Financial Management Issues in Sports: Challenges and Interventions

Abstract

The sports industry has had many corruption cases, ranging from financial misappropriation, bribery, and tax evasion. Financial misappropriation has primarily been rampant in events and the construction of sports-related facilities. This paper discusses the financial management issues in sports events and facilities by highlighting their causes and impacts and suggests any interventions that can be implemented to mitigate the problems. It also analyzes scandals associated with international football organizations to provide more insight into the effects of financial management issues for sports events and facilities.

Keywords: Financial mismanagement, sports, events, facilities

Financial Management Issues for Sports Events and Facilities

Sports corruption, in all its varieties and levels, is a global phenomenon that has threatened and continues to endanger the credibility of the sports sector, offering a significant challenge for sports managers. Various forms of corruption have occurred in the sports sector during the last decade (Masters, 2015). Due to the past century’s economic, social and political growth of the sports sector, its financing system is defined and implemented by governments, making corruption prevalent, especially in nations with an already tainted public sector.

Andreff (2019) indicates that any unethical or illegal behavior that seeks to purposefully manipulate the outcome of a sporting event for the financial gain of one or more people engaging in that activity is considered corruption in sports. Corruption may begin as early as the bidding procedure, post selections, granting TV or broadcasting rights, and contracting of building work for sporting facilities and other stadiums. It has also extended to unethical behavior like distorting the allocation of mega sporting events and biasing decisions made by sport-governing bodies. This paper intends to critically analyze financial management issues for sports facilities and events and the potential interventions to curb the problems.

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Steps in Planning and Delivery of Sports Events

The United Nations Office on Drugs and Crime (2021) identifies four distinct stages related to the planning and delivery of sports events. These include conceptualization, planning and implementation, legacy ownership transfer, and post-event operations and governance. These stages require a lot of resources and expertise due to the complexity and diversity of factors related to sporting events. Such factors include the procedures used by potential host cities and countries to bid for and awarding of hosting rights, the internal governance systems of organizations in charge of the bidding, and the procurement practices with third-party suppliers of goods and services such as the construction of sports events-related infrastructure. It is critical to exhaustively understand these processes to know any corruption risk factor associated with each step, especially how financial mismanagement can come up in the actions.

Causes of Financial Management Issues

The commercialization of sports has created more avenues for bribery and corruption among stakeholders, especially during sports mega-events (Geeraert, 2017). Becker et al. (2022) attribute financial management issues in sports due to poor governance and control in the industry, a lack of transparency and accountability, political influence, and various cultural and structural factors. Motives and indications of financial management issues at events include the insufficient verification of organizers’ skills and abilities, the auction-like awarding tenders, political intervention, soft budget tactics, and the over-emphasis on legitimizing the events. See appendix A highlighting the correlation between the factors causing corruption, notably financial misappropriation.

Poor Governance and Control

Poor management from the governing members in the sports industry, coupled with ineffective administration that does not oversee corruption, results in financial management issues (Geeraert, 2017). People leading most international sports organizations and events have little experience in managing organizations and events of that level. The poor experience, coupled with most of their abilities and skills being insufficiently verified, resulted in substantial financial misappropriation. Research by Becker et al. (2022) shows that most event mistakes arise from management teams’ poor experience. Poor governance and control also result in poor decision control and monitoring, allowing sports officials to influence influential people in the government.

Lack of Transparency and Accountability

Lack of transparency and accountability in the sports industry, especially between event owners and organizers, has resulted in financial mismanagement. Event organizers usually submit to the demands of event owners without questioning to avoid the tender being taken away from them. Event owners also withhold essential information from organizers and the public due to their personal interests, resulting in substantial economic problems ((Kihl et al., 2017). Poor supervision and accountability among sports officials make it easy for unscrupulous officials to misappropriate funds and take advantage of donations.

