Bloomberg News

Armstrong Faces $200 Million Salary Loss With Reputation Hit

October 24, 2012

Lance Armstrong may lose as much as $200 million in future earning potential, more than the wealth he accumulated in a championship cycling career now gutted by revelations of doping.

Two days after he was officially stripped of a record seven Tour de France titles, Armstrong faces demands that he repay up to $16 million in purses and bonuses from those victories.

Lost earnings potential far outpaces that, said sports marketing analysts. With a net worth estimated by Forbes at $125 million, the 41-year-old American would have had a prosperous future as an endorser and motivational speaker had the evidence gathered by the U.S. Anti-Doping Agency not surfaced, according to Patrick Rishe, an economics professor at Webster University in St. Louis. Nike Inc. (NKE:US) and his other sponsors deserted him after USADA’s report.

“To think that he would be able to make $15-$20 million annually over the next 10 years is not out of the question,” Rishe said in a telephone interview yesterday. “That puts his loss in potential future earnings at between $150-$200 million.”

The French cycling federation, which distributes Tour de France prize money on behalf of the race organizer, the Amaury Sport Organization, said yesterday it plans to cooperate with the family-owned company to reclaim the $3.8 million (2.95 million euros) it estimates Armstrong won during his career. SCA Promotions Inc., which insured bonuses Armstrong received for winning the race from 2002 through 2004, said two days ago it will seek almost $12 million.

Income Increase

Armstrong earned $17.5 million in endorsement and speaking fees in 2005, when he won his last Tour de France, Sports Illustrated reported. That number grew to $21 million in 2010, Forbes said. The revenue gain as his career declined is an indication that Armstrong, who survived cancer and started the Livestrong foundation that has pumped what it says is more than $470 million into helping others with the disease, would have remained a potent corporate spokesman and health advocate.

“But for these doping allegations, which now have been corroborated by USADA’s report, he would have always been a cancer survivor and his story would have always been motivational and inspiring,” Rishe said.

That career is in the past.

“I can’t imagine anyone being able to make a positive out of a relationship with him at this point,” Jim Andrews, senior vice president of content strategy at IEG, a sponsorship consultant, said in a telephone interview.

First Time

Pauline Juliard, a spokeswoman for the French cycling federation, said in a telephone interview that the group hadn’t begun proceedings to try to recoup money paid to Armstrong. It would be the first time they have asked for money back from a rider, she said.

Armstrong sued SCA for failing to pay his $5 million 2004 bonus. The company settled the case, paying Armstrong that money and $2.5 million in interest and court costs. SCA will work quickly to try to regain almost $12 million from Armstrong, said Jeffrey Tillotson, an attorney for the company.

“If you have a claim, you want to pursue it as quickly and vigorously as possible, particularly if there may be other claimants,” Tillotson said in a telephone interview.

Lawsuits could arise from either side, though they aren’t very likely, analysts said.

Luxottica Group SpA (LUX), whose Oakley brand was the last major sponsor to drop Armstrong, won’t try to recoup money paid to the cyclist, said company spokeswoman Cheri Quigley.

‘Rebuild Cycling’

“We are deeply saddened by the situation, especially given our longstanding relationship, but we feel it is best for all involved to move on and collectively spend our energy rebuilding the sport of cycling,” Quigley, who declined to discuss financial details of Armstrong’s contract, said in an e-mail.

That’s the approach Armstrong’s other former major sponsors probably will take, according to Paul Swinand, an equity analyst who covers Nike for Morningstar Inc. in Chicago. It’s in Nike’s best interest to focus on public perception by further distancing itself from the Texan instead of pursuing more action, said Swinand, who also covers Adidas AG, Under Armour Inc. and Luxottica.

“Whether you’re Nike, Anheuser-Busch, Oakley, you want to have as little noise about this as possible,” Swinand said in a telephone interview. “You don’t want more scabs ripped off.”

