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Stakes are Much Higher Now

March 15, 2017

 

 

 

In the past, reputational risk seemed to be the primary risk faced by sports organizations.  Reputational risk, or reputation risk, is a risk of loss resulting from damages to an organization’s reputation.  It could be in lost revenue, increased operating capital or regulatory cost, or destruction of shareholder value, consequent to an adverse or potentially criminal event even if the organization is not found guilty.

 

In professional sports, one need only remember deflategate in the NFL, the Donaghy affair in the NBA, the steroids era in MLB, and match-fixing in professional tennis, to name a few.  At the college and university level, there was the Sandusky scandal at Penn State, the sexual assault scandal at Baylor, the scandal involving prostitutes at Louisville, and others.  Even among the USOC National Governing Bodies there was the USA Swimming robbery scandal in Rio, and the child sexual exploitation scandal at USA Gymnastics which overlaps the sexual abuse scandal involving a doctor and gymnasts at Michigan State University.  And then at the very lowest level in sports there was the Jackie Robinson Little League scandal involving fraud and the cover-up.

 

In each of the above scandals, the primary consequence was damage to the organization’s reputation.  But now events are taking an ominous turn.   Last year the St. Louis Cardinals’ former scouting director was sentenced to nearly four years in prison and fined $275,000 or so for his role in hacking a competitor’s database.

 

And before that, Jerry Sandusky, former assistant football coach at Penn State, was sentenced to 30-60 years in prison for the sexual abuse of 10 boys.  More recently, Dr. Larry Nassar, former team doctor at USA Gymnastics and treating doctor for gymnasts at Michigan State University, awaits trial on charges of sexual abuse of young female gymnasts under his care.

 

For many sports organizations where scandals have occurred, the most worrisome signs that things may be getting worse appear with the scandal at Penn State.  Three former administrators there have been charged in connection with their handling of the Jerry Sandusky child molestation scandal.  And just recently, a judge granted a request by the attorney general’s office to tack on a related conspiracy count to the charges of endangering the welfare of children.  Prosecutors said each felony count carries up to seven years in prison and a $15,000 fine.

 

If potential jail terms for administrators were not bad enough for Penn State, media reports indicate costs related to the Sandusky scandal are approaching $250 million and growing.  This includes a recent $12 million verdict in the whistleblower and defamation case brought by a former assistant coach whose testimony helped convict Sandusky in 2012.

 

With few exceptions, what most scandal-scarred schools and sports organizations have in common is not having an effective integrity and compliance program.  Even in universities with an otherwise vigorous program, the compliance program seems to stop at the door of the athletic department, seemingly oblivious to all infractions other than abuse of NCAA rules and regulations.

 

There’s an old saying war is too serious a matter to be entrusted to generals. Public opinion is rapidly concluding sports organizations may be too myopic to see the big picture, too set in their ways to see their traditional checks and balances are not working and that times now call for a different approach.  Sen. Dianne Feinstein, D-California, has certainly reached that conclusion in introducing a bill in the Senate that would compel amateur athletic organizations to promptly report sexual abuse to law enforcement.

 

Once Congress goes down that path, state authorities are likely to join in, and what starts as attempts to curb sexual abuse could expand into broader legislation.  Sports programs may soon have to choose whether they want to be observers or participants in tackling compliance issues.

 

 

 

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