Lack of transparency also comes in the bidding process. Because sometimes, not all bidding information is made public, avenues for financial mismanagement are created. Every step in the bidding process should be made publicly available, including the bidding regulations, the technical evaluation scoring, and the bid evaluation report. Withholding such information from the public makes no one outside the organization question the processes, leaving more room for financial mismanagement.

Structural, Cultural, and Organizational Factors

The lack of transparency and accountability in sports can be attributed to structural, cultural, and organizational factors within organizations in the industry. These factors encompass the soft-budget symptom where event organizers apply for insufficient funding and expect extra financing along the way (Becker et al., 2022). They then ask for more extra funding than required for personal gain and misappropriate the funds. Other employees would emulate such behaviors in organizations where the management participates in financial mismanagement. Organizations’ lack of disciplinary actions also motivates employees to misappropriate funds as there is no apparent consequence.

Soft budgeting tactics can also be part of organizational factors. Most sports organizations in charge of events wait to be bailed out by third parties like the government or investors, even when they are bankrupt or have constant financial problems. These tactics create a culture of financial misappropriation because sports officials know that despite how much funds they waste, there will always be someone to bail them out. The officials know that the organization they are in charge of cannot be left dead or inactive. Thus, they embezzle funds with that in mind. These tactics stimulate risky behavior among officials like contractors and event organizers as they expect to be saved.

Political Influence

Financial management issues also result from politicians’ abuse of power to benefit themselves and their circle of friends, thus increasing corruption cases from mismanagement of funds in sports and events. Due to the enormous attention that international sports receive from the media, politicians use the events to increase their popularity and market their individual objectives rather than marketing the sports. In addition, politicians use their power to seek funds they misappropriate, and their political ambitions motivate them to escalate costs to benefit from that.

Major Corruption Cases in Sports

A report by the United Nations (2021) showed significant financial mismanagement issues in several sports organizations. Event bidding is a process where most corruption cases arise; especially in football; see appendix B. Examples of financial mismanagement in sports include the cases of the London 2012 Olympics, the Fédération Internationale de Football Association (FIFA), and the International Olympic Committee (IOC). Some financial mismanagement cases in Norway include the 1994 Lillehammer Winter Olympics, the 2011 International Ski Federation (FIS) World Skiing Championship, the 2014 FIDE Chess Olympiad, and the 2017 International Cycling Union (UCI) World Road Cycling Championships. The organizations were allegedly involved in different corruption forms, but specifically, cases of financial misappropriations were significant.

London 2012 Olympics

The London 2012 Olympics was faced with a fraud incident when a man wrote to the Olympic Delivery Authority (ODA), claiming to be the finance director of Skanska, the construction company contracted to landscape the Olympic Park (Carpenter, 2022). However, the details he provided were of his bank accounts, and the money was paid to him. The incident was later discovered, and the man and his accomplices were sentenced to four and a half years. Although ODA recovered most of the money, OD and Skanska had been defrauded of more than two million dollars. That was one of the biggest financial mismanagement issues that faced the Olympic Delivery Authority.

Fédération Internationale de Football Association FIFA

FIFA has faced financial issues over the past years, but notably in 2015 when high-ranking officials of FIFA were charged with money laundering, wire fraud, and racketeering, among other charges, for participating in a twenty-four-year scheme to enrich themselves through international soccer corruption (United Nations Office on Drugs and Crime, 2021). Two generations of soccer officials were found to have abused their position to acquire funds for themselves. The defendants, who were officials, fostered a corrupt culture and greed in the corporation resulting in the misappropriation of funds and donations. Also, in 2002, a report lodged by the FIFA secretary general was launched in court accusing the FIFA president of corruption and embezzlement of diverting funds towards two FIFA members; the then presidents of Latin America and Africa football federations. In 2010, FIFA also had to suspend two members after suspecting they had sold their votes to allocate the 2022 World Cup to Qatar under fraud presumption.