Nike ended contracts with quarterback Michael Vick following his conviction for crimes related to dog fighting and with sprinter Marion Jones after a doping confession. It maintained contracts with basketball player Kobe Bryant and golfer Tiger Woods following acknowledgments of adultery.

Nike Stock

Swinand, 45, was a semiprofessional cyclist in France in 1989-90. He said he owns no Nike shares and currently rates the stock at three-stars, a rough equivalent to a “hold.”

An e-mail to Tim Herman, Armstrong’s attorney, seeking comment about the French cycling federation’s plans, SCA and Armstrong’s endorsement deals wasn’t immediately returned.

Among Armstrong’s other former sponsors, Nike spokeswoman Mary Remuzzi, RadioShack Corp. (RSH:US) spokesman Eric Bruner, Honey Stinger Marketing Director Len Zanni, and Mark Riedy, a spokesman for Easton Bell Sports which makes Giro helmets and gloves, said their companies had nothing further to add to previous statements ending relationships with Armstrong.

Phillip Cleveland, a spokesman for Anheuser-Busch InBev NV (ABI)’s Michelob Ultra beer; Eric Bjorling, a spokesman for Trek Bicycle Corp.; Carli LaForgia, a spokeswoman for FRS Co.; and David Zimberoff, a spokesman for Sram International Corp., didn’t respond to phone calls and e-mails seeking comment.

USADA Report

USADA released a 202-page summary of its investigation of Armstrong on Oct. 10, saying his cycling career was “fueled from start to finish by doping.” Nike became the first sponsor to cut ties with Armstrong on Oct. 17, shortly after he stepped down as Livestrong’s chairman, and the International Cycling Union said two days ago that it would not appeal USADA’s findings.

Armstrong would have a difficult time seeking payment from the companies because of the breadth of the USADA evidence and because most endorsement deals have moral turpitude clauses that free sponsors if athletes break the law or negatively affect the sponsor’s public image, according to Daniel Lazaroff, director of the Sports Law Institute at Loyola Law School in Los Angeles.

“Companies will want to get out of these high-paying contracts if the asset has lost its value,” Lazaroff said in a telephone interview.

Lazaroff said he’d be surprised if Nike tried to get its money back from Armstrong “after all, he provided value for them.”

Past Strategy

Armstrong has sued those he felt lied or otherwise wronged him in the past, and he’ll have to re-examine whether that’s a sound strategy now, said Marc Mukasey, a partner with Bracewell & Giuliani LLP’s White Collar Criminal Defense and Special Investigations practice in New York.

“I imagine that the legal fees are going to cost him a pretty penny,” Mukasey said in a telephone interview. “Virtually anybody who ever paid him anything, certainly with some sort of moral turpitude clause in it, is going to try to recoup. I would guess that he will be in contractual litigation for a long time.”

Armstrong has denied ever doping and says he’s never failed a drug test. Any acknowledgement of drug use now is complicated by the fact that in the original SCA dispute he testified under oath that he had never doped.

Boxed-In

“To say under oath that you never used performance- enhancing drugs, that makes a subsequent admission and apology that much more difficult,” said Mukasey, who has no involvement in Armstrong’s legal representation. “From a legal perspective, once you box yourself in like that, you better be committed to that story or have a really good excuse as to why you were mistaken or delusional at the time you gave that answer.”

While there remain people who believe Armstrong is innocent, it won’t mean a return to sponsorships, said Paul Swangard, managing director of the Warsaw Sports Marketing Center at the University of Oregon.

“I see him as tainted goods,” Swangard said last week in a telephone interview. “There are plenty of ways to reach your target consumer and Lance just isn’t one of them anymore.”

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To contact the reporters on this story: Mason Levinson in New York at mlevinson@bloomberg.net; Eben Novy-Williams in New York at enovywilliam@bloomberg.net; Alex Duff in Madrid at aduff4@bloomberg.net

To contact the editor responsible for this story: Michael Sillup at msillup@bloomberg.net


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