Two weeks after Lance Armstrong admitted using performance-enhancing drugs during his Tour de France victories, a company that paid incentive bonuses to the cyclist filed suit to get $12 million back.
SCA Promotions, a Texas promotions company that assumes risk for performance clauses, paid Armstrong $12 million for his victories in the 2002, 2003 and 2004 Tour de France races. In February, the company filed suit seeking repayment and, in April, Armstrong sought to have the case dismissed.
Another lawsuit, involving Armstrong’s former team sponsor, the U.S. Postal Service, demands all $40 million spent on the cyclist’s team, plus damages. Both cases assert that Armstrong and others associated with the cycling team should be forced to repay fees and compensation because of the recent admissions of drug use and for being subsequently stripped of all seven Tour de France championships.
Whatever happens in Armstrong’s cases, the mere topic of what amount to clawback provisions in promotions, sponsorships and endorsements could portend greater scrutiny — and tougher negotiations.
“Companies who are engaging in sponsorship deals, these types of endorsement deals, simply because of what happened
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Cyclist Lance Armstrong celebrates his Tour de France victory in 2003.
Photo by: Getty Images |
with Lance Armstrong, are going to start to think more carefully about how they protect themselves in terms of morals-type issues,” said Richard Grant, the managing partner of McGuireWoods’ Los Angeles office. Grant leads a sports practice with a focus on representing brands and companies in sponsorship deals. “Just the amount of press and attention this has gotten and the amount of money spent on endorsement deals with Lance Armstrong, that is going to heighten companies’ sensitivities about the issue.”
Typically, endorsements and sponsorships include provisions allowing for a player or athlete to be dropped because of unethical or embarrassing behavior on or off the field. The difference in the Armstrong lawsuits is that companies and sponsors have gone an extra step and sought repayment of their investment.
Tim Herman, Armstrong’s attorney, did not respond to interview requests. Jeff Tillotson, attorney for SCA, said he expects the Armstrong legal battles to set precedents that stretch across the sports industry.
“Sponsors and sports management companies are going to write in much more strict morals clauses and give companies the right to challenge wins or victories or accomplishments even if they’re officially certified,” Tillotson said. “Because what we’ve learned from Armstrong was, although he was being declared the official winner of the Tour de France race along with others and was passing drug tests, he was, by his own admission, cheating rampantly in every event. And so even if someone is declared the Masters champion or whatever, I believe sponsors are going to want in there some ability to double-check that.”
