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Volume 21 No. 17
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Play smart defense in wake of NCAA scandal

Criminals are opportunists. They like money. There’s a ton of money in college basketball. And, as evidenced by the federal criminal charges against 10 people, including four Division I NCAA men’s basketball assistant coaches and a senior executive at a major athletic apparel company, no one seems to keep a particularly close eye on that money — and pots of unsupervised money create attractive opportunities.

Allegations that individuals have corrupted a loosely controlled, highly lucrative industry that competes for and relies on the purportedly free labor of teenagers should surprise no one, least of all the people in charge of major universities. It is their responsibility to ask as an urgent matter: What can we do to prevent corruption?

Universities must make it a priority to deny criminal prosecutors the opportunity to define the answer. Prosecutors expect businesses to implement commensurate compliance controls to stop systemic corruption. That includes universities. When something bad happens, prosecutors often argue that properly designed compliance controls would have prevented the problem. In addition to bringing criminal prosecutions and asking courts to impose massive fines (and potentially jail sentences on individuals), prosecutors can require companies to hire massively expensive third-party compliance monitors to ensure the development and execution of adequate compliance controls.

It will be no surprise if the government follows that playbook here. Universities implicated in the most recent scandal will be required to commit to substantial and expensive compliance reform, on terms defined by prosecutors. All universities are well-advised to play defense: Update your compliance program now, on your own terms, before someone else requires you do it at great risk and cost.

It should be obvious that intelligent controls can mitigate risk and deter and prevent the types of corruption alleged in these cases.

Compliance reform is code for “change the way you do business.” In building an effective compliance program, and changing how business is conducted, “tone-from-the-top” is critical. University presidents not only must affirm that academics are the primary mission of universities, but back up their words with clear and decisive action. It is easy to say that alumni should not bribe students. It’s another thing to return a substantial gift from an overenthusiastic “booster”; bar people from association with the university; keep agents, promoters and other hangers-on out of the athletic complex; and report suspicious activity to law enforcement. It also makes sense to audit athletic department budgets and to oversee any contracts that shoe companies or other suppliers make with teams and their coaches. Those contracts should be subject to competitive bidding, not the whims of coaches. In addition, visits with recruits and their parents need to be chaperoned by university officials outside the athletic department who report directly to the president. It is much harder to offer or accept a bribe or other improper inducement when there is someone else in the room.

The current scandal will raise legitimate questions about whether student athletes should be paid. Those are serious discussions that will take time to play out. There are good reasons why student athletes — many from modest backgrounds and many of whom will predictably never get a college degree — should receive a stipend that allows them to live within a reasonable student budget. The sad background to “Sneakergate” is not how much money these kids received, but how little, given the kind of revenue they generate not just for the university but also for coaches, who are generally the highest paid university and public employee in their states. But, in the meantime, university presidents need to recognize the chaos swirling around their programs, and take decisive action to exercise control and ensure that their institutions are run with the highest integrity. They may win fewer games and collect fewer donations. But what price victory? If they fail to do so, college athletics will face an existential crisis.

Arthur Middlemiss is a partner at Lewis Baach Kaufmann Middlemiss.