Sportswear chains face fraud inquiries over cartel claims

Published on Thursday 10 September 2009 21:42

SHOCK waves hit the sports retailing sector yesterday as the Serious Fraud Office and Office of Fair Trading announced parallel inquiries into allegations of fraud and anti-competitive activities.

"The Serious Fraud Office can confirm that it is investigating the activities of JJB Sports and Sports Direct International. The investigation is into suspected offences under the Fraud Act and the Enterprise Act," it said.

The sports retail market, ranging from replica football shirts to trainers and related leisure-wear, is dominated by Sports Direct, owned by billionaire Newcastle United owner Mike Ashley, and JJB. Both companies said they were complying fully with the investigations.

However, the SFO and OFT bombshell rocked share prices in both, with Sports Direct closing down 16 per cent at 21.2p and JJB down 10 per cent at 34.75p.

Official inquiries follow an approach to the OFT by JJB with information in exchange for immunity – with the regulator understood to have then referred the case to the SFO in the past week.

The OFT said that it had "today executed entry warrants at two addresses as part of an investigation into alleged anti-competitive conduct in the sports goods retail sector".

JJB Sports said it had approached the OFT on 30 January with information about "a suspected agreement or concerted practice to dampen competition in the sports retail market".

OFT officers visited its offices in Wigan yesterday, JJB said. The company said the regulator confirmed on 24 August the grant of a form of immunity to the firm in respect to suspected cartel activity in the period from 8 June, 2007, to 25 March, 2009 – a time when the now-ousted Chris Ronnie was chief executive at the company. The OFT confirmed on Thursday that it had granted JJB immunity.

JJB suspended Ronnie on 20 January and fired him on 25 March, alleging gross misconduct.

Sports Direct said yesterday that representatives from the OFT and SFO had visited its head office in Mansfield in the English East Midlands.

It said it could not comment further at this stage of the investigations, but added: "Sports Direct's philosophy is to promote competition in the sports and leisure market and its record demonstrates this."

JJB said that if the OFT concluded it had infringed competition law, the grant of the "marker" for Type A immunity, which the OFT gives when information is volunteered before an inquiry is started, would protect it from any financial penalty.

David Stoddart, a leisure analyst at Altium Securities, said: "The whole system is designed (so that] if you think that you have got something (information], it does pay for you to go running first to try and get a marker."

If the immunity was to be withdrawn, then JJB said it could be liable for a fine of up to10 per cent of its turnover and could also be liable for third party claims, but added that it considered these outcomes unlikely.

In 2003, the OFT imposed fines totalling nearly 19 million on ten companies – including JJB, Umbro and Manchester United – for fixing the price of replica football shirts.