Bloomberg News

Armstrong Gear Goes on Closeout After Doping Confession

January 28, 2013

John Wilcockson, who has been to 44 consecutive Tours de France and wrote six books about Lance Armstrong’s victories, counts himself among those taken in by the confessed doping cheat.

His work culminated in the 2010 best seller, “Lance: The Making of the World’s Greatest Champion.” In it, Wilcockson recounted Armstrong’s life story, juxtaposing a tale of grit and perseverance with the doping allegations that had been swirling around the cyclist for a decade. The conclusion: Armstrong’s life was a triumph of training, strength and will.

Now Wilcockson, 69, and others in the far-flung world of Lance Inc. have to rebrand and retool, while reassessing a confessed serial cheater who helped them make a lot of money. From Armstrong-linked sportswear by Nike Inc. (NKE:US) to Armstrong-endorsed energy drinks and Armstrong-inspired private cycling trips to the Tour de France, purveyors of the shattered myth of Lance Armstrong are facing a reckoning of their own.

“I’ve been pretty depressed, having written such positive things,” said Wilcockson, who has known the 41-year-old Armstrong since the cyclist was 16. “Everyone accepted Lance was the champion. They didn’t question him because they benefited from his success. That’s how the big lie was perpetuated.”

USADA Allegations

Armstrong continued lying in his confessional interview with Oprah Winfrey, according to Travis Tygart, the chief executive officer of the U.S. Anti-Doping Agency, in an interview aired yesterday on CBS’s “60 Minutes.” The cyclist doped when he returned to the Tour de France in 2009 and 2010, contrary to what he told Winfrey, said Tygart, whose organization published a 1,000-page report on Armstrong’s cheating in October. USADA has given Armstrong until Feb. 6 to fully cooperate with its investigators if he wants a chance to reduce his lifetime ban from Olympic-level sports.

Armstrong’s lawyer, Tim Herman, released a letter to USADA Jan. 25 saying that Armstrong can’t meet with agency investigators by that deadline because of “pre-existing obligations.” Mark Fabiani, an Armstrong spokesman, said the letter would stand as the cyclist’s response to Tygart’s comments. Herman wrote that Armstrong is willing to work with the World Anti-Doping Agency and cycling’s international governing body in a truth-and-reconciliation commission.

Legal Battles

After the USADA report, sponsors including Nike, Luxottica Group SpA’s Oakley Inc., Anheuser-Busch InBev NV and Trek Bicycle Corp. dropped Armstrong. The cyclist told Winfrey that the lost sponsors cost him $75 million of income in one day.

Legal battles over Armstrong’s doping continue. He faces civil suits in the U.S. and the U.K., including a complaint filed last week over his autobiographies.

How deeply the truth will hurt the businesses and careers nurtured by Armstrong’s fame is beginning to come into focus. While the cycling boom over the past decade is likely to continue, products directly tied to Armstrong such as apparel are on closeout. In addition, cycling tours of Europe are suffering and prospects for ratings and advertising gains on televised cycling races look slim, buyers say.

“The sport continues to lose a significant portion of the limited credibility it has,” said Greg Janetos, a former currency and carbon-credit trader in Mill Valley, California, who rides his $3,000 bike more than 100 miles a week. “You have to start from the assumption that the field is juicing.”

Cycling Boost

The bicycle industry got a boost from Armstrong’s victories in the Tour de France from 1999 through 2005, according to Tim Blumenthal, president of the Bikes Belong Foundation, a nonprofit cycling advocacy group based in Boulder, Colorado. Armstrong’s fame and commercial endorsements turned cycling into “a central theme or backdrop” in print and electronic advertising, making “bicycling more mainstream (and) less of a quirky, European subculture,” Blumenthal said.

As a result, U.S. sales of road bikes, the type ridden in races such as the Tour de France, surpassed mountain bike sales in 2010 and accounted for almost a quarter of all bicycles sold in the U.S. in 2011, up from 16 percent in 2005, according to the National Bicycle Dealers Association’s Website.

