Posted by: Matthew Goldstein on February 15
One can only imagine how professional golfer Vijay Singh is feeling in the wake of the news that securities regulators and other federal authorities are investigating Texas-born billionaire R. Allen Stanford’s fast-growing financial services firm.
In January, Singh, one of the world’s top-ranked golfers, inked a marketing deal with the 58-year-old financier’s Stanford Financial. In return for an undisclosed sum of cash, Singh agreed to make the Houston-based company’s golden eagle logo the main brand appearing on his apparel clothes and golf bag. Trade publication Street & Smith’s Sport Business Journal, which first reported the deal, said the arrangement is expected to last up to five years.
The deal with Singh is just another in a string of high-profile sports marketing arrangements that Stanford Financial has struck in the US and in the Caribbean island nation of Antigua, where the firm’s controversial offshore bank, Stanford International Bank, is located. Allen Stanford has used the sports marketing deals to raise the international profile of his $50 billion firm and help attract wealthy buyers for the high-yielding certificates of deposit issued by its offshore bank.
As previously reported by BusinessWeek, regulators are trying to determine how Stanford’s offshore bank can sell CDs that carry yields that are twice the market average, even as the values for many of the main assets the bank claims to invest in have cratered the past two years. Investigators also are looking into the lavish bonuses the firm doles out to brokers at the firm’s US brokerage arm, which is the bank’s primary vehicle for selling CDs.
Another thing several former and current Stanford Financial employees, all of whom asked that their names not be revealed, say investigators should look into is where the firm has come up with the money to pay for all its many sports marketing deals. They say that despite the firm’s rapid growth—assets under management and advisement have doubled in three years—the brokerage arm in the US remains a small revenue producer compared to the offshore bank in Antigua, which claims to have $8.5 billion in assets.
In fact, one key source of revenue for Stanford’s brokerage arm appears to be annual referral fees paid by the offshore bank. In 2007, the Antigua-based bank paid out $149 million in such fees, a 40% increase over the prior year. But former and current employees say that’s not enough money, given the extensive marketing deals the firm has entered into in the past few years.
Stanford Financial appears to be on quite a roll when it comes to locking up sports endorsements. Some of the recent deals it’s announced include ones with professional golf and tennis associations, US colleges and English soccer players. In Antigua, where Allen Stanford has dual citizenship and was knighted in 2006 by the island’s government, the firm is a sponsor of worldwide cricket competitions. International cricket tournaments are regularly played at Stanford Stadium on Antigua.
But maybe the glitziest sports marketing deal Stanford Financial struck came in February 2007 when the firm reached a deal with the NBA’s Miami Heat to get naming rights to one of the main entrances to the team’s home arena. The multi-year deal allowed Stanford Financial to create a so-called VIP entrance at the AmericanAirlines Arena for professional athletes, celebrities, dignitaries and the firm’s “high-level clients.’’ The terms of the deal weren’t disclosed.
Brian Bertsch, a Stanford Financial spokesman, says “the terms of sponsorship deals are confidential.’’ But he adds that the deal with the Heat makes a lot of sense given the firm’s “strong and diverse client base in the South Florida region.’’ As for the deal with Singh, he says, “I can tell you that the deal with Vijay is not exclusive.”
The sponsorship with the Heat is part of another strategy by Stanford Financial to spend big bucks on sports in US cities where it has a big footprint. In Memphis, Tenn. the firm is a major sponsor of charitable and professional golf tournaments. In October 2007, Stanford Financial became the official sponsor of the cheerleading team at Louisiana State University, located in Baton Rouge, another big hub. A year earlier, the investment firm struck a similar arrangement with the University of Mississippi’s cheerleaders.
It’s a good bet now that all these teams, athletes and colleges that have gone into partnership with Stanford Financial, are rooting the current investigations will go nowhere.
Thanks to sources and readers, I understand that Stanford Financial is a major corporate sponsor at the Toyota Center, the home of the Houston Rockets.
BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.