The Swoosh Effect: First in an occasional series

Published March 17, 2018

Jeff Manning and Brad Schmidt | The Oregonian/OregonLive

In a normal year, one of the biggest stories of the NCAA Tournament would be freshman sensation Marvin Bagley III.

The prospect of Bagley's last hurrah as a Duke Blue Devil and ascent to the NBA would be near-perfect fodder for the myth-makers at Nike. Bagley has been a part of the Nike system for nearly three years, starting when he was 16.

But this is far from a normal year. March Madness is overshadowed by an ongoing scandal that has toppled seven coaches and agents and cast a pall over two of Oregon's marquee companies, Nike and Adidas.

Adidas, which has its North American headquarters in Portland, found itself at ground zero after two company representatives were indicted on allegations they paid to steer recruits to Adidas-affiliated schools. Jim Gatto and Merl Code have pleaded not guilty to fraud and conspiracy charges.

Though it's been widely reported that Nike's Elite Youth Basketball League has been subpoenaed in connection with the federal investigation, none of the footwear companies has been charged in the alleged conspiracy. Backed by Nike money, the league now competes with local high schools for the best players and coaches.

The scandal shines a harsh light on grassroots basketball -- the barely regulated frontier between youth and college competition. In this world, players align with club teams in hopes of winning the attention of college coaches, agents and sneaker company scouts.

Bagley's odyssey offers a glimpse of the challenges and life-changing opportunities afforded the nation's top prep players. It also shows how the pursuit of elite athletes has trended younger and younger. By the time top prospects reach college, some of have been adherents of Nike, Adidas or Under Armour since before they could drive.

Anyone involved in high-level youth sports has seen the pervasiveness of the sneaker companies: They sponsor the best teams, they stage all-star camps, they run entire leagues – always with their logos front and center. By 2017, Nike completed a near-sweep of Oregon's largest public high schools, signing up more than 90 percent of those with sneaker company deals. All it wanted in return – and got -- was total brand exclusivity. Call it the Swoosh Effect.

The strategy makes good business sense. Relationships formed in adolescence tend to last. The sneaker makers, particularly Nike, are extraordinarily successful at keeping the top players in the corporate family. An Oregonian/OregonLive analysis of the 2017 NBA draft found that a majority of first-round picks who played on a Nike, Adidas or Under Armour club team continued their shoe company allegiances as they embarked on professional careers.

Exactly how those companies inspire a player's loyalty is plainly a focus of the investigation. Recently leaked court documents suggest investigators are looking into possibly illicit transactions involving agents, coaches, players, their families and footwear companies.

After the indictments last fall, The Oregonian/OregonLive traveled to basketball hotbeds, reviewed voluminous court files and interviewed dozens of people in grassroots youth basketball. It's a bare-knuckled place where entrepreneurial coaches, private skills tutors, freelance nutritionists, physiotherapists and expensive prep schools cater to players' dreams of Division I scholarships and NBA riches.

SPECIAL REPORT | The Swoosh Effect

An occasional series on the sneaker industry's growing influence on grassroots basketball.

The loyalty game:

The college basketball investigation that has toppled coaches and sports agents and cast a pall over such marquee Oregon companies as Nike and Adidas also casts a harsh light on grassroots basketball, the barely regulated frontier between youth and college competition.

The prosecution of Myron Piggie:

A 2000 Kansas City case serves as an eerie harbinger of today's basketball scandal.

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Portland prep star shines:

Kamaka Hepa's journey from Alaska to Oregon illustrates how club teams, high school sports and sneaker companies both fuel and capitalize on hoop dreams.

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The "dirtiest business" ever:

Kevin Love's days as a top recruit swept his Lake Oswego family into the athletic footwear wars and sparked an on-again, off-again relationship with Nike.

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Nike dominates in Oregon:

The sneaker giant exclusively outfits 93 percent of the state's large public high schools with apparel deals, providing more than $1 million in free gear each year.

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Transparency:

Officials dropped a rule compelling coaches to disclose outside income knowing it would "minimize" information subject to public records law, records show. And that's exactly what's happened.

