One from the Vault
April 2, 2019 § 2 Comments
I went through a very short podcasting phase a couple of years ago. Podcasting is difficult, requires technical expertise, and overwhelmed me after my first couple of attempts. Hats off to Brian Co at the SoCal Cycling podcast, now in its fourth year and going strong. If you want quality journalism and amazing production values, he’s your guy.
However, one of my podcasts was about Lance’s upcoming trial date back in 2017. A reader transcribed it and emailed it to me, suggesting I post it as a blog. I’d done the whole thing off the cuff and didn’t have a transcript. When she sent it I thought it was dated and irrelevant, but then I read it and realized that I hadn’t posted anything in a couple of days, so here it is.
It’s long. Dated. No pictures. And it ain’t Karl Ove Knausgaard.
Lance’s Date with Destiny
Today is back to the future day, where we check in on cycling’s bad boy and eternal scoundrel, Lance Armstrong. I tried to figure out what in the world is going on with the lawsuit he is so afraid of that he kicked the trial date down the road some more. This guy is in no hurry to face the jury, he has been in litigation now for five long years, and it’s not over yet. Sometimes the Lance Armstrong saga feels like fighting the Medusa. You lop off one head only to find out you are locked in mortal combat with another one. Everytime I swear this is the last time I will ever, absolutely, positively EVER say anything about that fucking guy, he makes himself relevant again.
How, I hope you are wondering, can this jerk possibly be relevant? TDF titles: stripped. Cheating ban: lifetime. Public reputation: in the shitter. Significance to cycling: none. But actually, he is relevant. Very relevant. And I am starting to make my peace with his permanent installation in the constellation. He is relevant because if you are in your mid-forties to late fifties, he was the definitive character in your personal cycling history. Young riders nowadays don’t know about him or care, and they certainly don’t read Outside magazine, or read for that matter, but those of us who were racing when Lance was young will ever be bracketed by the events in his life. His name strikes a sour note that can’t be listened away, if only because the note was once so sweet. YOU say “He is old, slow, wrinkled, balding and gray.”
But guess what? So are we.
Lance’s latest foray into relevance was written about, and written about well, in the September 15th issue of Outside Magazine. The gist of the article was simple and written by S.C Guin. Read it. Storyline 2017. Lance is racing ahead with his life, he is surrounded by hangers-on. He is rich. He’s a family man. He’s atoning for his sins. And he is still an asshole.
But we can stepmother this fairy tale as Lance’s date with destiny on May 7th, 2018, the date set by Judge Cooper, on which his false claims act and fraud trial will begin in a Washington, D.C. federal court. If the worst case scenario comes to pass, Lance will get dinged with a 96.9 million dollar judgement that will vaporize almost the entirety of his personal wealth. Suddenly, he might have to struggle to pay for the kids’ college, just like the rest of us. Dither between e-tap and mechanical, check the tires again to see if they really need to be replaced …
And Lance is worried about his dance date, too. In the Outside article he sends a clear signal to the Department of Justice that he is in the mood to settle. The risk here is sky-high for Lance, but only marginal for the government. Lance is already $15 million down in legal fees, but the government has also spent a fortune on this case. And there is no reason to think they will win in front of a jury, given that they’ve been out- maneuvered at almost every turn in the pretrial phase of the case. As the pressure builds, and both sides start to calculate how much they could lose, for Lance money, and the government a big fat black eye and a couple of lead lawyers careers wrecked, a settlement seems possible.
But they aren’t there yet, and they may never be, because the sum will be large, and in the meantime, the trial date is real.
In order to understand why Lance is pacing the floor, you have to understand the legal guts of his case. It’s remarkably simple. His lawyers have pared away virtually every single issue in the litigation until only one remains: Did the US Postal Service get what it bargained for? In other words, even though Lance lied, did the government come out ahead?
Because, if they did, Lance wins. That’s the only thing left in this case. The government tried to set up the issue for trial differently, arguing the value of the sponsorship was zero, because they would have never signed up if they had known about the cheating. If they paid $32 million for something worth nothing, then the USPS’s actual damages are three times the actual $32.3 million in sponsorships payments. Since the damages are trebled in a false claims act lawsuit, Lance would be on the hook for three times 32.3, or $96.9 million.
