Millions of dollars hinge on government benefit in Armstrong case
AUSTIN, Texas (AP) Lance Armstrong is facing the federal government in a legal fight with tens of millions of dollars at stake, and a loss could bankrupt the cyclist who until last year ranked among the wealthiest and most popular athletes in the world.
Armstrong's best chance at protecting his personal fortune may rest in convincing a jury the government has already earned plenty from him, regardless of whether he cheated to win the Tour de France and lied to cover it up.
Armstrong is being sued by the Justice Department to recover at least the $40 million the U.S. Postal Service paid to sponsor his team, claiming Armstrong was "unjustly enriched" by using steroids and other drugs to win the Tour de France seven times.
Armstrong's legal team says the benefits the Postal Service reaped from putting its name on Armstrong's jersey was worth far more than that. The Postal Service commissioned four studies that said the contract was worth more than $100 million in worldwide exposure for the agency at a time it was trying to boost its brand.
Armstrong could still settle the case before going to trial, which likely would not start until 2014. Previous settlement talks broke down earlier this year.
If it goes to trial, experts say the government will likely have an easy time proving Armstrong committed fraud by violating his contract. But proving financial damages could be far more difficult and the stakes are huge because the False Claims Act allows the government to seek triple damages.
"They are going to have to get creative," said Dallas attorney Matthew Orwig, a former federal prosecutor who has handled lawsuits filed under the same statute the government is using to pursue Armstrong. "They've got to know they've got a squishy case on damages."
Paul Scott, an attorney for Floyd Landis, the former Armstrong teammate who brought the whistle-blower lawsuit and would get a cut of any damages awarded, dismissed the argument that the Postal Service wasn't damaged.
"It was all a fraud," Scott said. "U.S. Postal would not have paid a dime if they had known the truth."
The False Claims Act dates to the Civil War, when the government went after unscrupulous contractors who were providing substandard items to Union troops. Since then, the government has used the law to recover billions of dollars in health care and defense contractor fraud, natural disaster recovery and reconstruction efforts in Iraq.
Armstrong was sued first by Landis, who admits participating with Armstrong in the team doping program. The Justice Department announced in February it would join the case and filed its formal complaint April 23.
Landis and the government allege Armstrong, Postal Service cycling team director Johan Bruyneel and the team ownership company, Tailwind Sports Inc., committed fraud by engaging in a doping program that was against the rules in the sport of cycling.
The team contract with the Postal Service required riders to follow cycling rules. The government claims that by using steroids, blood boosters and other illegal performance-enhancing drugs and measures to win, Armstrong and team officials committed fraud while simultaneously assuring Postal Service officials they weren't cheating.
Armstrong has publicly admitted doping. Bruyneel has challenged the U.S. Anti-Doping Agency's report on the team doping program and is awaiting an arbitration hearing separate from the lawsuit.
Ben Vernia, a Washington attorney who specializes in federal whistle-blower lawsuits, said Armstrong's case is unusual because it deals with a government agency that paid for publicity instead of something more tangible like an airplane part or specific service that wasn't delivered.
"Engine parts are easy to quantify," Vernia said. "In this case, did (Postal Service) get the benefit of the bargain?"
Armstrong's lawyers insist the Postal Service cashed in at a rate far greater than it paid out.
The agency was the lead sponsor for Armstrong's team from 1998-2004, a span that included six of Armstrong's seven Tour de France victories that have now been stripped away. About $18 million of that went to Armstrong, who at one point had an estimated personal fortune of about $100 million but has seen his endorsement deals vanish since a 2012 USADA report exposed the team doping program.
From 2001 to 2004, the USPS paid for annual reviews of its investment. According to the studies by the FCB and Campbell Eward marketing firms, the Postal Service's contract with Armstrong's team was worth close to $140 million in exposure in the U.S. and overseas from 2001-2004.
The studies evaluated Postal Service market penetration in newspaper, broadcast, internet and magazine stories about Armstrong and his team. It also measured advertising by other sponsors such as Nike and Suburu that included Armstrong and the Postal Service team name, and even gossip-page coverage of his romance with rocker Sheryl Crow.
The 2004 report by Campbell Ewald also included notations about the potentially negative publicity of television coverage in New York City markets that noted drug allegations by Armstrong's critics.
"The U.S. Postal Service benefited tremendously from its sponsorship of the cycling team," Armstrong attorney Elliot Peters said when the government filed its complaint. "Its own studies repeatedly and conclusively prove this. The USPS was never the victim of fraud. Lance Armstrong rode his heart out for the USPS team, and gave the brand tremendous exposure during the sponsorship years."
A 2003 government audit criticized the sponsorship deal and said the government could only show less than $1 million in revenue over a four-year period as a result of the sponsorship. That report said tracking media exposure can be distracting compared with studying actual sales results. Postal Service officials disagreed at the time with that conclusion and argued that media exposure, not just direct sales, was considered an important part of the sponsorship.
Landis' attorney argues the benefit of exposure is implied in any sponsorship deal. That's why companies enter sponsorship deals with teams or athletes, Scott said.
Scott also suggested the Postal Service's reputation has been damaged since the revelations of Armstrong's cheating.
The agency will "forever be tied to the largest doping scandal in the history of sports," Scott said.
Orwig, the former prosecutor, questioned whether Landis or the Postal Service will be able to prove future damages based on an association with an athlete that expired almost a decade ago.
"That's speculative at best," Orwig said. "It will be appealing in a lot of ways, but it won't be legally solid."