International Olympic Committee (IOC)

The IOC faced issues when the Tokyo Olympic Games faced corruption issues when it lost more than four million United States dollars in a Ponzi scheme run by Bernard Madoff, an American financer who defrauded investors, including the IOC, tens of thousands. Allegedly in 1998, the Salt Lake Olympic Committee bribed IOC members with a million US dollars to secure a winning bid. Corruption was rampant during the allocation of the 2002 Winter games to Salt Lake City, triggering a reform of the IOC and the exclusion of its committee members in 1999 (United Nations Office on Drugs and Crime, 2021). Corruption cases have been prevalent within the IOC and its members.

Usually, corruption cases take various forms within sports organizations. For example, conflicts of interest concerning international sports organizations, corrupt practices associated with endorsements, and the allocation of media rights for major sports events. Other forms are in terms of financial kickback schemes using public funds invested in the construction of sport-related infrastructure, manipulating host selection processes by bribing, and reselling event tickets by event organizers for their benefit.

Impacts of Financial Mismanagement in Sports

Financial mismanagement in sports has negatively affected the industry and the country. Direct effects of the mismanagement translate directly and indirectly into the industry and society. According to Kihl et al. (2017), the impacts of financial management in sports include, but are not limited to: Loss of sponsorships, damaged reputations, sanctions and financial costs, poor economic and social development, and high employee turnover.

Loss of Sponsorships

The loss of sponsorships resulting from the misappropriation of funds puts off new and old investors. Sponsorships, a source of funds in the sports industry, arise from sponsors who may be looking to invest or are fans of a particular sport. However, when financial misappropriation in the industry continuously rises, sponsors may feel that their money is not appropriately used to benefit sports but instead individual pockets. Thus, sponsors withdraw their pledges on sponsoring events and construction of facilities, resulting in lesser funds, and negatively affecting events.

Damaged Reputations

Damaged reputations arise from the defamation of corporations’ images following scandals highlighted by the media. Because football events, especially international ones, receive much attention from the press, any organization involved in the events also receives media attention. Thus, any scandal, including financial mismanagement in an event, becomes highlighted. This results in the defamation of organizations involved in the event as the issues are further investigated and exposed by journalists. Organizations and people involved in the misappropriation get their reputations defamed, leading to the withdrawal of sponsorships and loss of jobs.

Sanctions and Financial Costs

Sanctions and financial costs by the government arising from different scandals result in more loss by the organization involved. The government usually sanctions organizations in the sports industry with prevalent corruption cases, more so financial mismanagements. The government imposes penalties in the form of monetary payments and punishments, such as seeking permission from the government before creating an event. The government may also impose financial restrictions on the organizations, limiting their scope of work. The government may stop being a source of funds for organizations for a particular time to punish them for financial mismanagement.

Such punishments prove costly and limit organizations’ freedom to make poor decisions.

High Employee Turnover

The mismanagement of finances results in the quitting of employees over time. Mostly, financial scandals demoralize employees making them quit over the years. Misappropriation of funds also leads to mismanagement of employees’ salaries, frustrating them and making them leave work. The mismanagement results in poor compensation for employees’ efforts, making them feel unvalued and pushing them to quit.

Employees also refuse to work in organizations whose reputations are ruined due to financial misappropriation to protect their reputations and the ability to secure jobs in other organizations. The damaged reputation of sports organizations involved in financial mismanagement pushes employees towards mental disturbance, making them experience anxiety, depression, and other mental health disorders.

Poor Economic and Social Development

National and International sports events, when properly implemented, increases the quality of life in host countries. However, poor financial management in sports events negatively affects the host country’s economic and social development (De Oliveira Santos et al., 2019). For instance, corruption in the building and renovating of sports infrastructure and facilities results in poor quality structures, which become costlier to the event hosting country. Research implies that holding such mega-events necessitates significant investment in new or renovated buildings or upgrading the current facilities and equipment required to have the events. These facilities call for the pumping of funds into the events, which results in the mismanagement of infrastructure and sports arena building. Such misappropriation may be viewed as wasting public funds that may be used to upgrade other public services such as healthcare and education. The mismanagement affects economic development negatively, reducing citizens’ quality of life. A study by De Oliveira Santos et al. (2019) credits mismanagement as resulting from inequitable resource and power distribution among people resulting in individual income disparities. Poor infrastructure negatively affects other economic dimensions resulting in poor economies and poor standards of living.