Armstrong tried to set it up differently, contending that the benefits USPS reaped from having him as their poster boy demonstrably outweighed the cost of sponsorship, and that the government’s actual damages are zero in that they got what they paid for in terms of publicity and actual media impressions, and then some. In the single biggest pretrial wrangle of the case, both sides moved for summary judgment, essentially asking for the court to rule in their favor before the case goes to a jury. The court’s ruling rejected both arguments, holding that the case would have to go to the jury to decide whether or not the USPS had been damaged. And if so, by how much?
This was ostensibly a win for the government, but Armstrong’s lawyers still get to go to the jury with the best possible of weapons. They have experts that will try to prove that USPS was not harmed and they’ll have withering cross examination to debunk USPS’s methodology for calculating the financial value of damages. That shouldn’t be hard, because there is no methodology. At least none that will survive a Daubert challenge. The court said in the motion for summary judgment that damages in FCA cases are generally measured based on the “benefit of the bargain” received by both parties. Under this approach, the government’s actual damages are equal to the difference between the market value of the products it received and retained, and the market value that the products would have had if they’d been of the specified quality.
Applying this benefit of the bargain rule is often straightforward. In a typical case involving a governemnt supply contract, for example, the difference in market value between a conforming good and a non-conforming good can easlity be calculated, for example, computing the precise cost to replace a falsely branded tube in a radio kit supplied to the government. Calculating the benefit of the bargain becomes more difficult in cases where the market value of the product or the service involved is not readily ascertainable. This is particularly true for contracts for personal and professional services, like those provided by Lance’s cycling team. And the difficulty of this will play into Armstrong’s hand come trial time.
Armstrong buttressed his argument by attacking one of the government’s experts who attempted to document the value of the contract as well as a separate expert who testified about the value of the negative publicity resulting from the revelations of Armstrongs PED use. By striking these evidentiary claims, LA would have gutted the government’s ability to prove damages and would have won the case. Even if he were a bad boy, USPS could never have proven they had lost money on the deal. However, the judge held that both declarations did in fact have some bearing on the calculation of benefits USPS obtained from the cycling sponsorship, and thus were relevant to the actual damages. This doesn’t mean that a jury will buy the experts’ testimony, though. It just means that it will go to trial. Rest assured, the entirety of Armstrong’s defense will be based on demolishing these experts, and the fuzzy nature of their arithmetic means that he will likely succeed. As long as the jury understands the speculative nature of the experts’ calculations, Lance will likely win.
Armstrong’s claim that the USPS got more than it paid for has two parts: First, USPS said in documents obtained through discovery that it had obtained increased sales of $24 million over and above what it had paid for the Armstrong sponsorship. This seems to show that USPS clearly benefited. But the court said it isn’t increased sales, but rather increased “net” sales and USPS itself admitted that they couldn’t isolate reasons for the increased sales, which were affected by other factors in addition to the Armstrong sponsorship. In other words, the court said that the $24 millionnumber that Armstrong claims he increased USPS sales by was speculative, and therefore, the trial has to go forward on this point because it is a factual matter for the jury to decide.
Lance’s second prong in showing the benefits USPS had received was the alleged positive media exposure for being associated with such a cancer crushing, biking badass. If USPS had paid for all that good press, according to Armstrong’s experts, it would have cost $103 million, a number that far exceeds the $32 million in sponsorship. However, Armstrong’s own expert admitted that not at that time, or this time, or anytime, was anyone on earth ever going to spend $103 million on a cyclist for advertising a product. This strongly suggests that it’s what I call a unicorn number.
Think about it like this: Say you had a marble that cost a penny, and someone took the marble and smashed it into a thousand bits, then an expert examined the shards and opined that if someone were to manufacture each of those pieces separately and combine them into a single marble, it would cost $1000. Yes, except for the fact that no one would ever do that. They’d simply go to the five-and-dime and buy another marble for a penny. Even with things looking grim for Lance’s alchemist accounting, AND his astrological marketing analysis, the bottom line is that the government, who has the burden of proof, still cannot quantify how much it was harmed by the publicity surrounding Armstrong’s doping admission. And this difficulty is real easy to explain: The value of the bad press was zero.
