By Alexandros Chronides, APC Sports Consulting Ltd
Money laundering is a hot topic on the global financial and political agenda right now, and the fight against it has become increasingly important in a world where governments are struggling to keep their fiscal balances in check, and reverse the rising incidence of tax evasion, drug trafficking and consumption, and criminality in general.
So, what is money laundering? The simplest definition of money laundering is that it is the process of legitimizing money generated through illegal activity. In other words, ‘dirty’ money generated from crimes such as drug trafficking, political bribery or tax evasion, are ‘laundered’ through a variety of methods, with the end goal being the concealment of their illegal source, so that they are now considered ‘clean’ or legal and can be used anywhere in the economy, without fear of criminal consequences.
The above definition, and the crime of money laundering in general, may sound a bit too technical, too financial or too legalistic to be associated with International Sports. We might imagine ships full of cash, arriving in exotic islands where bankers in suits await on the pier, eager to lead the person in charge, through huts and banana plantations and into the island’s overdeveloped financial center. However, nowadays, this is rarely the case. Money laundering has evolved immensely in the past few decades, and the sports world, with its relatively low levels of financial regulation, as well as its traditionally non-financially sophisticated nature, have made the industry as a whole, and sports clubs in particular, a perfect candidate for the role of the exotic money laundering island we previously hypothesized.
The metaphor above is by no means far-fetched, or even future-oriented in nature. Money laundering is happening in sports right now, and has been happening for at least the last few decades. In their 2009 report titled Money Laundering through the Football Sector, the Financial Action Task Force (FATF), the global authority on combating money laundering, had already realized and warned governments, of a worryingly high level of usage of the global football industry, by criminals, to legitimize their illegal proceeds. Going overthe numerous ways through which criminals can use sports clubs, sports leagues or even athletes to launder their money is beyond the scope of this article.
The negative effects of money laundering on the global economy and the global financial sector are much discussed and well documented, and range from increasing financial market instability to increasing corruption of government officials and exacerbating government finances.
Much less explored in the global literature, are the negative effects of money laundering on the international sports sector.
In this article we want to ask, given that money laundering, is, taking place in the sports world, is this bad for the industry per se? What are its effects, not on government finances, or on the incidence of crime in general, but on the sports industry itself? In this article, we will explore three key insights on the negative effects, money laundering has, on international sports:
- Classic Supply and Demand Distortions
From a purely economic point of view, money laundering creates inefficiencies in the global sports sector. Money in the industry is no longer allocated to where large fan demand, great sports talent or bespoke team management lies. Let me explain this: let’s say I am a criminal who wants to launder their money. My primary aim is to find a way to make my money appear legitimate. I can do this by buying and selling football players at prices that are greater than their real market value, by buying football clubs with bad management styles or poor fan bases or bad economic positions and I can use these as a base to move my money through them and disguise the origin of my funds. If I am a criminal, my aim is not to get these clubs healthy and high performing – per se. It is not to serve the clubs fans and to deliver them the joy – or in economic terms, utility – of watching their favorite team win. It is not even to pay the right amount for a talented player, whom I can later sell and make profit from. My primary aim is, and will always be, to launder as much money as I can, through my involvement in sports, with no regard for the effect this will have on the local or international sports sector.
The effects of my actions however will be the distortion of the forces of supply and demand in that sector. In concrete examples, this would translate to overvalued players who have less skills than the money they were bought for, and this would mean that the transfer market for players is itself distorted and inefficient, with weaker links between a player’s skill and their prices, which would translate to clubs no longer being able to pay the right amount of money for the right amount of skill they require for their team. Another example would be that poorly managed clubs, usually easy targets for money launderers, would be injected with cash and thus have no incentive to improve their management, operations, or even overall team, playing style and fan engagement. Players themselves might be disincentivized to perform at their maxima, if they see that their performance has little effect on how much they receive, or how well their club performs economically. Moreover, all of the abovementioned distortions in supply and demand, lead to fans receiving less utility (i.e. happiness) from the sports industry as a whole. This is by no means an extreme conclusion.
In addition to the abovementioned theoretical – economic negative effects two more concrete negative effects of money laundering on the international sports industry can be distinguished, two effects that negate the very essence of sports and athleticism.
- Crime attracts Crime – Crime breeds Crime
If the global sports industry is utilized by criminals for the laundering of their illegal proceeds, the same criminals, or other criminals might be tempted to use the industry for creating illegal proceeds. One way in which this has been observed is the rising incidence of match-fixing. Criminals, already involved with sports due to its attractiveness for money laundering purposes, have utilized their high positions within clubs and the power their dirty money brings them to generate more dirty money by instructing their teams to fix a match or by buying players of other teams in order to fix a match. In this respect, the attraction of criminals to the industry, initially for money laundering purposes has meant that criminals have entered the industry and because crime both attracts and breeds crime, this has led to an increase in match-fixing which completely destroys the very essence of sports.
- Crime Corrupts
Imagine you are a young athlete, who has made incredible sacrifices in her/his life in order to achieve your dream of performing at the highest level in your sport. Suppose now that you eventually realize that your club’s president is using the club merely to launder money, or that you are one day instructed to underperform in order for your team to lose, or that your management has access to illegal, doping substances and offers them to you in order to illegally enhance your competitiveness in the short term. What effect will this have on you as a person? Will you continue serving the sport with the same fervor as before? Will you protest and perform your best regardless of the instructions from your club’s management? Will you refuse to take the performance-enhancing substances and protect your integrity and health? Most people won’t.
This happens regularly, when criminals are involved with sports. Put it plainly crime corrupts. Exposure to crime, corrupts. The usage of the sports world for money – laundering has led to the corruption of athletes and other people involved with sports.
Sports, as an industry, traditionally represented an arena where personal success isn’t associated with your previous socioeconomic background. Now, athletes, especially coming from more disadvantaged socioeconomic backgrounds, who looked to their sport as a safe haven from an unjust society, are more likely to become disillusioned with the world of sports and resort to aiding criminal activities of their employers or becoming criminals themselves. Moreover, through the rising incidence of doping, more and more athletes, who traditionally are considered the pinnacle of human physical fitness and act as role models for billions of people around the world, are now exchanging long-term health problems for short term unsustainable gains in competitiveness.
In summary, the abovementioned negative effects of the rising incidence of money laundering in international sports attest to the conclusion that money laundering is not only leading to huge economic inefficiencies in the sports world, but is, in fact, threatening the very essence of what sports used to stand for.