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

By Matt Smith

Article Published Dec 7, 2005

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.

Dick Pound, chairman of the World Anti-Doping Agency, was quoted as saying the situation bolstered the need to establish a protocol for retesting urine and blood samples from the previous eight years, so as to find traces of substances that might have been misused by athletes before tests to detect them had been developed.

If a Postal Service team member were shown to have doped during the past five years, the prospect for such an investigation could be particularly ominous for the Weisel sports companies where Osipow served as an executive. Starting in 2001, sponsorship agreements between the U.S. Postal Service and these companies included strong anti-drugs language under which the contracts could be thrown out if team management knew of athletes’ drug use and looked the other way. Copies of the agreements I obtained had the sponsorship amounts blacked out. Press reports, however, have claimed the USPS paid out around $10 million per year during the agreement, underwriting Armstrong’s Tour victories between 1999 and 2004.

The Postal Service is considered a government agency under an 1863 federal law called the False Claims Act designed to root out fraud against the government. That means that any insider who believes he has evidence that would hold up in court showing Armstrong used drugs while his team management knew yet quietly looked the other way could potentially reap a bonanza under legal provisions that give whistle-blowers a share of any lawsuit’s proceeds.

“Like most cycling fans I would be reluctant to believe Lance Armstrong, or any other member of the U.S. Postal Service Team, used performance-enhancing drugs. But if that were indeed the case, and the company was aware of that at the time, the company may very well have exposure for treble damages under the False Claims Act,” says Paul Scott, a former U.S. Department of Justice trial attorney in San Francisco specializing in cases involving the act.

I asked Scott, and a different False Claims Act specialist who spoke off the record, to review pages from copies of sponsorship agreements between the Postal Service and Weisel-affiliated companies. I asked them to consider an imagined scenario in which a team member was found to have improperly used drugs, the team organization knew about it, then hid it from its government sponsor.

“The default clause would seem to indicate that compliance with the drug clause was a condition of payment. If that were the case, and they violated the drug clause, and they knew about it, and they continued to solicit payment from the government with that knowledge, they may very well have a problem with the U.S. government,” Scott said.

Osipow says he has confidence the L’Equipe reports will not shake the good relationship the Postal Service had with Weisel’s organization.

“It’s past history, and they know about the relationship they had with us at the time. It’s past history. They have the utmost faith in [team manager] Johan [Bruyneel] and Lance. And they have the utmost faith in our program. And they leave it at that,” Osipow says. “It was difficult news, but you have to recognize the source of the story, and the history behind it. We believe Lance. Everybody in this organization believes Lance.”

Adds Postal Service spokeswoman Joyce Carrier, “Unless someone proves any differently, we have no reason to not trust what the team has told us.” <!–[if !vml]–><!–[endif]–>

In America the idea that beloved champion Lance Armstrong might have cheated is seen as a truly extraordinary allegation. This isn’t so in cycling-savvy Europe, where sports headlines are routinely dominated by doping trials of athletes, doctors, trainers, and other bike-racing hangers-on.

In Europe, police raids and customs searches frequently ensnare athletes who had passed many doping tests as drug free. That’s because many of drugs believed to be used by performance-seeking athletes are still undetectable with current dope-testing methods. There’s a cornucopia of biotechnology-bred medicines that mimic substances that naturally occur in the body, and are therefore extremely difficult to detect. Some of these drugs have a second, shadow use in improving athletic performance. Such drugs include synthetic human growth hormone and various cutting-edge anemia drugs, which boost the body’s ability to produce oxygen-carrying blood cells.

Last October, an Italian court convicted sports doctor Michelle Ferrari on doping charges after a series of SWAT-style drug raids on cyclists’ hotel rooms.

According to the book Lance Armstrong’s War, by Daniel Coyle, Ferrari had been known to offer choice quotes to Italian reporters such as this: “The limit is the antidoping rules; everything that is not prohibited is allowed,” and “If I were a rider, I would use the products which elude doping controls if they helped to improve my performances and allowed me to compete with others.”

One of the most interesting revelations in Coyle’s book is the extraordinarily close, nine-year relationship between Armstrong and his personal trainer, Michelle Ferrari. Ferrari spent a week per month with Armstrong during the spring, and was with him full time during weeks leading up to the Tour. Ferrari flew with Armstrong to training camps off the coast of Africa, to Texas, to Spain, wherever the athlete was undergoing his meticulous process of training, testing, and training.

Key to Armstrong’s success has been this attention to training detail, and his endless appetite for information related to his physical preparation.

If this information were to ever see the light of court proceedings, and if it were to somehow conclusively show that Armstrong’s team looked the other way as he doped, the results just might reverberate throughout professional sports.