Lance Armstrong's reputation and the reaction of sponsors

Why corporate sponsors need to carefully manage the potential reputational risks involved in sponsoring athletes
Lance Armstrong interview with Oprah Winfrey
After Lance's confession, sponsors should review their sponsorship agreements with athletes Photograph: George Burns/AP

Lance Armstrong faced his trespasses in recent confessions to American talk show celebrity Oprah Winfrey. This may have surprised many, not least because of the years of vehement denials that preceded this televised act of contrition. Arguably, it was about time.

The public perception of him was tainted as a result of the doping allegations. Certainly he now acknowledges the hugely detrimental impact that his doping scandal has had on the sport of cycling. But having now set out on this road of apparent transparency, Armstrong will have to navigate a minefield of collateral legal issues that, although of his own making, may not have been fully anticipated.

The Oprah interview can be expected to have serious legal ramifications and there is a flurry of charges now being pressed on him from various sides. Armstrong was extremely vocal in denying the use of performance enhancing drugs and he aggressively pursued those who went on the record against him before the courts. He may now find himself on the receiving end of a flurry of lawsuits.

The Sunday Times is already leading the peloton of claimants, eager to reclaim the sum it paid out, wrongly it now appears, in relation to a libel case. His former team-mate Floyd Landis claims, in a suit reportedly filed in June 2010 but only now made public, that Armstrong defrauded the US government of $30m (£19m) through its sponsorship of his US Postal Service cycling team.

However, the greatest impact of the Armstrong episode will likely be seen in the way that sponsors seek to manage their reputational risk in dealing with athletes, and the reactions of his sponsors will therefore be closely followed.

Sponsorship is common in sport, and arguably indispensable to it. Without corporate sponsors most teams and athletes wouldn't be able to compete professionally at all. As consumers we are all too familiar with seeing corporate logos emblazoned on the uniforms and equipment of sporting teams and individual athletes. Inevitably, the reputations of both the sponsor and the athlete impact upon each other. All forms of conduct can potentially impact upon the reputation of an athlete's corporate sponsor, and it need not necessarily be illegal. Doping is an obvious example, but how would a corporate sponsor react to an athlete that publicly expresses racist views?

In today's culture, sponsors need to be alive to the potential reputational risks inherent in sponsoring competitive athletes. It is in the nature of sponsorship that the reputation of the athlete is tied to the reputation and goodwill of the sponsoring firms and its products. Although it is not typically the domain of the law to police morality in sport, it must be recognised that significant commercial interests can be engaged by athlete misconduct where athletes trade on their reputation through sponsorship deals. This is an area where sound principles of corporate social responsibility and commercial wellbeing intersect. Sponsors are not merely expressing a moral choice by acting against disgraced athletes; they are protecting their commercial interests.

The remedies available to a sponsor will depend on the terms of the sponsorship contract. A modern agreement should have robust warranties around areas of potential reputational risk, and provide for adequate remedies. Relevant considerations for sponsors have to include: whether any incidents that surface might have been a breach that occurred during the life of the contract; whether any remedies were expressed to continue beyond the contract term; and whether in the absence of any contractual remedy, the sponsoring firm suffers damage that, in the circumstances of the case, might give the sponsor cause to bring a court claim.

The Armstrong scandal should cause sponsors to review their standard terms of sponsorship, and to ensure that they are protected against reputational harm even where, in a case like this, the scandal emerges some time after the money has been paid and the sponsorship deal has ended.

Undoubtedly, this scandal has tarnished the sport's reputation, and it is not an isolated instance of controversy so far as cycling is concerned. Armstrong's claims that he was not "cheating" because doping was widespread throughout the sport at the time reinforces the sport's perceived lack of integrity. The entire cycling community will have to work on a solution to restore its reputation, and legal measures alone will not get the job done. The end of this story remains yet to be written.

Leigh Crestohl is a senior solicitor at Zaiwalla & Co