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The footwear companies, with Nike leading the way, have recognized this subculture as both an important market and a potent branding opportunity. Social media has allowed high school players to build enormous followings. Zion Williamson, a South Carolina 17-year-old who plays on an Adidas team, has 1.4 million Instagram followers. A highlights video of his last club team game ("Zion Williamson WENT CRAZY In LAST AAU GAME EVER!") is closing in on 700,000 views on YouTube.

The companies' sponsorship money and lavish attention transformed amateur sports during the past 25 years. Now, players, coaches and fans wait to see if the results of the ongoing federal investigation will spawn the next revolution.

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Youth players cannot accept pay to compete. To play in college, the typical first step to the NBA, they must preserve their amateur status. There are no rules, however, prohibiting footwear companies from sponsoring teams – showering athletes with free shoes, uniforms, and sometimes cash to cover travel and other expenses. It's a strategy that's long been accepted as ethical and legal.

But the line between throwing money and swag at elite teams and direct endorsement of promising players has blurred, particularly when the parents of top athletes appear to benefit, experts told The Oregonian/OregonLive.

In Bagley's case, Nike backed the Phoenix Phamily, a grassroots team in Arizona that featured one of the hottest prospects in the country. His father was the coach and team director.

The Bagley family traded Arizona for Porter Ranch in California, a gated community high on a hill in Northridge. Rents in the area run from $2,500 to $7,500 a month.

Marvin Bagley Jr. and his wife filed for Chapter 7 bankruptcy in April 2008, during the Great Recession, listing their combined annual income at just over $44,000. Property records indicate the Bagley home was sold in 2011 at a trustee's sale -- typically a sign of a foreclosure.

Four years later, shortly after Nike's sponsorship of the team became public, they left their working-class neighborhood in Phoenix for Southern California. In a tax filing, the Bagleys listed a home address in a gated subdivision in Northridge called Porter Ranch. Similarly sized homes in the vicinity typically sell for $750,000 to $1.5 million, said Jose Contreras, a Coldwell Banker real estate broker active in the area. Rents in the neighborhood range from $2,500 to $7,500 a month.

Neither the Bagleys nor Nike would offer any details about the team sponsorship or the family's personal finances. Contacted by phone and through the Duke University sports information department, the Bagleys "respectfully declined" to comment.

The Oregonian/OregonLive sent a list of more than 30 questions to Nike, many of them about the Bagley relationship. The company issued a statement, saying "Nike is a passionate supporter of grassroots basketball, sponsoring many teams and helping provide long-term support to help grow the sport. ... Nike firmly believes in compliance with laws and fair play in all sports."

Bagley Jr. in 2016 acknowledged to Sports Illustrated that the family was relying on the Nike sponsorship and an athletic apparel company he was starting up "to make ends meet."

Once in California, the younger Bagley enrolled at Sierra Canyon, a private school in Chatsworth where tuition now tops out at $36,250 a year. BMWs and Mercedes frequent the student parking lot, and the school's celebrity roster includes kids named Jenner and Kardashian.

Sierra Canyon also has a top-flight basketball team, sponsored by Nike, which provides shoes, apparel and other merchandise in return for the right to splash its swoosh on players' uniforms and around the school gym. Sierra Canyon wouldn't reveal the details of its Nike deal, but even a merchandise-only sponsorship can quickly exceed $10,000 a year.

Several of the school's top players promptly joined Bagley's new club team, which competed in the Elite Youth Basketball League.

Since its founding eight years ago, the Nike league has become the promised land of grassroots ball. It has assembled most of the best teams and best players. Rather than distance itself from the anything goes atmosphere of club basketball, Nike embraced the opportunity to raise the game.

"We just want to elevate the game," Nike executive Jeff Rogers said in a 2010 interview. "I think (some people in) the basketball community would say that summer basketball is not as strong ethically as scholastic basketball. But they're wrong. ... They can all coach, they can all manage, and they can all run a business."

As private businesses, most club teams don't disclose their finances publicly. Tracing the flow of shoe company money is nearly impossible unless the grassroots teams choose to disclose it. Even when club teams attain nonprofit status, which normally results in some financial disclosure, there's little data.

Observers of the grassroots system say it is common knowledge that the leagues find ways to court selected elite players, including in some cases where teams use sponsorship money to hire family members, something one defense attorney involved in the corruption scandal confirmed.