While unit purchases of bicycles in the U.S. fell 19 percent between 2002 and 2011 to 15.7 million, dollar sales rose 13 percent to $6 billion in 2011, according to the National Bicycle Dealers Association.

$8,000 Bicycles

“We started selling more $5,000, $6,000, $7,000 and $8,000 bikes during Lance’s heyday, and that has endured past Lance,” Blumenthal said. “I don’t expect Lance’s fall to affect the bike business.”

U.S. bicycle racing also fed on Armstrong’s popularity. Licensed membership in USA Cycling, the sport’s governing body, grew 45 percent between 2004 and 2011, to almost 71,000. In those same years, sanctioned races expanded 42 percent to 3,026 and the number of racing clubs climbed 79 percent to 2,569, according to USA Cycling’s 2011 annual report.

“Lance raised the waters for the entire bicycle industry,” said Chris Kegel, owner of Wheel & Sprocket, a seven-location chain based in Hales Corners, Wisconsin, that calls itself the largest bike store in the state. Kegel estimates that Armstrong’s success “easily” boosted road bike sales 20 percent. “When Lance started winning, it reinvigorated the whole road bike market,” he said.

Boosting Business

Closely held Trek’s revenue has risen by a third since Armstrong won his first Tour de France in 1999, to $800 million to $900 million last year, says Paul Swinand, an equity analyst and former cyclist who covers athletic apparel companies for Morningstar Inc. in Chicago. Armstrong’s endorsement “definitely helped,” he said. For Nike, the Livestrong brand - - named for the anti-cancer foundation that Armstrong founded -- was worth about $200 million a year in revenue, Swinand estimates.

Nike said in a statement when it fired Armstrong that it would continue to “support” Livestrong, without elaborating.

Livestrong, the largest athlete-founded charity in the U.S. with more than $470 million raised since 1997, severed ties with Armstrong following the USADA report. The cyclist apologized to Livestrong staff members at the organization’s Austin office before his interview with Winfrey, and later said that losing the foundation was “the most humbling moment” of the fallout from the USADA report.

Athletes for Hope, a six-year-old Bethesda, Maryland-based charity co-founded by Armstrong had cut ties with the former rider after he admitted doping, the Wall Street Journal said today.

Amgen, EPO

Amgen Inc. (AMGN:US), the world’s largest independent biotechnology company, was also “tainted” by links to Armstrong and doping, said Dan Schmalz, an amateur racer and co-editor of the cycling Website NYVeloCity.com. In the 1980s, Amgen pioneered the hormone erythropoietin, known as EPO, which stimulates production of red blood cells and is used to treat anemia. It became one of the main doping substances used by Armstrong and others. Amgen sold $968 million of EPO drugs in the fourth quarter, down 5 percent from a year earlier, according to a Jan. 23 conference call.

Amgen, based in Thousand Oaks, California, worked closely with Armstrong’s cancer group to make cycling a focal point of the company’s cancer-awareness program, called Breakaway from Cancer. The company also sponsors cycling events, including the Amgen Tour de California, in which Armstrong rode.

Education

No Amgen executives were available to discuss the company’s links to Armstrong, cycling and EPO, said Ashleigh Koss, an Amgen spokeswoman. The Tour de California has given Amgen “a platform” to educate cancer patients and their families about the disease, “from prevention through survivorship,” Koss said in an e-mail. “We have supported anti-doping efforts and education campaigns,” including collaborating with organizations such as the World Anti-Doping Agency, she said.

Last June, NBC Sports Group, which owns exclusive television, digital and mobile rights to the Tour de France in the U.S., extended its race contract through 2023, according to NBC spokesman Adam Freifeld. The event’s ratings averaged 375,000 viewers last year, up 12 percent from 2011, Freifeld said. In 2009, when Armstrong raced, it drew an average of 530,000 viewers, according to Adweek magazine.

“We will cover cycling as completely as we always have in the past,” Freifeld said after Armstrong’s confession.

Disappearing Ads?

