January 25, 2018 / 8:23 PM / 7 months ago

'Stench' of Nassar scandal will dog USA Gymnastics for years - experts

DETROIT (Reuters) - The scandal stemming from longtime USA Gymnastics doctor Larry Nassar’s sexual abuse of young female athletes could take a financial toll on the sports federation for years, sponsorship executives said.

Larry Nassar, a former team USA Gymnastics doctor who pleaded guilty in November 2017 to sexual assault charges, listens as he is sentenced in Lansing, Michigan, U.S., January 24, 2018. REUTERS/Brendan McDermid

The group already stands to lose millions of dollars in revenue through the 2020 Olympic Games, as sponsors back away after a week of emotional testimony detailing Nassar’s crimes against star athletes, the executives said.

“There’s a stench right now and how long will the smell stay around, that’s really the question,” said Gary Fechter, an attorney with McCarter & English who has represented companies in sponsorship deals. “People either want to look away or don’t want to be reminded of it.”

Nassar was sentenced on Wednesday to up to 175 years in prison at the end of a weeklong hearing. A parade of victims told their stories in raw and unflinching terms, describing how he used medical treatments to justify penetrating their bodies with his fingers.

He worked for the federation through four Olympic Games, but the allegations did not come to light until 2016.

Well-known Olympic medallists including Gabby Douglas and Aly Raisman also publicly accused Nassar of sexually abusing them, with Raisman in court calling the federation “rotten from the inside.”

Federation President and Chief Executive Kerry Perry, who took over last year after her predecessor resigned, said Wednesday after the sentencing that the victims’ testimonies have left a lasting impression.

“Every day, their stories will impact my decisions,” she said in a statement.

USA Gymnastics will be in the news again next week when Nassar is due to be sentenced on similar charges in a different Michigan court. The group still faces litigation from scores of victims accusing it of inaction in the face of years of complaints, and U.S. Olympic Committee Chief Executive Scott Blackmun has called for the entire board to resign. [L2N1PK1N5] [L8N1PK096]

DRIP, DRIP, DROP

That constant drip of bad news has corporate sponsors dropping their deals. Industry experts said the scandal has been amplified by the #MeToo era that has seen dozens of prominent men in business, politics and entertainment accused of sex abuse.

“The only thing that gets people’s attention in sports or business or politics is cash flow, or in this case, compromising cash flow,” said David Carter, executive director of the USC Sports Business Institute.

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“The rebooting of USA Gymnastics is going to take a very long time,” he added, saying it will likely be a major topic of conversation until at least the Summer Games in Tokyo in 2020.

AT&T Inc (T.N) on Tuesday suspended its sponsorship with USAG, citing the Nassar scandal, saying the federation needed to be rebuilt.

“We stand ready to step back in when USAG has fully addressed these tragic events,” the company said in a statement.

Under Armour Inc (UAA.N) last month ended a sponsorship deal that had been slated to run through 2020. Spokeswoman Diane Pelkey said Wednesday in an email the company hoped its decision “helps to facilitate necessary change.”

Other companies that terminated or didn’t renew expiring deals in 2016 and 2017 include Procter & Gamble Co (PG.N), Hershey Co (HSY.N), Chobani, Kellogg Co (K.N) and Utah-based KT Tape.

Such deals can generate revenue in the single-digit millions of dollars and can account for about 20 to 33 percent of a federation’s annual totals, industry analysts estimated.

USA Gymnastics declined to address the loss of sponsors or discuss its finances.

A review of the not-for-profit organisation’s 2016 tax return showed revenue of almost $34.5 million, including about $13.2 million derived from members and about $12.9 million from hosting competitions. It was not clear whether corporate sponsorship was included in any of those totals.

The federation, which began in 1963 with barely 7,000 competitors, today boasts more than 174,000 athletes and professionals as members, according to its website. Membership fees range from $25 for introductory athletes to $89 for coaches and professionals.

Analysts and industry officials said the federation has likely lost some members.

Some of Nassar’s victims cheered the companies that cut their sponsorships.

“I am deeply grateful for the sponsors of USAG like AT&T who have heard the voices of the victims and say no more,” said Rachael Denhollander on Wednesday. She was the first to come forward publicly with allegations against Nassar.

Sponsorship experts predicted that the federation will eventually recover from the scandal, if sponsors see real changes, including the possible exit of the directors who have not already resigned.

“I’m not sure that the organisation has much of a choice,” said Jim Andrews, senior vice president with ESP Properties, a unit of WPP Plc (WPP.L) that tracks sponsorship spending. “If they attempt to make changes that are essentially window dressing ... then they won’t be successful.”

Additional reporting by Keith Coffman in Denver, Alex Dobuzinskis in Los Angeles and Steve Friess in Lansing, Michigan; editing by Scott Malone and David Gregorio

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