"These families are getting paid by the shoe companies," said attorney Steve Haney of Southfield, Michigan.

His client, Christian Dawkins, is an unlicensed sports agent who's been accused of helping arrange six-figure payments to the families of players in return for the players' agreement to play at an Adidas-affiliated school. Dawkins, 24, has pleaded not guilty.

Haney argues the payments by agents outlined in the indictment, even if proved, are little different from the sponsorship payments to teams from the sneaker companies.

"Basically, it's a blank check. It's a quid pro quo, to gain favor with that family and that kid at a young age," he said. "How is that any different from the payments allegedly made in this case?"

After Nike agreed to sponsor his club team, Marvin Bagley Jr. posted a video on Instagram on April 17, 2017. "I got a truckload for the Nike Phamily," the driver says. In turn, Bagley commented: "Boxes still coming! #Nike #EYBL #Phamily

Journalist and author George Dohrmann wrote a scathing account of youth basketball after spending eight years with a Southern California club team. "If a dad is coaching an AAU team that is sponsored by one of the big shoe companies, that is plainly just a way for the shoe company to dump a bunch of money in the lap of the parent of the young star," he said.

"Everybody knows that, right? It's a joke."

Nike confirmed it "provides some financial support" to club teams competing in its Elite Youth Basketball League.

For its part, Adidas said its "commitment to grassroots basketball and young athletes is unchanged." In a written statement, the company said it "continues to provide young female and male athletes opportunities to play the game and showcase their talent in a fun, competitive environment as they aspire to reach their dreams."

Under Armour confirmed this week that it sponsored two club teams run by the parents of star players. The company backs a team led by Apples Jones, whose son Josh Jackson was selected by the Phoenix Suns in the first round of the 2017 NBA draft. Documents obtained during the corruption probe and reported by Yahoo Sports include emails that describe monthly $10,000 payments from the Baltimore-based company to Jones.

"Under Armour is giving her 10k a month, and she's also getting paid by adidas now — so she's plenty taken care of," Dawkins wrote of Jones.

The cryptic email doesn't address why Adidas would pay into a program sponsored by a competing shoe company. But in Jackson's only year of college basketball, he played for the University of Kansas, which is sponsored by Adidas.

Under Armour would not comment on the leaked email, nor would it confirm how much in sponsorship fees it paid to Jones' team. Spokesman Dean Stoyer told The Oregonian/OregonLive that it is less than $10,000 a month. The money is meant to pay for travel, tournament fees and other expenses. Stoyer said some of it conceivably could go to a parent running the team.

"That's not our part to dictate what they're going to get paid," he said. The company continues to back the team even though its star player, Jackson, has departed, Stoyer added.

Matt Sargeant, a high school basketball coach in Southern California who has studied grassroots basketball at length, said the practice of sponsored teams hiring players' parents has become more common in recent years.

"It used to be that shoe companies would simply sponsor programs with great players," he said. "The fact that they are directly going after family members of great players and sponsoring their own programs, I believe, highlights a rather arrogant transparency."

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The shoe companies' endorsement battles go back to the 1980s, when colorful basketball promoter Sonny Vaccaro persuaded Nike to start paying college coaches. As Vaccaro recalls, the first deal was with Jerry Tarkanian, the longtime coach at the University of Nevada at Las Vegas, for $5,000 a year. Then came the "all-school" deals, in which shoe companies would pay big money for the right to outfit high-profile university athletic teams.

In 2016, Under Armour signed a 15-year, $280 million deal with UCLA, the largest all-school deal ever.

Vaccaro's status as a legendary basketball promotor was forever cast when he pushed Nike to sign an endorsement deal with a rookie sensation named Michael Jordan in the mid-1980s. The Air Jordan launch was like nothing the shoe industry had ever seen, racking up more than $100 million in sales the first year out. Today, Jordan Brand surpasses $3 billion a year in sales.

"That changed history," Vaccaro said. "They've been chasing the same magic ever since. But they'll never get it. Jordan was alone."

Vaccaro left Nike and joined Adidas in Portland. Lacking the budget to compete with Nike for the top NBA or college talent, Adidas dove headlong into grassroots ball.

Courting high schoolers paid enormous dividends for Adidas. It landed Kobe Bryant and Tracy McGrady, who went straight from high school to the professional ranks.