Advertisers may be reluctant, however, said Brad Adgate, director of research at Horizon Media Inc., based in New York. “Most viewers now would probably think, ‘All these cyclists are taking performance-enhancing drugs, so what kind of sport is this?’ The event has been so tainted over the past few years, do you want to bother advertising with it?”

Interest has fallen among the well-heeled clientele of Velo Classic Tours’ European bike trips, according to Peter Easton, who founded the New York-based tour company in 2001. Velo’s annual cycling tour of Belgium in April is getting “a much lower response” than usual, he said. One customer recently canceled a private cycling trip for a dozen riders to the Tour de France this year, costing Velo $60,000 to $70,000 in revenue, or roughly 15 percent of its gross for the year, Easton said.

The customer who nixed the tour alluded to his embarrassment over being a devoted Armstrong defender for many years, and made it clear that that was why he was canceling, Easton said.

“Those who stood by Armstrong all these years and swore he was clean and such a great athlete are either ashamed they got duped, or they’re angry,” said Easton, who is rethinking whether to offer tours linked to professional sports. “It’s definitely had an impact on us.”

‘Livewrong,’ ‘Cheatstrong’

On EBay Inc.’s Internet market, Nike sportswear associated with Armstrong is selling for about half what it fetched before the USADA report in October, according to Seth Cusick, the owner of the eBay merchant Spicoli4ever Vintage T’s, who says he used to sell lot of it. On eBay yesterday, other sellers were offering yellow cotton “Livewrong” and “Cheatstrong” T-shirts for $15-$21, while “Livestrong” prices ranged from $1.34 to $16.

Although a criminal probe of Armstrong’s cycling team by U.S. Attorney Andre Birotte Jr. in Los Angeles was closed last February without the filing of charges, there are still lawsuits involving the doping allegations.

Armstrong faces legal action in the U.K. by sportswriter David Walsh and the Sunday Times, which is trying to recoup $1.5 million from a 2006 libel case settlement with Armstrong. Walsh co-wrote the book, “L.A. Confidentiel,” published in French, which includes assertions that the U.S. Postal Team doped during the Tour de France.

Floyd Landis

Former Armstrong teammate Floyd Landis, who has admitted doping, filed a whistle-blower lawsuit on behalf of the U.S. government claiming Armstrong violated a sponsorship deal with the Postal Service by doping. Another defendant in the case is San Francisco investment banker Thomas Weisel, who led the group that owned Armstrong’s cycling team. The U.S. Justice Department hasn’t announced whether it will join the lawsuit.

Two Sacramento residents sued Armstrong Jan. 22, claiming they wouldn’t have bought his 2000 autobiography, “It’s Not About the Bike: My Journey Back to Life,” and the 2003 follow-up, “Every Second Counts,” had they known the truth about Armstrong’s doping. The plaintiffs, who seek to represent other Californians in a class action, accuse Armstrong and the publishers of false advertising for marketing fiction as if it were nonfiction.

Book Sales

Wilcockson’s 2010 book on Armstrong originally was priced at $26 for hardback. It was listed on Amazon.com Inc.’s website last week at $10.40. The book sold 60,000 copies worldwide and reached 33rd on the New York Times Best Seller list, according to Kate Burke of Da Capo Press in Boston, the book’s publisher. The author said he doesn’t know how much he made from it, but it wasn’t enough to retire on.

Wilcockson is feeling “much more confident” that the new generation of bicycle racers is clean, he says. He plans to attend his 45th consecutive Tour de France this year and write another book, he said.

“I’m a trusting person,” he said. “I trusted the people I spoke to. Right now, it feels pretty embarrassing.”

To contact the reporter son this story: Peter Waldman in San Francisco at pwaldman@bloomberg.net; Mason Levinson in New York at mlevinson@bloomberg.net; Eben Novy-Williams in New York at enovywilliams@bloomberg.net.

To contact the editors responsible for this story: Michael Sillup at msillup@bloomberg.net; Gary Putka at gputka@bloomberg.net


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