Interventions

Ethical Policies Implementation

Different actions and policies can be implemented to minimize financial management in sports facilities and events. The government is considering several strategies to combat corruption associated with major sporting events (De Oliveira Santos et al., 2019). One is the implementation of ethical policies in the industry. In addition, ethics commissions should be created to conduct background checks on parties involved in the acquisition of materials related to sports facilities and events (Philippou, 2021). Ethical policies and commissions would hold sport industry officials accountable for every corruption case they are involved in. It would also keep them on their toes and encourage integrity.

Legal Actions Implementation

The ethics commission would also implement strict disciplinary action as a consequence for any official caught in a corruption case. Legal steps should also be taken against any sports official guilty of corruption. Depending on the level of correction, either a disciplinary level action, a criminal law action, or both. Anti-corruption rules and programs, especially against financial misappropriation, must be developed and implemented in the official documents of sports organizations. Strict corruption regulations should be developed in legally binding documents such as constitutions. Such regulations would demotivate people from participating in mismanaging funds.

Research by Geldibaev et al. (2021) covers the counteraction of corruption in professional sports by reviewing recent studies on sports criminal law and drawing attention to the need for the legal regulation of existing relations in professional sports. Dubious financial transactions include feigned transactions in the form of agreements in the donations and contributions, aiming to evade taxes, sham transactions paid for advertising services with the aim of misappropriation, and fraudulent transactions involving designing and surveying of sports facilities with overestimated costs, and cash payments subject to bribery and kickback. Any person guilty of the actions should face legal responsibility for committing a criminal law offense.

Financial Transparency and Accountability Morals

Internal and External Audits

Sports organizations involved in implementing key processes during events should implement internal control systems to assure stakeholders and the public of the effectiveness of the design and implementation of significant sports events. Control systems refer to periodic internal and external audits conducted by experts who can quickly identify suspicious transactions, bribes, and potential fraud influencing authorities’ decision-making. The audit results must also be made available to senior management of the organizations and all relevant stakeholders in the sports industry to promote transparency. Audits make it easy for organizations to avoid sport events irregularities. Governments can also be involved with internal controls to oversee procedures such as financial disclosures and the awarding of tenders for events and construction of sport’s related facilities, to act as events ‘police.’

Financial Transparency

Another intervention that can be implemented is practicing financial transparency and accountability in organizations in the sports industry. Financial transparency is vital in ensuring the integrity of budgeting and the planning and delivery of sports events. An act of financial openness is providing all audit results to industry stakeholders and the public, increasing public confidence in the integrity of sports events. Such practices create a culture of integrity and compliance, minimizing the chances of future financial misappropriation. Ensuring organizations involved practice openness and integrity in the procedures and processes relating to the pre-tendering stage in the procuring process would minimize corruptive cycles (Philippou, 2021). Maennig (2016) vouches that excellent governance, control, and monitoring measures can also be implemented to oversee contracts and any modifications made. Good organizational and cultural factors in sports would also cultivate an anti-corruption work ethic among employees.

