Biggest scam you’ve never heard about: How N.J. schools may be losing lots of money

High school sports apparel hangs in a store window in Verona. (John Munson | NJ Advance Media for NJ.com)

Some school officials and coaches call it one of the biggest scams in high school sports, with districts getting duped out of untold amounts of dollars that could help fund their programs.

It’s happening right under their noses — in local pharmacies and sporting goods stores and all over the internet.

And the hook is not what you would expect: High school hoodies, hats, T-shirts and the like.

State sports officials say nearly 50 New Jersey high schools are making just pennies on the dollar on sports apparel sales through a barely understood licensing deal endorsed by the high school sports national governing body. And in addition to schools’ signing these deals without knowing their full impact, some schools, wittingly or not, also are allowing unauthorized dealers to sell their gear and profit off of their brand while doing nothing to stop it.

Feeding on school spirit and powered by ubiquitous e-commerce sites and willing brick-and-mortar retailers, companies in some cases are luring countless high schools into a classic bait-and-switch.

The companies cut deals with high schools to put team logos on just about anything that can be sold. They promise schools lucrative revenue sharing deals in exchange for the use of team logos or a mascot’s likeness.

But it often ends up with schools seeing royalty checks barely worth cashing.

That scenario doesn’t account for websites and stores — including local pharmacies and gift shops — that sell school gear without licensing deals, school permission or even the right logos.

Look hard enough and you'll find three different Cardinal logos on the same site for Plainfield High gear, Shabazz High ice hockey and swimming apparel — even though the school doesn't offer those sports — and the wrong team colors for Don Bosco Prep.

"It's the wild, wild west," Verona High athletic director Robert Merkler said of the high school sports apparel industry.

And, “it’s just chaos out there,” added Colleen Maguire, director of finance and administration for the New Jersey State Interscholastic Athletic Association.

An NJ Advance Media investigation has found:

• At least five major online retailers sell merchandise for nearly all of New Jersey’s 430-plus high schools that compete in sports — and almost entirely without permission from schools, officials said.

• Well-established, big-box retailers and mom-and-pop stores sell unlicensed gear all over the state and often without consent from high schools, officials said.

• The only formal major high school licensing program available — offered through the National Federation of State High School Associations — is confusing and yields pennies on the dollar for schools, officials said. Maguire called the program “a huge nuisance” and an “accounting headache.”

• Many high school officials are clueless about the apparel market, unsure of their rights and how to protect their brands and pursue retailers who sell illegally.

“It’s unfortunate many corporate retailers are benefitting on the good name of our public high schools (and) the schools get nothing in return,” said Jonathan Busch, a Metuchen-based attorney who represents school boards in 16 counties.

“These types of sales cut into the sales of booster clubs and PTOs and other athletic fundraising programs,” Busch added.

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That may not sound like a big deal, but in an era of limited school funding, those sales can generate thousands of dollars and be the difference between new equipment, training opportunities and safety enhancements.

For their part, coaches and school officials are starting to take notice, wondering how their gear has made it into stores and onlinewithout consent.

They’re also asking another pointed question: How much money is their school getting cheated out of?

"Third-party vendors should compensate schools," said Rich Hansen, the football coach and athletic director at St. Peter's Prep in Jersey City. "You can't do it on the collegiate level. You certainly can't do it at the NFL level. I'm not sure why it would be acceptable at the high school level. Every penny does count."

Sports apparel hangs for sale at a Don Bosco game. (Andrew Mills | NJ Advance Media for NJ.com)

‘A PENNY ON THE DOLLAR’

If your high school officially licenses its athletic apparel, chances are it goes through K12 Licensing, a partner of the National Federation (NFHS). K12 is a division of Learfield Licensing Partners, a large company that provides trademark licensing for 635 colleges and universities across the United States, according to Jared Harding, general manager of K12.

For schools that sign on, the NFHS logo is featured on hangtags that vendors attach to merchandise. NFHS gear also makes its way into big-box retailers that partner with the program, including Target, Kmart, Dollar General, Sam’s Club and others.

Approximately 5,800 schools across the country have signed up, including 48 in New Jersey, Harding said.

