost from the rise of
Under Armour. However, this scandal stalled our progress and efforts made to take a step
forward. It really presented a bad image for us when we learned that crimes were committed by
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our own Global Marketing Director. It makes it look like we will do anything to get ahead of the
competition, even if that means cheating or breaking law.

The goal to take over a larger market share featured a strong push in basketball and apparel
sponsorships, particularly at the college level, and clearly, that backfired. Now we are forced to
scramble to try and rebuild our image so that this scandal does not provide major ramifications
for us. We are going to do this through a plan of separation and reconstruction.

The first part of the plan involves patching our relationships with our employees and investors by
reassuring them of our true company morals and ideals, and that the people involved do not
provide an accurate representation for how we run this organization.

The second involves stabilizing our relationships with the universities and their coaches who we
sponsor by ensuring them that we are a company of integrity, and we will do everything in our
power to make sure that we will never do anything to jeopardize them or their programs in the
future.

This plan of action should be successful if we have full support throughout the organization from
the employees, management, and investors. If we have the company support we need, this plan
will not only repair our public image, but it will get us back on our feet and once again thriving
in the global sportswear industry.
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References

Baccardax, M. (2017, September 27). Adidas Shares Slump After Prosecutors Hit 4 NCAA
Coaches With Corruption Charges. Retrieved October 12, 2017, from
https://www.thestreet.com/story/14320180/1/adidas-shares-slump-after-u-s-
p.html?puc=CNNMONEY&cm_ven=CNNMONEY

Corporate Strategy. (n.d.). Retrieved October 12, 2017, from https://www.adidas-

group.com/en/investors/strategy/group-strategy/#/unsere-mission-das-weltweit-beste-
sportartikelunternehmen-sein/

Graham, B. A. (2017, September 26). FBI charges four college basketball coaches in fraud and
corruption inquiry. Retrieved October 12, 2017, from
https://www.theguardian.com/sport/2017/sep/26/ncaa-arrests-corruption-fraud-college-
basketball

Marc Tracy And Rebecca R. Ruiz. (2017, September 27). In College Basketball Scandal, Follow
the Money and the Shoes. Retrieved October 10, 2017, from
https://www.nytimes.com/2017/09/27/sports/ncaabasketball/adidas-pitino-louisville.html

McCann, M. (2017, September 29). 10 legal questions about college hoops' big scandal.
Retrieved October 12, 2017, from https://www.si.com/college-basketball/2017/09/29/10-
pressing-questions-answers-college-basketball-recruiting-scandal-corruption

Novy-Williams, E., Townsend, M., & Boudway, I. (2017, September 28). How Adidas's
American Revival Turned Into Scandal. Retrieved October 11, 2017, from
https://www.bloomberg.com/news/articles/2017-09-28/in-adidas-s-american-turnaround-
seeds-of-basketball-scandal

Ratner, J. (2017, April 24). Nike vs. Adidas: The three stripes is making gains on the swoosh -
but that doesnt tell the whole story. Retrieved October 11, 2017, from
http://business.financialpost.com/investing/trading-desk/nike-vs-adidas-the-three-stripes-
is-making-gains-on-the-swoosh-but-that-doesnt-tell-the-whole-story

Should college athletes be paid? (2017, September 26). Retrieved October 12, 2017, from
https://www.washingtonpost.com/politics/polling/college-athletes-
paid/2017/09/26/b24ce050-995c-11e7-af6a-6555caaeb8dc_page.html

Thomas, L. (2017, September 26). FBI arrests NCAA basketball coaches and Adidas rep in
bribery probe involving recruitment. Retrieved October 10, 2017, from
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https://www.cnbc.com/2017/09/26/ncaa-basketball-officials-arrested-on-fraud-and-
corruption-charges.html

Van Emst, T. J. (2017, September 27). College Basketball Scandal: 4 coaches, Adidas executive
charged in bribe scheme. Retrieved October 12, 2017, from
http://www.eagletribune.com/sports/local_sports/college-basketball-scandal-coaches-
adidas-executive-charged-in-bribe-scheme/article_6cf771f0-7be5-56ef-a4ca-
713e6a9876a5.html
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Appendix
Detail Budget Analysis for Recommendations