Conclusion

Over the years, some international sports organizations’ officials have been involved in many corruption cases, especially in financial mismanagement, such as bribery, fraud, and tax evasion. Most issues arise from the commercialization and political interference of sports, which raise incentives for people inside and outside the sports industry to participate in corruptive tendencies. Existing structural, cultural, and organizational factors also encourage sports officials to participate in corruption. In addition, the lack of strict internalized anti-corruption policies makes people relaxed and makes it easier to participate in corruption. Poor governance resulting in no oversight of sports officials’ work behaviors and cases reduces the possibility of uncovering any corruption case. Governments have considered putting in place different strategies and policies to curb such cases, although mitigating external factors that encourage people to indulge in corruption is challenging. However, the most important way to curb corruption related to sports facilities and events is to implement policies that reduce the opportunity for individuals to perpetrate fraud or accept bribes, such as taking legal action against offenders and conducting internal and external audits. These initiatives must also address the structural, cultural, and organizational factors that encourage people to participate in various corruption forms. It is essential to address financial management issues in the sports industry and its effects on the economy and society as sports globalization occurs. Failure to do so may result in public desensitization of corruption.

References

Andreff, W. (2019). Corruption in Sport Governing Bodies. An Economic Roadmap to the Dark Side of Sport (pp. 53-74). Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-030-28479-4_3

Becker, D. M., Solberg, H. A., & Heyerdahl, G. S. (2022b, March 3). The financial challenges of hosting sports events: a problem of insufficient separation between decision-making and decision-control. European Sport Management Quarterly, 22(5), 1–18. https://doi.org/10.1080/16184742.2022.2044366

Carpenter, K. (2022). Preventing corruption ahead of major sports events: Learning from the 2012 London Games. https://www.transparency.org/files/content/feature/3.9_PreventingCorruption_Carpenter_GCRSport_4.pdf

De Oliveira Santos, G. E., Gursoy, D., Ribeiro, M. A., & Netto, A. P. (2019, February 1). Impact of Transparency and Corruption on Mega-Event Support. Event Management, 23(1), 27–40. https://doi.org/10.3727/152599518×15378845225311

Geeraert, A. (2017). ‘Bad barrels’: Corruption in international sports federations. In Corruption in Sport (pp. 45-61). Routledge.

Geldibaev, M. K., Dikaev, S. U., Krasnova, K. A., Filatova, N. Y., & Tsvetkov, P. V. (2021). Defining corruption and fraud in professional sport. SHS Web of Conferences, 108, 02008. https://doi.org/10.1051/shsconf/202110802008

Kihl, L. A., Skinner, J., & Engelberg, T. (2017, December 6). Corruption in sport: understanding the complexity of corruption. European Sport Management Quarterly, 17(1), 1–5. https://doi.org/10.1080/16184742.2016.1257553

Maennig, W. (2016). Preventing corruption in the planning of major sporting events: open issues. In Global corruption report: Sport (pp. 195-199). Routledge.

Masters, A. (2015). Corruption in sport: From the playing field to the field of policy. Policy and Society, 34(2), 111-123.

Philippou, C. (2021, August 9). Anti-bribery and corruption in sports mega-events: stakeholder perspectives. Sport in Society, 25(4), 819–836. https://doi.org/10.1080/17430437.2021.1957836

United Nations Office on Drugs and Crime. (2021). Major sports events and Corruption. UNODC. https://www.unodc.org/res/safeguardingsport/grcs/section-10_html/SPORTS_CORRUPTION_2021_S10.pdf

United Nations. (2021). Major sports events and corruption. In United Nations Office on Drugs and Crime (Section 10). Retrieved September 9, 2022, from https://www.unodc.org/res/safeguardingsport/grcs/section-10_html/SPORTS_CORRUPTION_2021_S10.pdf

Appendix A

 

Appendix B

Annotated Bibliography

Becker, D. M., Solberg, H. A., & Heyerdahl, G. S. (2022, March 3). The financial challenges of hosting sports events: a problem of insufficient separation between decision-making and decision-control. European Sport Management Quarterly, 22(5), 1–18. https://doi.org/10.1080/16184742.2022.2044366

The article explains the financial underperformance of significant sports events as a poorly functioning separation between decision-making, decision control, and risk-bearing. The report uses data from four major sports events that were hosted in Norway; the 1994 Lillehammer Winter Olympics, the 2011 International Ski Federation (FIS) World Skiing Championship, the 2014 FIDE Chess Olympiad, and the 2017 International Cycling Union (UCI) World Road Cycling Championships; all events greatly affected by financial mismanagement. The study used in-depth semi-structured interviews with members of the event’s organizing committees, including members of national and international sports federations, representatives of host cities, and private suppliers of goods and services. The article is a good source of information that correlates the events to be managed better financially if there was a more logical division of risk-bearing, decision-making, and decision control.