The National Basketball Association, uneasy with the growing number of high schoolers attempting to skip college and turn pro, instituted a minimum-age restriction in 2006, That change merely ushered in the current one-and-done era: many top collegiate players play a single year and then enter the professional draft.

But the die had been cast. Nike, Adidas and later Under Armour saw wild success in the grassroots market, and the leagues became an entrenched part of the youth basketball world.

Peter Ruppe, an industry veteran with both Nike and Under Armour, said he would take entire teams of designers and marketers to grassroots tournaments. "You can get a year's education about the current state of the sport in one weekend," he said.

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Marvin Bagley III, who led Duke into the Sweet Sixteen with Saturday's 87-62 win over Rhode Island, is a product of the modern grassroots system.

Playing year-round against many of the best teen players in the country forged him into the prodigy he is – a 6-foot-11 big man who jumps so high he has to be careful not to bang his head on the rim.

His emergence in Arizona electrified prep basketball fans. Characteristic of a top-flight player, he's been a basketball nomad, constantly moving from school to school, team to team, always under the close eye of his father, Marvin Bagley Jr.

He raised eyebrows when he transferred from public school to Hillcrest Prep, then a Nike-sponsored school in Phoenix that unapologetically prioritizes basketball. Principal Matt Allen told The Oregonian/OregonLive he made one major concession to seal the deal: He hired Bagley's father as an assistant coach.

Just six weeks into the year, the Bagleys pulled up stakes for reasons that aren't clear.

When not playing high school ball, Bagley played for club teams. In 2015, he was with the Arizona Power, which made coach John Ortega a very happy man.

John Ortega stands outside the basketball facility he and his partners are building in Phoenix, Arizona. After a disappointingly short stint with Marvin Bagley III, Ortega formed a new grassroots basketball club -- Powerhouse Hoops -- and recently landed a sponsorship deal with Under Armour.

With Bagley on board, he felt he had the talent to land a sneaker sponsorship for the Power, maybe even gain entry to Nike's Elite Youth Basketball League, the toughest place to compete in all of grassroots basketball.

Ortega managed to get the Power invited to play in two Nike tournaments. For the fiercely ambitious coach, it seemed like deliverance. Winning just one tournament would give it entry into the league.

But just before the tournaments, Bagley bailed. And without him, the Power came up just short in its bid to join the big time, Ortega said.

In November 2015, six months after Bagley left the Power, the news broke that Nike had agreed to sponsor the Phoenix Phamily, a club team founded by Bagley's father. Nike would give the club immediate entry into its Elite Youth Basketball League, no play-in tournament necessary.

Marvin Bagley Jr. was made director and coach. His son would become the featured player. Just in case anyone failed to recognize the connection, the team was renamed the Nike Phamily.

Not long after, the Bagleys moved to Southern California.

College coaches descended to get a closer look, including those from such prominent Nike programs as Arizona and Kentucky. The battle to land Bagley ultimately came down to USC and Duke, also Nike schools. On June 27, 2017, Marvin Bagley Jr. put a photo of the USC coach, Andy Enfield, and his three sons on his Instagram account claiming that "USC has offered all three Bagley boys," meaning apparently that Enfield had offered scholarships to all the brothers.

The youngest at the time was 7.

After attending three high schools in three years, Bagley skipped his senior year to enroll at Duke and is widely expected to leave for the NBA after this school year. The quiet kid from gritty South Phoenix could be a top draft pick and multimillionaire before he's 20.

The NCAA has apparently never looked into the Nike-Bagley relationship, but six experts on NCAA compliance told The Oregonian/OregonLive that the parent-coaches paid to run their kids' club basketball teams could be a breach of amateurism rules.

The NCAA would not comment on any specific cases. "A prospect or student-athlete cannot receive preferential treatment or extra benefits based on their athletics ability," said NCAA spokeswoman Stacey Osburn. "This would include money from any source."

Gerald Gurney, a professor at the University of Oklahoma and an expert on NCAA regulations, said "college athletes are to certify that they've not been paid anything for their play."

The Oregonian/OregonLive described the two coaching jobs Bagley Jr. held, and that raised red flags for Gurney. "It's very hard for anyone who has established a relationship with one of these companies to honestly say they've not been paid anything," he said.

