FCPA Third-Party Risk: Budweiser, FIFA and 2014 World Cup- Part 2

Note: This is a guest post by attorney and compliance expert Ramsey Kazem.  It is the second in a five-part series that we will be sharing for the next five weeks. 

This is Part II of a five-part series discussing FCPA third-party risk in the context of the 2014 World Cup.  In this part, we will provide an overview of FIFA and Budweiser’s business relationship and describe how changing conditions substantially increased Budweiser’s FCPA exposure in advance of the 2014 World Cup.    
FIFA and Budweiser
FIFA, a not-for-profit organization established under Swiss law, was founded in 1904.  Today, with approximately 209 member associations across the world, FIFA has a greater global reach than the United Nations.  The organization’s stated purpose “is to improve the game of [soccer] constantly and promote it globally in the light of its unifying, educational, cultural and humanitarian values, particularly through youth and development [programs].”  To that end, FIFA invests tremendous sums of money for soccer development projects throughout its 209 member associations. 
                FIFA’s status as a not-for-profit organization does not mean it is not a revenue generating powerhouse.  Its laudable philanthropic efforts aside, FIFA is a major business enterprise that has achieved significant commercial success.  The World Cup, FIFA’s marquee event, is the most watched sporting event in the world, and the 2014 tournament generated $2.6 billion in profit for the organization.  A significant amount of FIFA’s revenue comes from sponsorships. 
                FIFA offers a three-tiered sponsorship structure.  The top tier sponsors, the “FIFA Partners”, have the highest level of association with the organization.  Their partnership extends beyond the World Cup to all FIFA tournaments and special events.  The six “FIFA Partners” each pay between $25-50 million annually for their respective sponsorship package.  The second-tier sponsors, the “FIFA World Cup sponsors”, obtain global sponsorship rights to the World Cup and the FIFA Confederations Cup.  This sponsorship level costs between $10-25 million per year.  The bottom tier sponsors, the “Regional Supporters”, are local companies that receive World Cup sponsorship rights limited to the host country.  The “Regional Supporters” pay between $4.5-7.5 million per year.
                Budweiser, owned by Anheuser-Busch InBev (“AB InBev”), has been a “FIFA World Cup sponsor” since 1986.  On April 27, 2006, Budweiser announced the extension of its sponsorship agreement to include the 2010 and 2014 World Cup tournaments.  Budweiser’s sponsorship package included category exclusivity, which ensured it would remain the official beer sponsor through the 2014 tournament.  In addition to traditional sponsorship benefits such as the use of official tournament marks and logos for promotional purposes, on-field signage and outdoor billboards, Budweiser also acquired exclusive pouring rights at all World Cup venues.

