Legal Complications on Steroids

If Lance Armstrong were found to have been on drugs, and his S.F. handlers knew it, sponsors could demand their money back, and perhaps change sports in the U.S. forever

Fifteen years ago, former Boston newspaper hack Dan Osipow answered an ad to valet a San Francisco financier's bike racing hobby, and went on to play a central role in the greatest and perhaps most peculiar story in the history of sports management, as the U.S. Postal Service underwrote Lance Armstrong's Tours de France-winning comeback from cancer. Now Osipow's stepping down to take a job Dec. 12 with a private firm that markets UC Berkeley's athletics programs.

"Leaving something historic behind is tough," says Osipow, who held senior titles at Tailwind Sports and other companies controlled by S.F. investment bank owner Thomas Weisel to handle ownership of Armstrong's U.S. Postal Service, and later Discovery Channel, cycling teams. Osipow was also behind the creation of the four-year San Francisco Grand Prix bicycle race, which was canceled last month.

"I can recall being in a Chart House restaurant with Tom, myself, and one other person in 1990, and after perhaps many glasses of wine, Tom pounded the table and said, 'We're going to put together the first American team to win the Tour de France.' The fact it happened nine years later is an amazing achievement," Osipow adds.

Osipow and Weisel's achievement has the potential to morph into something even more amazing than helping bankroll Lance Armstrong's Tour wins. The two men helped put in place an unusual contractual and legal situation that -- if widespread accusations that Armstrong's wins involved using banned performance-enhancing drugs were ever shown to be true, and his handlers were shown to have known about it -- could transform all of American professional sports.

If legal investigations under way in Dallas about Armstrong's alleged drug use were to somehow show the Texan cheated with his handlers' knowledge, it could put in motion a chain of events with the potential to purge banned drugs from baseball, football, and anywhere else athletes are alleged to employ them.

Sponsorship and bonus-payment agreements entered into by Weisel-controlled companies created a situation in which performance-enhancing drug use could theoretically be construed as a form of financial fraud, defined here as a situation in which a party misrepresents the truth in order to obtain money. If such a definition were ever to hold up in court, it could open a floodgate of legal questions.

When the San Francisco Chronicle reported that Barry Bonds and Jason Giambi told a grand jury they used steroids, could this have meant ticket-buying fans might have been defrauded? Could fans file a class-action lawsuit? What about the Giants' commercial sponsors? Could they sue, too?

With millions of dollars in potential lawsuits at stake, teams would do everything they could to make absolutely sure their athletes didn't use banned drugs.

That's quite a potential legacy for a former sportswriter from Boston.


Last March, I was at a seminar in which Charles Grantham, former executive director of the National Basketball Players Association, described how the NBA recovered, marketing-wise, from drug scandals of the mid-1980s. I asked if he ever thought the United States would treat drug use in sports the way countries such as Italy do, with laws defining it as a form of fraud, in which someone obtains money by making false claims. Grantham suggested such a law could never pass in the U.S. because too many interests would oppose it. In the audience was Wharton business instructor John Percival, and he piped up to say that such a change would have to come in the form of litigation. Plaintiffs would have to allege they'd been defrauded as a result of banned-drug use, and a court would have to sign off on such a claim.

Such a precedent could change the way sports drug use is viewed -- from a potentially bad example for youth to a form of illicit means of financial gain.

In a lecture hall populated by academics, a lawyer, and a couple dozen journalists, however, nobody seemed to have ever heard of such a case.

As it happens, there's a legal situation that roughly follows those lines being mediated right now in Dallas. SCA Promotions, a company that event promoters pay to underwrite sports bonuses, has demanded to see Lance Armstrong's medical records before it pays $5 million for his 2004 Tour win.

Weisel's Tailwind Sports paid SCA to underwrite the risk of paying out Tour win bonuses to Armstrong. But last year, a book titled L.A. Confidential published a litany of drug allegations against the cyclist.

SCA posted the $5 million bonus apparently due Tailwind for Armstrong's '04 Tour victory into a custodial account and privately requested information from Tailwind Sports in order to evaluate the allegations contained in L.A. Confidential. Tailwind responded aggressively by immediately filing suit.

SCA is asserting that it was wrongfully asked to pay out money based on drugs fraud -- a basic concept with the potential for broad application in sports.

An arbitration hearing is scheduled for January.

SCA's case could be bolstered by allegations published in August in the French newspaper L'Equipe, which stated that frozen urine samples from doping tests taken during the 1999 Tour de France, which were re-examined this year, showed the presence of the banned blood-enriching product EPO in Armstrong's system. A test to detect EPO wasn't developed until 2001. The French lab re-examined testing results from 1999, when many cyclists were assumed to be using the drug because they could avoid detection. Armstrong responded with a vigorous crisis PR campaign, appearing on Larry King Live to deny he'd ever cheated.

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