Sunday, December 30, 2012

SBN Sports Business Person of the Year – Lance Armstrong

The biggest sports business story of 2012 produced Sports Business News’ Person of the Year, Lance Armstrong an athlete who has done more damage and harm to the image of sports, the marketability of athletes, sports sponsorship than any athlete, team or event in recent sports history. The ramifications linked to Lance Armstrong fall from grace are far ranging and are expected to have a negative long-term impact on the business of sports for years.

Lance Armstrong continues to remain defiant, seemingly oblivious to how the world feels about his actions, since his complete fall from grave began on August 23. While never admitting he has ever tested positive for use of performance enhancement drugs, late on Thursday August 23, 2012 Armstrong announced he would no longer fight the charges the United States Anti-Doping Association had levied against Armstrong that throughout his once storied cycling career Armstrong used banned substances.

Amaury Sport Organization organizers of the Tour de France continue to demand Armstrong return the $3.6 million he was awarded for winning the Tour de France seven consecutive times from 1999 to 2005. Dallas based SCA Promotions are ready to sue Armstrong after paying the now disgraced cyclist $12.5 million for winning the 2004 and 2005 Tours. In October Lance Armstrong was stripped of the seven Tour de France titles he had never earned but been awarded.

At the height his popularity Armstrong was worth more than $125 million. Armstrong earned most of his money (more than $100 million) from his sponsors: Nike, Anheuser-Busch, Oakley, Trek Bicycles and smaller brands like FRS, an energy supplement, and Honey Stinger, a maker of organic waffles. Armstrong’s sponsors ended their business relationships with the disgraced icon in the days immediately following his August 23 announcement.

The sponsors have the right to sue Armstrong if a “morality’s clause” was included in their agreements. Morality clauses have become standard in most endorsement agreements. The clause protects companies if during the lifetime of the agreement the endorsee does damage and harm to the image of the company. More often than not the clause allows companies to end their contractual obligations but rarely offer companies the right to ask for their sponsorship fees back. Armstrong’s sponsors exercised that option in their contracts.

David B. Newman, a partner in the law firm Day Pitney told The New York Times: “They’d have to spend a lot of money to prove these allegations,” Newman added. “From a return on investment, you’d spend a lot of money on lawyers and lawsuits, and more publicity can’t help your product.”

He added, “They don’t walk away happy, but they’ll say, better to cut our losses now.”

When asked several months ago what Armstrong would do if his sponsors sued him for damages, Tim Herman, one of Armstrong lawyers, told the Times, “We don’t have a plan for that, because I do not expect that to happen.”

SCA Promotions a Dallas based company is expected to go after Armstrong for $7.5 million Armstrong won in a 2006 lawsuit against the company, and an additional $4.5 million they paid Armstrong.

Armstrong successfully sued the company after SCA refused to pay a $5 million bonus Armstrong was owed for winning the 2004 Tour France his six of seven fraudulent titles. Armstrong was awarded the $5 million insurance policy the United States Postal Cycling team purchased in advance of the 2004 Tour de France with SCA against Armstrong winning the Tour. The additional $2.5 million represented the court costs which Armstrong was awarded when he won the lawsuit.

“There is no revisiting that,” Herman said in the New York Times report. “If everyone who had settled a case finds out something later on and they want to renegotiate or relitigate, the system would break down. The point is, the agreement is unequivocal. There is no going back.”

Jeffrey Dorough, SCA’s corporate counsel, told the New York Times the firm was preparing a letter to Armstrong demanding that he return $12 million — the $7.5 million and an additional $4.5 million it paid for a previous victory.

“It is inappropriate for him to keep any bonuses that were contingent on him being the champion of the Tour de France,” Dorough said. “We’re hoping he’ll respond to our letter.”

During the 2006 lawsuit Armstrong offered sworn testimony that he had never used performance enhancement drugs, allegations that have since been proven false after 11 of Armstrong’s teammates and 15 support personal associated with Armstrong’s seven Tour de France titles offered sworn testimony to the United States Anti-Doping Association that Armstrong had used performance enhancement drugs.

“In any deposition, if he would deny the usage of performance-enhancing drugs, he would open himself up to criminal prosecution for lying under oath,” said Andrew Stoltmann, a lawyer in Chicago who has represented professional basketball, football and baseball players in the New York Times report. This would be testimony in addition to the sworn testimony Armstrong made in 2006 were under oath he testified that he had never used performance enhancement drugs.

“Prosecutors love high-profile obstruction of justice cases to serve as a deterrent for lying under oath.” Stoltmann offered.

As 2012 comes to an end none of Lance Armstrong’s former sponsors have announced they intend to file a lawsuit against Armstrong to recover the sponsorship fees they paid him. It appears unlikely any of Armstrong’s former sponsors will file lawsuits, however it’s a safe bet from August 23, 2012 forward companies will insist morality clauses are included in sponsorship agreements and that they will be enforced. Lance Armstrong has made it much more difficult for athletes to enjoy the benefits associated with endorsement opportunities.

Last Sunday The Times of London announced they were filing a $1.5 million lawsuit against Lance Armstrong. According to The Associated Press: “The Sunday Times paid Armstrong 300,000 pounds (now about $485,000) in 2006 to settle a case after it reprinted claims from a book in 2004 that he took performance-enhancing drugs.”

"It is clear that the proceedings were baseless and fraudulent," the paper said in a letter to Armstrong's lawyers. "Your representations that you had never taken performance enhancing drugs were deliberately false."

The paper, which is owned by Rupert Murdoch's News Corp., said its total claim against Armstrong is "likely to exceed" 1 million pounds ($1.6 million).

"The Sunday Times is now demanding a return of the settlement payment plus interest, as well as its costs in defending the case," the paper said.

It’s impossible to know or understand what Lance Armstrong is thinking. He was fearless in defending a reputation he never earned – badgering and bullying anyone who suggested he used performance enhancement drugs. It wasn’t necessarily a sense of entitlement that convinced Armstrong that he was right and everyone else pointed fingers at Armstrong was wrong; it was more likely something as simple as “if everyone else was cheating why can’t I”.

Armstrong’s actions will forever be inexcusable. Lance Armstrong may not care, however if he ever really believed in the message he offered to millions, if he believes in doing what is right, Lance Armstrong needs to return the $17.9 million and fade into obscurity.

Lance Armstrong stands represents everything that is wrong in sports and for that matter the world we live in. Once a hero to hundreds of millions of people, the Lance Armstrong who emerged in 2012 is a bully, a cheat, a person with little if any honor. For all the wrong reasons, for all the harm and damage Lance Armstrong inflicted on the sports industry in 2012 – sadly Lance Armstrong is Sports Business News Person of the Year.

For Sports Business News this is Howard Bloom

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