According to Harding, schools receive 10 percent of each sale, but at the wholesale cost. That means if a T-shirt sells for $20 at retail and the wholesale cost is $5, schools make 50 cents.

The NFHS is paid a flat fee as a partner, and 31 state athletic associations which endorse the program — including the New Jersey State Interscholastic Athletic Association — also receive a portion of revenue or a commission, depending on the state and its agreement, Harding said.

The program generated $44 million in licensed retail sales nationwide during the 2016-17 school year, with about $2 million in royalties being dispersed to the 5,800 schools in the program, Harding said.

It may sound like a lot of money, but take a closer look at the numbers.

In New Jersey, the NJSIAA received a $4,200 royalty check last September, according to NJSIAA spokesman Mike Cherenson. The NJSIAA earned a commission of about $500 and dispersed $3,700 to the 48 schools involved in the program.

The average haul: $77 per school.

Nine schools received checks exceeding $100, but others took in miniscule amounts that some schools never even cashed, Cherenson said. NJSIAA officials said their $500 cut didn’t even cover the manpower to process and cut 48 checks.

“It’s a huge nuisance because my accounting manager spends hours processing checks for $4, and then the school calls and says, ‘What is this for?’” Maguire said. “Very few schools actually know what this [program] entails. I’d love to get away from it, but since it’s an NFHS-affiliated organization, as long as our member schools still sign on, we have to pass along the money.”

Schools typically make far more money selling gear independently, officials said. In Bloomfield, for instance, athletic director Steve Jenkins said his school makes about "$100 to $150" a year from the NFHS licensing deal. Meanwhile, his teams generate potentially tens of thousands of dollars a year all together with their own sales.

“We get a lot more bang for the buck when we sell it here versus when we get a penny on the dollar when it gets sold at Kmart,” Jenkins said.

Harding admitted flaws in the licensing program and described the sales in New Jersey as “underwhelming.” Still, licensing is important, Harding said, to protect a school’s brand. He said his company recently added staff and plans to tweak the program to try to make it more lucrative for schools.

“I know there’s a better way to do this,” Harding said. “It’s very much the wild, wild west. We’re bringing partners in the mix that will do things the right way and are going to give more power to the high school. It might not end up being a ton of money at retail, but it’s good branding.”

Gear is for sale in a store window in Verona. (John Munson | NJ Advance Media for NJ.com)

‘PANDORA’S BOX IS OPEN’

Walk four blocks down Bloomfield Avenue in Verona and you’ll run into three stores selling maroon-and-white Verona apparel — Verona Sports Center, Terry’s Family Pharmacy and Academy Apparel. The pharmacy devotes an entire section to Verona T-shirts, tote bags, lanyards, pajamas, magnets, seat cushions and more.

Merkler, the Verona athletic director, said the football booster club has a partnership with Academy Apparel to operate an online store, but otherwise his school has no official affiliation with the shop. He added his school receives no money “whatsoever” from the Verona gear being sold at the pharmacy or sports center.

“I wish we did get a portion,” Merkler said.

Les Williams, an owner of the pharmacy, said he’s been selling Verona merchandise for 20 years. He described the gear as “not team specific at all” but that sales are “lucrative” and “certain times of the year we sell a ton of it.”

Since taking over as athletic director, Merkler said he has tried to convert Verona’s sports teams to new uniforms and create a unique look for all teams. He said it’s been a challenge because an old logo of the school’s mascot — the Hillbillie — is still out there.

It’s a familiar problem for schools, officials and experts said. The more unlicensed outlets that sell a school’s gear, the more likely that numerous forms of the same logo are produced. In the end, it can water-down and diminish a school’s brand.

“You’re trying to create a look for your team,” Merkler said. “If you look good, that’s a lot of pride for the kids. It’s a cool thing. I’m a big believer in gear.”

Meanwhile, in Jersey City, Modell’ssells sports bags promoting nearly every high school team in Hudson County. It was there that Hansen from St. Peter’s said he saw his school’s gear.

“I was like, ‘Why are you selling my stuff?’” said Hansen, adding his school received no money from the sales. “It bothers me. I have no problem with them selling it because obviously it’s a business. But we should get a percentage of it.”