Haney, the lawyer for Dawkins, said the sponsorships began as a "well-intentioned" means of providing travel money to underfunded teams. Haney is familiar with the club basketball world. For years he served as general counsel for the Michigan Mustangs, an Adidas-sponsored team.

With the advent of the family deal though, it became more about winning their allegiance, he said.

"You're still giving them money and you're doing it with the intent of influencing them," Haney said.

The NCAA has cracked down in some high-profile cases but acknowledges it is not an investigative agency with teams of detectives. In 2010, the organization declared Renardo Sidney ineligible for parts of two seasons after determining that the Mississippi State forward and his family received "preferential treatment." Reebok, the Massachusetts sneaker brand, had sponsored a club team run by Sidney's father.

The NCAA determined that the Sidney family benefitted financially from the sponsorship deal, receiving merchandise and travel money. Reebok reportedly signed Sidney's father to a $20,000 a year consulting agreement.

Scotty Pippen Jr. signs autographs after his school, Sierra Canyon, won a game last month at a Nike-sponsored tournament in Santa Ana, California. Pippen is one of four sons of former NBA players on the team. As grassroots basketball grows more sophisticated, budding stars tend to congregate on so-called "superteams."

Don Jackson, a Mobile, Alabama, lawyer who represented the Sidney family, said the NCAA got just about everything wrong in the Sidney case. "First of all, these kinds of relationships between a shoe company and a parent -- there's nothing inherently sinister or wrong with that," he said. "Quite often there's an altruistic motive. Unfortunately, as with any arrangement like this, there's a potential for misunderstanding."

The NCAA apparently hoped the disciplinary action would discourage others from accepting similar treatment. "This case is about more than a single student-athlete," said Kevin Lennon, the NCAA's vice president for academic and membership affairs. "One of our core responsibilities is to ensure a level playing field for all student athletes and their teams."

NCAA compliance experts say the fallout may land on the athlete, not the grassroots team or the apparel companies.

"There are potential problems if these athletes attempt to play for an NCAA Division I program," said Dionne Koller, a professor at the University of Baltimore School of Law and a sports law expert. "You could make a good case that these players aren't 'amateurs' under the NCAA's definition because of all the benefits they are receiving."

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The corruption scandal comes just as sales of basketball shoes have cratered. U.S. revenues fell 13 percent in 2017, to about $950 million, according to Matt Powell, a prominent market analyst. That's also a 26 percent drop from just two years ago.

Nike and its Jordan Brand division dominate the category with about 80 percent market share. Under Armour has a 12.1 percent share, largely driven by its Stephen Curry collection.

Though it is enjoying a brand-wide resurgence and continues to win market share from Nike, Adidas remains an also-ran in the basketball business. The German company's share of the U.S. market totaled less than 5 percent in 2017.

The scandal has had a negligible impact on sales, Powell said.

Shortly after the September 2017 arrests in the basketball scandal, concerns emerged about whether the big three shoe companies were reconsidering their commitment to grassroots teams. Coaches and players across the country wondered whether the sneaker makers would deem the risk no longer acceptable and pull the plug on the leagues.

Holland Woods and Tyrell Henderson are convinced they got scholarships to play for a surprisingly scrappy Portland State University team this year because of the exposure they got playing grassroots basketball. Both played AAU ball with Marvin Bagley III, who's now at Duke University.

But the raw talent on display in the elite youth game has attracted huge audiences. The sneaker companies show no signs of walking away.

On a recent Saturday night, the Sierra Canyon Trailblazers have just handily won a game at the 23rd annual Nike Extravaganza, a gathering of the best Nike-sponsored high school teams in Southern California.

Some thought Sierra Canyon would be down after Bagley's early departure for Duke. But the Trail Blazers just regrouped with a new raft of top-talent players, this time NBA progeny.

The media throngs pressed for post-game interviews. The players politely stayed to sign dozens of autographs. And three teenage stars – Scotty Pippen Jr., Kenyon Martin Jr. and Duane Washington Jr. -- posed in their Nike uniforms for selfies with the crush of fans.

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Jeff Manning

503-294-7606

Follow @JeffmanningOre

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Brad Schmidt

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Follow @_Brad_Schmidt

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