UNIVERSITY OF KENTUCKY EMBRACES NIKE DESPITE HUMAN RIGHTS RECORD

By Lowell Reese

About one-third of the University of Kentucky's annual budget -- $263.3 million this fiscal year -- is money appropriated by the state Legislature. That alone makes the people of Kentucky a party to the deal that UK President Charles Wethington Jr. and UK Athletic Director C.M. Newton signed last month with Nike Inc., the worldwide leader in athlete footwear and apparel.

Under the terms of the contract, UK will be paid to endorse and promote the Nike name. But more important, Wethington and Newton have placed the banner of the Commonwealth of Kentucky behind Nike's corporate reputation.

And while UK tries to cash in on some of Nike's enormous financial success, it has apparently ignored the company's lack of reverence for human rights.

Nike's success turns on one simple formula: cheap foreign labor and expensive price tags in retail stores. Nike is able to drive down its labor costs with the aid of repressive governments and by the use of "military boot camp" tactics in its foreign "sweatshop-life" factories.

A source in a position to know has said, "How Nike treats its employees was not considered" by UK officials when they negotiated the Nike contract.

Nike denies any blame for this because it doesn't make any footwear -- all the manufacturing is done in facilities owned and run by subcontractors who are mostly Taiwanese and South Koreans.

First, the deal

The 19-page contract signed May 22 and 30 between UK and Nike (a copy of which was obtained by The Kentucky Gazette under the Open Records Act) sets forth the terms of the university's role in promoting Nike, in exchange for what could be as much as $30 million over the course of the initial five-year contract, which runs from Sept. 1 through Aug. 31, 2002, with an option to renew.

UK will receive $250,000 in cash as an immediate bonus for signing, $6.63 million in cash in five equal annual installments, $3.15 million in free shoes, apparel and accessories, and up to an estimated $20 million in royaltie s from the sale of UK merchandise by Nike through its international sports distribution network.

In addition, Nike will:

• Give a minimum of $1 million in cash or merchandise in annual installments to UK services and programs, such as scholarships and academic tutoring.
• Buy up to $75,000 a year in TV and radio ads with UK-controlled media.
• Each summer, provide an internship for one undergraduate at Nike's world headquarters in Oregon
• Provide consultation to UK, through Host Communication, on marketing the school's sports.

A proviso in the contract states that 90 percent of the $6.63 million cash payments ($1,325,000 a year) "shall be" allocable to the basketball and football programs, which is believed that most of it goes to augment coaches' salaries. How the university spends the money is not expressed in the Nike contract.

It is known, however, that UK's new basketball coach, Tubby Smith, signed for compensation of around $1 million a year. His annual salary from the university is only $150,000, so the Nike money will augment his income substantially. Football coach Hal Mumme and women's basketball coach Bernadette Mattox are also part of the deal.

The contract is with the Kentucky Athletic Association and Nike, even though it's signed by UK's top officials. That way, the money stays out of government hands. The contract was never taken to the university's Board of Trustees for approval.

Nike extracts its pound of flesh:

Each contract year, UK must "make" the coach of each varsity team available for a minimum of one personal appearance on behalf of Nike -- except the football coach and the men's and women's basketball coaches are obligated for up to four appearances at retail stores, sports clinics, etc.

The contract is blunt: on page 11, it makes UK acknowledge in clear terms that Nike entered into the deal for two principal reason: (1) for the national TV and other media coverage that UK basketball receives, and (2) for the accompanying "prominent brand exposure" Nike will receive by having it logo on UK's uniforms. Every time a Wildcat stands at the foul line to shot a free throw, it's going to be a potential commercial for Nike.

There is a long list of concessions and promotional benefits that UK has agreed to provide to Nike. They include public address announcements at each home game that will recognize Nike as the exclusive product supplier and sponsor of UK's program; every game program published will have a "full-page, four-color Nike advertisement at no charge; and Nike wants its logo on seat backs (both home and visiting teams) and pole pads. And if UK decides to change its signage policy, Nike will get at least one permanent sign at the scorer's table or press row -- with the size visible for the cameras.