Modell’s did not return an email from NJ Advance Media sent to the corporate office seeking comment about the sales.

In Montclair, John Fiore, the football coach, said a store in town once sold No. 7 jerseys when former all-state quarterback Khalif Herbin starred for the team.

“We didn’t get a dime,” Fiore said. “These stores are just taking our brands.”

It’s much worse online.

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Just do an online search for a T-shirt for your old high school. Most sellers offer custom apparel, some promising that royalties will go to schools.

Often, these sites have no affiliation with schools, athletic officials said. And some of the gear they’re hawking is low-quality knockoffs with generic logos.

“It looks professional, but it’s not,” Westwood athletic director Dan Vivino said. “It’s like a grand façade.”

Busch, the school board attorney, said he’s dealt with two to three recent instances of retailers selling without permission.

Harding agreed that “tons of unlicensed merchandise at retail” is one of the biggest problems in the high school marketplace. He added that the ability for online stores to print one-off shirts and other garments — rather than buying in bulk — has changed the game.

“What’s really hard is essentially Pandora’s box is already open where all these things are out there being sold,” Harding said. “The infringement piece, it can be hard to police in a lot of ways.”

Fans wear school gear during a St. Joseph (Mont.) football game in 2017. (NJ Advance Media file photo)

‘A REVENUE GENERATOR’

Some schools have decided to fight back.

In 2015, Miami-Dade County Public Schools sued a prominent online retailer— Seattle-based www.prepsportswear.com— because it did not have permission to use the logos and likenesses of the district's schools, according to the lawsuit, obtained by NJ Advance Media.

That complaint alleged that the company “makes its sales by creating online ‘apparel stores’ which present themselves as stores sanctioned by the schools.”

The case was settled in August 2016, according to court records. The settlement is undisclosed, but it marked a win for schools, industry experts said.

At least four prominent online sites similar to Sportswear still exist, according to a review by NJ Advance Media. All of them — spiritshop.com, jostens.com, rokkitwear.com and spiritschoolapparel.com — appear to sell gear for the vast majority of New Jersey’s 400-plus high schools that play sports. Nearly a dozen school officials or coaches said they have no affiliation with those websites and did not grant them permission to sell their school’s gear.

Four of the online stores did not return phone messages or emails seeking comment about the high school sales.

Chris Berger, CEO and founder of Rokkitwear.com, described the high school apparel business as “lucrative” because “there are just so many high schools in the country.” He added that the rise of Amazon.com “conditioned the American consumer to shop online,” which made it easier to sell high school spirit wear online.

Berger said Rokkitwear offers a revenue-sharing program to schools, giving them 15 percent of the retail price. The website also sells gear for schools that are not partners, although those items are more generic and don’t include school logos, Berger said.

When asked if it’s a trademark infringement to sell T-shirts bearing the name of a high school that hasn’t agreed to the sale, Berger said,“It just depends. This is kind of the market.”

“What’s really going to bring this to the forefront is whether this is perceived as a revenue generator,” added Mark J. Ingber, an intellectual property attorney in Short Hills. “If the high schools see this is an opportunity for them to fill up their coffers, then there’s going to be an incentive to do something about it. But if they don’t have any interest or time, then their marks essentially become part of the public domain.”

One way for schools to protect their brand is to file a federal trademark with the United States Patent and Trademark Office, which give schools nationwide rights to their marks. Some schools have taken the step, including Don Bosco Prep and Sayreville War Memorial High.

“Licensing is a revenue generator for teams in the sports industry; high schools are taking advantage of it and should take advantage of it more,” said Scott Sisun, the founder of an intellectual property boutique in New York. “If a high school takes the time to come up with a unique logo, trademark, mascot, they also need to take that next step and monitor and enforce their marks.”

Even if a school has not filed a federal trademark, attorneys say they still have protection under common law trademark rights, depending on several factors.

It can add up if schools invest the time and protect their brands, experts said.

“It’s just like in any business,” Harding said. “You have to pick your battles.”

Matthew Stanmyre may be reached at mstanmyre@njadvancemedia.com. Follow him on Twitter @MattStanmyre. Find NJ.com on Facebook.

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