Armstrong discovers new sponsorship deal
It was rolled out like so many other sponsorship agreements before it.
But there were two reasons why Tuesday's announcement that the Discovery Channel would replace the U.S. Postal Service as title sponsor of Lance Armstrong's cycling team next year wasn't a garden variety news conference.
Sponsorship announcements rarely include an athlete's denials to allegations of using performance-enhancing drugs, and the public outcry over a sports marketing deal might never again reach the level that was achieved by the eight-year title sponsorship reign of the USPS.
|Drafting the deal|
The new deal with the Discovery Channel was executed by Tailwind Sports, which owns the cycling team. Bill Stapleton, Tailwind's CEO and Armstrong's agent, said he was looking for an American company with a global reach. Discovery's networks reach 950 million subscribers worldwide, according to the company's Web site.
Discovery Communications owns several cable television networks including the Discovery Channel, the Travel Channel, The Learning Channel and Animal Planet. The company's founder and CEO, John Hendricks, was a main partner in the Women's United Soccer Association, which folded in September after going through $100 million in three seasons.
Stapleton said the team's annual budget, covering 25 full-time riders and a staff of more than 20, is $14 million to $16 million. The goal, Stapleton said, was to cover 95 percent of the budget with sponsorship agreements. Other sponsors of the 2004 team include the Outdoor Life Network, Visa, Subaru and Nike.
The new deal could be less valuable without the presence of Armstrong, who is only under contract to ride with the team through next year, though one source with knowledge of the agreement said there is no reduction in payment if Armstrong doesn't ride in 2006 and 2007. Armstrong currently makes about $14 million per year in endorsements.
-- Darren Rovell
"We're talking about an organization with $68 billion in revenue that can't even turn a profit and they are investing in this team," said Tom Schatz, president for Citizens Against Government Waste. "It's not like the postal service has to advertise, and it's not like Lance Armstrong winning is going to make people run out to the post office and buy more stamps."
In 1997, the USPS paid a reported $3 million to buy title sponsorship rights for the cycling team through 1999. Over the next five years, as Armstrong continued his dominance in the French Alps, the price increased to $9 million a year.
At the same time, the U.S. Postal Service, whose goal is to operate on a break-even basis, was losing money -- $1.7 billion in 2001 and $676 million in 2002. In 2002, the organization eliminated 23,000 positions, including 800 people in management.
"Something like this detracts from the success of the team, when people are asking, Why is the U.S. Postal Service on their jerseys?" Schatz said.
The USPS originally structured the deal to increase its business internationally, but a February 2003 report by the postal service's inspector general revealed that international revenues declined by $12.8 million over the previous four years.
Taxpayer money is not used to fund the postal service, but longtime critics of the deal, such as Rick Merritt, executive director of PostalWatch, say that the public should be outraged by the deal, calling to attention the fact that rates went up on first-class and priority mail two years ago.
"They spent $50 million out of ratepayers pockets to pay for this sponsorship," Merritt said.
"Obviously we hear those comments and it concerns us sometimes, but I prefer to think about the postal service in a positive way," Armstrong said at Tuesday's news conference, announcing the three-year deal with the Discovery Channel that sources tell ESPN.com is worth $10 million per year. "I would have never won the Tour if it wasn't for the postal service If I sat down and read the Internet to see whatever a watchdog group says, I'd be a miserable man."
Joyce Carrier, director of public affairs for the postal service, said that critics of its sponsorship were often misguided. She notes that the postal service does have competitors, such as Federal Express and United Parcel Service, for its premium mail services. She also says that there happened to be a decline in the growth of the mail business, in terms of total volume shipped, at the same time the sponsorship with the cycling team started.
"It's ludicrous to think that this deal has affected us negatively or that our rates had anything to do with this little sponsorship," Carrier said.
Nonetheless, Carrier said that the entity decided that with the contract up at the end of the year, and a new postmaster general interested in growing the domestic business, it was time to bow out.
"Maybe we'll do smaller sponsorships, maybe we won't do any," Carrier said. "We have to get a good return on our investment."
Darren Rovell, who covers sports business for ESPN.com, can be reached at firstname.lastname@example.org