Every coach, varsity athlete and staff member (except for women's volleyball) must wear Nike footwear, apparel and accessories. It's compulsory. The staff and athletes have no say in the matter. As a precondition for playing at UK, at least during the next five years, an athlet e must agree to wear Nike, even though the shoes are made in Southeast Asia in sweatshops bordering on slave labor.

The story of Nike

The Nike success story is not only about enormous financial success, it's also about a lack of respect for human rights -- and layer upon layer of deniability of that deficiency by coaches, celebrity athletes and the company.

The CEO of Nike, Phil Knight, started the company 33 years ago on an investment of $500. Knight's personal wealth today has been valued by Fortune magazine at $5.2 billion -- making him the sixth richest person in America. It is a fortune built on workers who are paid less than $2.50 a day in Asian factories.

The company has built its success on cheap foreign labor -- the shoes are made for less than $5 a pair in labor costs and they sell for up to $180 retail.

On the retail end, Nike skillfully drives up market prices for its products by budgeting around 7 percent of its estimated $8 billion annual income for image-making. While Nike pays the shoemaker in Vietnam a meager $1.60 a day, it pays rainmaker Michael Jordan in Chicago $55,000 a day.

Tiger Woods endorses Nike for reportedly $40 million over five years. Duke's Mike Krzyzewski and North Carolina's Dean Smith receive more than $1.5 million a year "making their players wear Nikes." Georgetown coach John Thompson sits on Nike's board for $30,000, makes $350,000 consulting for Nike and has Nike stock currently valued at more than $2 million.

Incredibly, Nike buys the role models -- players, coaches and leaders in American sports -- with its enormous wealth made from cheap labor. It's a sound business move modeled on a basic political principle Abraham Lincoln used: obtain the endorsement of the man who lives in the big house on the hill and the community will follow.

Nike wins two ways. For sharing its gold and silver, Nike receives more than endorsements -- it also buys silence. What coach or sports hero paid to promote a product would do the opposite and kill the Golden Goose? In fact, the contracts that Nike gets -- if the one with the University of Kentucky is standard -- forbids disparaging remarks about the company.

The UK contract (page 15) specifically states that Nike has the right to terminate the agreement if the "UNIVERSITY disparages the NIKE brand...or takes any other action inconsistent with the endorsement of NIKE products." That -- and the money -- is why the Philadelphia Daily News reporter who interviewed coaches at the Final Four in Indianapolis couldn't find any of them who gave "a damn" about Nike's abuse of employees' human rights in Southeast Asia.

Nike's background

In 1962, while a student at Stanford University, the future founder of Nike had a idea about importing running shoes from Japan to challenge Germany's dominance of the market. In 1964, he and a friend, Bill Bowerman, put up $500 each and formed Blue Ribbon Sports -- the forerunner of Nike Inc., which was registered in Beaverton, Ore., in 1968. The company opened factories in Maine and New Hampshire in an attempt to build a manufacturing base. At it's height, its U.S. factory workforce topped out at 825, before closing and moving overseas.

Nike was one of the first in its industry to shift manufacturing offshore, closing down its last U.S. factory in Saco, Maine, in 1984. It began making footwear in Japan, Taiwan and South Korea -- but mostly Taiwan and South Korea because of their repressive governments and low wages at that time. South Korea became the "sports shoe capital of the world" in the late '80s. At that time, 90 percent of Nike's footwear was produced in South Korea and Taiwan.

But in the early '90s, when the local minimum wage increased and the Taiwan and South Korea governments democratized as the nations prospered, Nike once again went offshore in pursuit of cheaper labor -- this time in Indonesia and China. Some high-end, high-tech jobs stayed in Taiwan and South Korea.

Later, eyeing an even cheaper labor, Nike turned to Vietnam where it now has five plants employing 24,000 workers. Ninety percent of those workers are girls or young women aged 15-28 who, according to a New York Times article by Bob Herbert, "aren't paid enough to eat properly, or even regularly."

By the late '80s, Nike had changed its strategy and no longer manufactured anything -- it subcontracted. CEO Knight explained: "There is no value in making things any more. The value is added by careful research, by innovation and by marketing."

This strategy proved to be convenient for Nike because it gave the company an out when violations of minimum wage laws and physical mistreatment of employees erupted into the world media, as it has during the past year in Jakarta and Saigon.