                During the 2014 World Cup in Brazil, the Budweiser brand was a ubiquitous presence. Most notable, Budweiser converted an existing building along the world-famous Copacabana Beach into the Budweiser Hotel.  This venue hosted special events, concerts and parties for international VIPs, celebrities and fans.  On game days, Budweiser Beer Gardens provided a festive pre-game gathering point for fans to enjoy live-music and drinks.  And, of course, Budweiser and Brahama, a local brand owned by Budweiser, were the only beers available for sale inside the stadiums.  More than 3 million units of beer were sold at stadium concessions during the month-long tournament.[1]  In looking back at the 2014 World Cup, Budweiser stated: “the results were extraordinary, leaving the organization excited for what's to come in 2018.”  
Changing Conditions
Budweiser’s success as a sponsor of the 2014 World Cup may have come at a significant cost.  In October 2007 when FIFA announced the host country for the 2014 World Cup, Budweiser’s pouring rights for the tournament, which it acquired more than a year prior, effectively became worthless.  That is, at the time of the announcement, Brazilian law prohibited the sale of alcohol at soccer venues.  As will be discussed in more detail below, the road from an absolute alcohol ban to the sale of more than 3 million units of beer should have triggered significant FCPA concerns within Budweiser. 
In 2003, amid concerns of escalating violence at soccer matches, Brazil banned the sale of alcoholic beverages at soccer stadiums.  The ban addressed an important public safety concern as many attributed the disturbing number of deaths at soccer matches to alcohol fueled violence.  While the data is inconclusive as to the impact of the ban, there is no question the law seeks to serve an important public interest. 
On October 30, 2007, FIFA unanimously selected Brazil as the host county for the 2014 World Cup.  At the time of the award, Brazil’s alcohol ban was in full effect.  While the specific details of the FIFA World Cup bid process are cloaked in mystery, the available public information reveal that a prospective host country’s Bid Committee, a non-governmental entity, is required to submit a signed “Bidding Agreement” and signed “Hosting Agreement” along with its bid package.  These agreements require the Bid Committee to obtain certain governmental guarantees related to tax exemptions for FIFA and its sponsors, work permits, security, and various other legal issues.  As part of its 2007 bid package, the Brazilian Bid Committee obtained a governmental guarantee from then-president Luiz Inácio Lula da Silva indicating there would be a change to the alcohol legislation.  However, the proposed repeal of the alcohol ban was very controversial and Brazil’s Health Minister and members of Brazil’s Congress called for the ban to be maintained.  Lawmakers opposed to lifting the ban delayed passage of the revised law – and, more than four years later the alcohol ban still remained in effect. 
In early 2012, FIFA, having just completed an agreement extending Budweiser’s World Cup sponsorship to include the 2018 World Cup in Russia and the 2022 FIFA World Cup in Qatar, grew increasingly impatient with the lack of movement in repealing Brazil’s alcohol ban. However, instead of working with the host country to develop a solution to address the issues of alcohol-induced violence and public safety, FIFA publically demanded that Brazil change its laws.  Most notably, FIFA’s Secretary General, Jerome Valcke stated: 
“Alcoholic drinks are part of the FIFA World Cup, so we're going to have them. Excuse me if I sound a bit arrogant but that's something we won't negotiate . . . The fact that we have the right to sell beer has to be a part of the law."[2]
As an aside, earlier this year Mr. Valcke was fired by FIFA, and is currently under criminal investigation by Swiss authorities relating to various bribery and corruption schemes.     
In May 2012, amid intense pressure from FIFA, a Brazilian congressional committee voted 15-9 to approve the “World Cup bill”, which permitted in-stadium alcohol sales during the World Cup, among other things.[3]   The legislation then passed the Brazilian Senate and was signed into law by then- president Dilma Rousseff in June 2012.  With the stroke of the pen, FIFA prevailed and, in so doing, created a lucrative market for the exclusive benefit of a single sponsor, Budweiser.  Budweiser capitalized on this opportunity selling more than 3 million units of beer at stadium concessions during the tournament.
To date, there is no public information suggesting that FIFA engaged in any illegal or corrupt conduct in dealing with the Brazilian government.  However, it is beyond question that FIFA applied tremendous pressure to compel the passage of a controversial law that set aside public safety concerns in favor of commercial interests.  FIFA’s direct engagement on this issue coupled with its rumored history of using dubious tactics for its own self-interest raises many ethical questions on both sides of the negotiations.  For Budweiser, however, as the sole beneficiary of this legislative triumph, FIFA’s conduct should have sounded FCPA warning bells throughout the organization.   

Ramsey Kazem can be reached by phone at +1-404-872-5615 or by email at info@thethreetwelvegroup.com.

[1] See FIFA Summary, “The 2014 FIFA World Cup in Numbers”.  The FIFA Summary document can be found here

[2] See BBC article, “Beer ‘must be sold’ at Brazil World Cup, says FIFA”, January 19, 2012.  Article can be found here

[3] See NPR article, “Brazil Moves To Ease Soccer Beer Ban, As World Cup Spat With FIFA Grows”, March 7, 2012.  Article can be found here