De Oliveira Santos, G. E., Gursoy, D., Ribeiro, M. A., & Netto, A. P. (2019, February 1). Impact of Transparency and Corruption on Mega-Event Support. Event Management, 23(1), 27–40. https://doi.org/10.3727/152599518×15378845225311

The article addresses the influence of transparency on corruption and people’s support for mega sports events. It focuses on the 2014 FIFA world cup held in Brazil and the corruption allegations directed at FIFA. The study indicates that financial mismanagement has gained more attention from scholars because of its various negative impacts. Such incompetency and unprofessionalism undermine public officials’ trust and validity of their positions. Thus, the article helps provide more insight into the effects of sports corruption in society.

Geldibaev, M. K., Dikaev, S. U., Krasnova, K. A., Filatova, N. Y., & Tsvetkov, P. V. (2021). Defining corruption and fraud in professional sport. SHS Web of Conferences, 108, 02008. https://doi.org/10.1051/shsconf/202110802008

The article addresses the scale and nature of fraud and corruption in sports. It also highlights the forms of legal responsibility. It calls for disciplinary and criminal law levels for offenders guilty of financial misappropriation in sports. It addresses dubious financial transactions such as feigned transactions in the forms of agreements in the donations and contributions, aiming to evade taxes, sham transactions paid for advertising services with the aim of misappropriation, and fraudulent transactions involving designing and surveying of sports facilities with overestimated costs, and cash payments subject to bribery and kickback making it a good source for the article. It also discusses the management of international and domestic sports as one with little experience, thus providing avenues for corruption. The study argues that there will always be elements of corruption as long as the sports depend on state funding. Findings from the article speculate that corruption and mismanagement of funds are detrimental to professional sports ethics, making it a valuable source for the article.

Kihl, L. A., Skinner, J., & Engelberg, T. (2017, December 6). Corruption in sport: understanding the complexity of corruption. European Sport Management Quarterly, 17(1), 1-5. https://doi.org/10.1080/16184742.2016.1257553

The article addresses the complexity of corruption in the Sports industry and its challenge to sports managers. The article discusses the multiple forms of corruption, bribery, fraud, and institutional corruption that have occurred in sports, events, and governance of the sports industry resulting in consequences such as sanctions, financial costs, diminished reputations, and high employee turnover. The study explores the specific types of corruption in the sports industry, mainly bribery, their causes, impacts on sports organizations, and approaches to reform It discusses the conceptualization of integrity in the industry to understand how to best tackle sports corruption in events. The article also argues that international organizations have gathered to discuss, research, and implement projects to understand corruption better and protect sports’ integrity. It also develops evidence-based theoretical models reflecting the complexity of sports corruption cases and the implications of implementing reforms.

Philippou, C. (2021, August 9). Anti-bribery and corruption in sports mega-events: stakeholder perspectives. Sport in Society, 25(4), 819–836. https://doi.org/10.1080/17430437.2021.1957836

The article addresses the knowledge gaps concerning corruption issues associated with the organization of mega sports events to understand any interventions that can be implemented to mitigate the issues. The paper identifies corruption cases within IOC’s corporate governance and offers solutions such as monitoring the bidding process and complaints evaluation. The study used one-hour interviews with sports governance officials, stakeholders, and other external expert perspectives, to collect data on bribery and corruption relating to sports mega-events. Participants were asked to explain their definitions of corruption. The participants offered interventions such as minimizing the number of stakeholders to reduce the number of people with access to finances in the events. The policies would provide more transparency, making it easier to monitor any financial mismanagement.