Armstrong’s Fortune Likely to Withstand Doping Charges
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Version 0 of 1. LANCE ARMSTRONG may have been stripped of his seven Tour de France titles and barred from Olympic sports for life after a report from the United States Anti-Doping Agency detailed how he used performance-enhancing drugs to win cycling races and coerced teammates to do the same. But he is still a rich man, with an estimated net worth of $125 million. Independent advisers and lawyers say he is likely to hold on to most of that wealth — though he may have to give up an estimated $3.9 million in prize money he won in the Tour and pay some hefty legal bills. Most of Mr. Armstrong’s money came from his sponsors: Nike, Anheuser-Busch and smaller brands like FRS, an energy supplement, and Honey Stinger, a maker of organic waffles. They have all dropped him, but it remains to be seen what damage, if any, the brands will suffer, particularly the smaller ones. Then there is the United States Postal Service, which paid tens of millions of dollars to sponsor Mr. Armstrong’s team for six of its seven Tour de France titles and now looks naïve, at best, for continuing to finance his racing while accusations of doping swirled around him. Still, it is generally the case that no amount of wrongdoing by athletes will force them to forfeit the money they were paid by sponsors. The worst that typically happens is that their contracts are voided. David B. Newman, a partner in the law firm Day Pitney, said it was rare for a sponsor to try to get back money from an athlete who had violated the terms of a contract. Most contracts include a provision barring the use of performance-enhancing drugs. Mr. Newman said that a sponsor who wanted to test the contract could demand its money back, but that Mr. Armstrong, who has vehemently denied doping, could simply refuse and argue that none of the accusations against him had been proved. “They’d have to spend a lot of money to prove these allegations,” Mr. Newman said. “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 what Mr. Armstrong would do if his sponsors sued him for damages, Tim Herman, one of his lawyers, said, “We don’t have a plan for that, because I do not expect that to happen.” For a big company like Nike, which has weathered plenty of controversy with its athletes — it dropped the quarterback Michael Vick after he accepted responsibility for his role in a dogfighting ring and pleaded guilty to federal conspiracy charges in 2007, but re-signed him last year, and it kept Tiger Woods on after his marital scandal in 2009 — the loss of Mr. Armstrong is no big deal. But I expected more anger from smaller companies like FRS, which makes an energy drink that was closely associated with Mr. Armstrong. Mr. Armstrong’s image, until recently, was featured prominently in the company’s advertising. “It’s awfully difficult to not be very disappointed, having believed in all aspects of the relationship,” said Carl Sweat, chief executive of FRS. “Two years ago, before any of this was out, it would have been a different conversation. He helped us build our brand.” In other words, the negative publicity is hurtful because the brand is well known now, but the company realizes how much Mr. Armstrong, who resigned from FRS’s board but continues to have an equity stake, helped it get there. Mr. Sweat said the company was now using Tim Tebow, the New York Jets quarterback with a squeaky-clean reputation, as its main pitchman. There are two areas, though, where Mr. Armstrong is at risk of losing a little or a lot of money. The case against him that is getting the most attention is being pursued by SCA Promotions, a company in Dallas that insures potentially costly but unlikely events, like a prize for a hole in one in a golf tournament. In 2004, Mr. Armstrong sued the company for not paying him a $5 million bonus for winning his sixth Tour de France title. SCA said it would not pay because of accusations of doping that had come out in a book by two sports reporters. In 2006, though, the company settled the suit and paid Mr. Armstrong $7.5 million, including interest and fees. “There is no revisiting that,” Mr. Herman said. “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.” Still, SCA said it intended to do just that. Jeffrey Dorough, SCA’s corporate counsel, said the firm was sending a letter to Mr. 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,” Mr. Dorough said. “We’re hoping he’ll respond to our letter.” But there is one way the company could cause problems for Mr. Armstrong, and that is by deposing him as part of a lawsuit. “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. “Prosecutors love high-profile obstruction of justice cases to serve as a deterrent for lying under oath.” The biggest threat to Mr. Armstrong’s wealth is a False Claims Act lawsuit against him and Tailwind Sports, the limited liability corporation that owned his team. The Wall Street Journal reported in late 2010 that Floyd Landis, a former teammate of Mr. Armstrong’s and another Tour de France winner who was stripped of his title over doping, had filed a whistle-blower lawsuit under the False Claims Act asserting that the government — the Postal Service, in this case — had been defrauded. The suit remains sealed while the Justice Department decides whether to act on it. Such delays are common, said Michael Sullivan, head of the whistle-blower practice group at Finch McCranie, a law firm in Atlanta. And the Justice Department has great latitude on how long it can take to bring a suit, if it ever does. Mr. Sullivan said the government would not have to prove that Mr. Armstrong used the Postal Service’s money to buy performance-enhancing drugs for his team. “You could simply say they were making false statements to get the money from the U.S. government,” he said. “You could say they were doping, knew they were prohibited from doping and went ahead with it anyway.” He said these cases were usually settled for double the damages. But he added that the negotiations would probably center on what the Postal Service paid Mr. Armstrong’s team versus what it got in return. Mr. Herman, Mr. Armstrong’s lawyer, seemed prepared for this line of argument. He said that from 2001 to 2004 the Postal Service paid Mr. Armstrong’s team $32.27 million and received a return on its investment of $103.63 million. He cited what he said was a study commissioned by the Postal Service on the indirect benefits from the relationship. “You have an annual return on investment of 320 percent,” he said. “I hit my knees every night hoping someone defrauds me like that.” Patricia Licata, a spokeswoman for the Postal Service, said in an e-mail: “The Postal Service has not sponsored a professional cycling team since 2004. We are aware of the allegations concerning Lance Armstrong and other riders in the Usada report and have no further comment concerning the matter at this time.” Still, it is easy to see how double damages for the entire sponsorship period, along with legal fees, could erode Mr. Armstrong’s wealth. (Whatever the government recovered, Mr. Landis would be entitled to 15 to 25 percent, as well as his own lawyer’s fees, as long as he was just a participant in the doping and not one of the ringleaders.) Mr. Herman said he expected many people to try to sue Mr. Armstrong. I imagine this group could include the dozens of cyclists, spouses and trainers whom Mr. Armstrong is said to have bullied into silence. That could chip away at his wealth, too, but Mr. Herman intimated that he did not think these people would have much success because Tailwind, the corporation that owned the team, was “the contracting party.” This is another way of saying that Mr. Armstrong put a layer of legal protection between himself and the money. And if nothing else, it shows that he has had good legal counsel over the years. |