The Jakarta Post on April 30 reported that 10,000 workers from Nike plants there marched in the streets the previous week to demand they be paid the minimum wage, which in Indonesia is $71.66 a month for new workers. Industry spokesmen argued that the government should rule exemptions from paying minimum wage in labor-intensive sectors.

The Ministry of Manpower in Jakarta countered, saying, "Companies having difficulties paying the minimum wage can apply for postponement of exemption." He said that more than 70 of the 200 companies that applied have been allowed to postpone or were exempted. Nike denies breaking any minimum wage laws, since it doesn't own the plants.

Most of the Nike plants in Indonesia and Vietnam are owned and run by Taiwanese and South Koreans under contract with Nike. The terms are strict. A factory manager for Reebok, a competing shoe manufacturer also operating in Southeast Asia, described how the system works, as reported by Max White of Justice Do It Nike: "Contractors must agree to a certain percentage -- 12 percent -- as being the labor cost involved in making shoes. If the labor costs exceed that, the contractor has to absorb those costs or has to force the workers to meet higher quotas." So Nike calls the shots with a ceiling on wages.

Abuse of human rights.

CBS's 48 Hours went to Vietnam last year and reported on some of the inhuman atrocities:

• Nike workers in Vietnam earn an average of 20 cents an hour.
• Female workers were sexually abused by a Korean supervisor who later fled the country
• Workers were forced to work overtime to meet quotas -- before being allowed to go home.
• On March 27, 1996, 15 women employees were beaten with a shoe upper in the face and head -- hit two or three times each -- by their Korean supervisor who walked the line beating them one after the other. The supervisor, also a female, said it was "Just a method of managing people."
• On June 17, 1996, 45 women employees at a Korean subcontractor factory were forced to kneel on the factory floor and hold their hands in the air for 25 minutes straight, as punishment for lapses in performance.

Nike complained about the CBS story, which aired Oct. 17, 1996. In a letter the next day to "all Nike athletes, retailers and employees," the company said CBS chose to focus on a few isolated incidents that Nike and its subcontractors had already dealt with effectively before the TV cameras arrived. The letter further stated, "We do not, and will not, tolerate any abuse in the work place" -- a statement not consistent with what Nike Vice President of Production Dave Taylor had said: "We don't pay anybody at the factories, and we don't set policy within the factories. It is their business to run."

The abuses in Vietnam went unabated. On Nov. 26, 1996, a little more than one month after the CBS broadcast, 100 workers were forced to stand in the sun for half an hour, as punishment for spilling a tray of fruit on an altar that three Taiwanese supervisors were using.

Nike's workers in Vietnam can't go to the bathroom more than once during an 8-hour shift. They can't drink water more than twice during the shift. And Nike subcontractors pay the Vietnamese just $1.60 a day, which is less than the $2 or so that it costs to buy three meals a day. Some workers skip meals and a fair amount of time are hungry while they make Nike's shoes.

The most unbelievable of all the abuses occurred nearly three months ago. On March 8, 56 women at Nike's Pou Chen plant, located one hour north of Saigon, were punished because they hadn't worn regulation shoes to work. According to the New York Times, "Factory officials ordered the women ... to run around the factory in the hot sun. The women ran and ran and ran. One fainted, and then another. Still they ran. They would be taught a lesson. They had worn the wrong shoes to work ... the ordeal didn't end until a dozen workers had collapsed." This was particularly painful because it occurred on the International Women Day, an important holiday when the Vietnamese honor women.

The same supervisor had practiced corporal punishment before, forcing women employees to do squats and male workers to do push-ups and lie down on the ground. The mouth of one women was taped shut because she talked at work. Those who make mistakes are made to clean toilets.

About 90 percent of Nike's workers in Vietnam are women. The subcontractors prefer young unmarried women for two reasons: they're easier to control and the contractors avoid having to pay maternity benefits. According to the New York Times, "The women are often treated little better than slaves."

The government mandated minimum wage in Vietnam is $45 a month, as quoted in the Los Angeles Times. CBS said Vietnamese workers in Nike plants are paid 20 cents an hour. A quick calculation shows that 20 cents an hour, eight hours a day, six days a week, comes to $499.20 a year -- or $41.60 a month. The amount is higher when hours and hours of forced overtime is included.

