Wednesday, March 1, 2017

Lance vs. U.S. Postal: Show them the money

Photo courtesy AP via
It's going to court, after all. The $100 million lawsuit against Lance Armstrong will proceed to trial. U.S. District Judge Christopher Cooper ruled in favor of the federal government, which is suing on behalf of the U.S. Postal Service. U.S. Postal sponsored Lance from 2000 to 2004 and it is reported that $32.3 million was invested. The case states U.S. Postal would not have funded the Tour de France team, had it known there was a violation of the sponsorship contract based on performance enhancing drug use and blood transfusions. The federal government is attempting to have the damages related to sponsorship fees tripled, based on the False Claims Act. Armstrong could be held accountable for the entire amount.

Much of this case will focus on 1) terms of contract and purported breach and 2) sponsorship value to the United States Postal Service. Did the sponsor achieve a proportionate return on investment?

I won't be able to write on the terms of contract. I am not privy to the language. However, much of my academic research has been invested in sport and sponsorship. If I were called as an expert witness, I'd most likely refer to the value of sponsorship and related brand value. 

First, it will be important to determine what constitutes ROI. In the early years of sponsorship, it was appropriate to base value on exposure. For example, if Lance was featured for eight minutes during a tour telecast and the postal logo ID was in clear focus, that would constitute eight minutes of advertising media value. It would be assessed at the selling price for 30-second commercials in that time block, for that show and that channel. Or, if Lance was featured in a 4-page magazine spread, the value was noted at the cost of full page ad rates x 4 for that publication.

Over time, that model has been discounted. From commercial spot cost to something well less, sometimes 10% of spot buy. It might be possible the federal government will revisit the exposure model as part of its due diligence, with a new proposed exposure value.

The next major hurdle in the case might be the timeline of events. Determining value for sponsorship during the contract years is one dimension; exploring brand perception and related value well beyond the contract will be for the courts to decide. When engaging research related to brand value, there is a foundational study that frames the construct of "brand transgression."

Aaker, J., Fournier, S., & Brasel, S. A. (2004). When good brands do bad. Journal of Consumer research, 31(1), 1-16.

This article has been cited over 1300 times and relates to consumer perception, and related purchasing decisions, prior to, then after, a transgression occurrence. This is where much of the Lance/U.S. Postal court case could go. It's not only about what value was transacted for the $32M in spending, it's also related to the U.S. Postal association with Lance and how customers reacted. For a government entity this is a bit complex, in that stock value won't be part of the equation. It will be necessary to isolate the "Lance transgression" and then prove what brand effect, if any, was incurred. Legal researchers might look for business to business, and business to consumer, examples of how doping revelations caused buyers to respond - well after the sponsorship has concluded.

Lance vs. the feds and its outcome may set precedent on sponsorship evaluation and assessment for many buyers and sellers in the years to come.

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