Sports stores face fraud inquiry into claims of price-fixing

Serious Fraud Office investigates JJB Sports and Sports Direct
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The Serious Fraud Office has launched an investigation into alleged anti-competitive activities and fraud involving the sportswear retailers JJB Sports and Sports Direct that could lead to significant fines and even jail sentences if such practices are found to have occurred.

Following a referral from the Office of Fair Trading, the SFO confirmed that it had beguns proceedings after JJB approached the OFT in exchange for immunity in January. Yesterday, the offices of both companies were raided as part of a wide ranging investigation into alleged "cartel activity" between the chains to lessen competition in the sportswear sector.

The period of the investigation concerns Chris Ronnie's employment at JJB from 8 June 2007 to 25 March 2009, which was the date he was dismissed from his post as chief executive of the sportswear retailer.

Neither the OFT, the SFO nor the two companies would comment on the nature of the alleged price-fixing, but both retailers are known to have shared stock. A separate OFT investigation into Sports Direct's purchase of a parcel of JJB's stores is thought to be less extensive. If JJB co-operates fully with the investigation, as the OFT confirmed it was doing yesterday, it will receive immunity from any financial penalty the OFT would otherwise impose. But the implications could be dire for Sports Direct, which is controlled by its founder, the Newcastle United owner Mike Ashley, and some executives.

In a statement yesterday, JJB said if it did not comply with the OFT, it could face a maximum fine of up to 10 per cent of the group's turnover. This could leave Sports Direct – if found guilty of the allegations – facing a fine of £137m. Worse still, some executives of Sports Direct could face jail sentences if the SFO finds them guilty of price fixing, which is a criminal offence under the Enterprise Act 2002. The investigation is the latest to affect the retail sportswear sector in the UK. In 2003, several retailers including JJB were found guilty of fixing the price of football shirts after Sports Direct turned whistleblower.

This year, Sir David Jones, the executive chairman of JJB, and Mr Ashley have traded claims and counter-claims over the timing of a £1.5m loan Sir David took from Mr Ashley, the deputy executive chairman of Sports Direct, in the second half of 2007.

However, the OFT's granting of immunity to JJB also covers former employees. This means Mr Ronnie may escape any penalties or further action. Sports Direct confirmed it was "assisting and cooperating fully" with the OFT and SFO in connection with investigations they are carrying out.

It added: "The OFT has indicated that it is conducting an investigation into a suspected overarching agreement to dampen competition in the sports retail market."

Mr Ronnie also insisted "he was not party to any anti-competitive behaviour during the period when he was chief executive of JJB Sports Plc". He added: "I have never taken part in any anti-competitive behaviour."

Small world: The feuding foes of sports retailing

In June 2007, Chris Ronnie shocked the world of retailing when he bought a 29.9 per cent controlling stake in the sportswear retailer JJB from its founder Dave Whelan for £193m. Mr Ronnie was the former right-hand man to Mike Ashley, the founder of rival retailer Sports Direct and owner of Newcastle United FC. Mr Ronnie became JJB's chief executive after financing the deal through his investment vehicle Exista, backed by the Icelandic bank Kaupthing.

Retail analysts were surprised at how the previously little-known Mr Ronnie could stage such a coup (and for good reason, given the subsequent collapse of the Icelandic banks, bizarre loans involving JJB's current executive chairman Sir David Jones, and the Wigan-based retailer's sacking of Mr Ronnie in March this year.

However, these events are merely the latest in a series of claims about price-fixing, stock sharing and ego battles in a notoriously volatile sector. It is an open secret that Mr Whelan dislikes Mr Ashley, the young start-up who shook up the sector with his "pile 'em high, sell 'em cheap" approach. When they first met, Mr Whelan famously told Mr Ashley: "There's a club in the North, son, and you're not part of it." This was at a meeting in 2000 where several retailers, including Mr Ashley, met at the mansion of the Allsports founder David Hughes to fix the price of football shirts. According to a 337-page OFT report in 2004, the meeting was crucial in the price-fixing conspiracy. But these events are just some of the shenanigans in a sector where the biggest players have, and still own, shares in each other, regularly swap stores and keep financial journalists as active as Wayne Rooney in an England shirt.