In a standard release that Nike faxed to The Kentucky Gazette, the company states, "We insist that all our subcontractors pay at least the government mandated minimum wage -- no exceptions, no exemptions." In Vietnam, enforcement of that policy is in doubt; and in Jakarta, according to that city's newspaper, minimum wage exemptions are routine.

Life magazine in June 1996 documented child labor being used in Pakistan in the production of Nike soccer balls -- for 60 cents a day. Reports were that Nike knew about this but took no action until the press got wind of it.

Nike is the world leader in the manufacturing and sale of athlete footwear. In peak months, over 500,000 people work on Nike products in South Asia. It was the first company in its industry to establish a code of conduct, in 1992. And according to the three-page code, subcontractors certify that they pay "at least the minimum compensation required by local law," but subcontractors are not required to certify that they won't physically abuse workers.

Editorial:

IT'S THE MONEY, STUPID!

The commercialization of American collegiate sports stinks. The odor is not from television royalties. No TV network lines the pockets of coaches for endorsements. No TV network forces collegiate athletics to watch its programs as a precondition for wearing a varsity uniform. No TV network preys on poor workers in third-world economies. The odor is coming from the shoe industry. And the latest rotten deal that needs aired is Nike's contract with the University of Kentucky.

UK President Charles Wethington Jr. and Athletic Director C.M. Newton signed a five-year contract last month with Nike Inc., the world's largest manufacturer of athlete footwear and apparel. UK's athletic program gets an estimated $25 million from the deal--of which, 20 percent or more no doubt goes directly into the coaches' pockets for making their teams wear Nike.

Nevermind that the CEO of Nike, Phil Knight, has become the sixth richest man in America with a private fortune of $5.2 billion made on the backs of workers who are paid less than $2.50 a day in Asian sweatshops.

Nevermind that Nike treats its employees in Vietnam, mostly girls and young women, aged 15-28, only a "little better than slaves," according to the New York Times.

Nevermind that female workers often skip meals and are hungry when making Nike shoes, because Nike's subcontractors pay them only 20 cents and hour, have abused them sexually, beaten them at work and worse.

Wethington and Newton didn't take the Nike contract to the board of trustees of the university for approval. It was a management decision that was made reportedly without any concern about how Nike treats its employees.

They surely knew about Nike's employee relations practices before signing the contract. Kentucky becomes one of about 20 or so universities in the U.S. who have signed sole agreements with shoe firms. Others who have similar contracts with Nike are: Florida State, Ohio State, Pennsylvania State, Alabama, Colorado, Illinois, Miami, Michigan, North Carolina and the University of Southern California.

Shoe contracts are common, but in most cases the coaches are allowed to negotiate their own contracts, which is how all of the other universities in Kentucky handle it...including the University of Louisville.

Interestingly, UK's contract with Nike was signed and made public after the students went home for the summer. They should be made aware of Nike's history...especially, the athletes who have no choice but to be a walking commercial, and the females students who care about gender equality.

On March 8 of this year--even while Wethington and Newton were negotiating with Nike--supervisors at a Nike plant in Vietnam made 56 women run around the factory in the hot sun until 12 of them collapsed from exhaustion. Nike officials wanted to teach the women a lesson for making a mistake--they had worn the wrong shoes to work. This on International Day in Vietnam, an important holiday when the Vietnamese honor women.

This was not an isolated incident. Instead, it fits a pattern of flaws that appear to be embedded deep in Nike's corporate structure that has become part of its culture.

The public knows little about Nike's labor practices, partly because the media doesn't seem to care much about principles--despite pretenses to the contrary. Editors at the Louisville Courier-Journal and Lexington Herald-Leader know at least some things about Nike's record, but neither paper has printed a word against UK's contract, which sends the message that silence is consent.

If you don't like it how Nike does business, write and mail a letter to the CEO. The address is: Mr. Phil Knight, CEO, Nike Corporation, Nike World Headquarters, One Bowerman Drive, Beaverton, Oregon 97005.

Nike needs to know that it can't continue acting like a skunk without the world getting wind of it. We're sending Mr. Knight a copy of this edition of the Gazette. You can count on that.

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