Not a single person on earth thought worse of the USPS after LA flunked his Oprah exam with flying colors. And that’s not just because the sponsorship had ended five years before USADS’s Reasoned Decision and Joe Public had forgotten about USPS and its link to Lance in the first place. It’s because no one had a good impression of the USPS to start with. Americans may disagree on Trump, and they may disagree on Obama, but one thing they all hate in unison is the USPS. The USPS service hired Lance to provide services that no one could provide: the service of rehabilitating their horrible image. And the telling fact isn’t in their muddled claims about increased revenue, it’s in the fact the the USPS had, and has, an intractable PR problem that is created and maintained by Congress and the mechanism through which USPS is funded. Fixing USPS’ image with a few manorexic big wigs pedaling through sunflower fields in France, really? Uh, no.
There’s another huge problem with the USPS claims that the Armstrong deal was a money loser. The only way the USPS can make money on first class stamps, their traditional profit center, is this way: by people buying the stamps and not using them. That’s it, period. The reason is that no matter how much their sales increase, they lose money on every single first class mail transaction. The only net positive revenue they could have generated through Armstrongs publicity, or anyone’s publicity, was by selling first day covers or other collectibles that would have never been redeemed. Can you imagine a business model that depends on customers never using what they purchase in order to succeed? Can you say gift cards? What about lottery tickets?
By hiring Armstrong to increase Joe Public’s awareness of the USPS, and to encourage Americans to go write more letters, the USPS was hiring Lance to provide a service that, had it been successful, would have lost them even MORE money. From 1998 to 2003, the lucrative first class mail business was mortally wounded and had turned belly up. The Queequeg that had stuck the harpoon in the belly was email, and the USPS was blocked by Congress from leaping into equal parcel competition with UPS and Fed Ex. The first class mail biz that had been their cash cow for over 200 years had become the mill stone around USPS’s neck. Some estimate that it costs the USPS about twice the price of a stamp to actually deliver a first class letter. Nor would a Lance-led PR victory have reversed this trend, even if he’d won a hundred tours, riding yellow unicorns that farted cancer clearing gas clouds through pediatric oncology wards. USPS’s other services, junk mail, overnight mail, periodicals and packages, were all subsidized by the incredible profits of the first class mail business. Make that the formerly incredible profits.
When Lance was winning his tours, USPS was a bottomless well of red ink. It’s amazing that Lance’s lawyers never identified this gaping gash in the government’s argument. Namely, that Lance didn’t cause them to lose more money, they were operating on a business model which guaranteed that greater revenue would lead to greater losses. The telling fact is this: USPS desperately wanted out of the sponsorship, much earlier than 2003 when the relationship finally ended and Armstrong was picked up by Discovery Channel. That’s the time when he was at the absolute top of his game, years before Landis outed him for doping. Management at USPS understood better than anyone alive that the Armstrong sponsorship was a bleeding failure, not because he was a doper and the value of his brand was zero, or because he had somehow besmirched their snow-white reputation, but because the more they sold, the more they lost. And every year they re-upped with team Lance, they were dumping millions of good money on top of the bad.
Long before 2003, USPS wanted out. What had started as a feel-good promotion for the stodgy old USPS, a kind of bargain basement expense on a nutty, niche sport, had morphed into the money eating Lance monster. The contracts for title and presenting sponsorships were reaching $9 million per year, and under the terms of a proposed new contract figure would bloat to about ten percent per year. And despite their fuzzy internal memos about $24 million in new revenue, and “We’re getting more from this relationship than they’re paying,” USPS knew better than anyone that they were getting nothing out of the sponsorship. This coincided with drops in bulk mailing contracts and budget crises that were coming to a head over USPS’s roughly $90 billion dollars in pension liability. $90 billion? What in the fuck were they doing spending so much as a penny on some shaved-leg asshole who raced his bike in France and was mean to people? And USPS had known from the very beginning that the Lance deal was stupid and meaningless, but, like every huge beaurocracy, once they got started it was damned hard to stop.
Not least because those were the heydays of the Armstrong bandwagon. You had to be there to believe the Armstrong feeding frenzy. Outside marketing people who wanted the deal to continue came up with all kinds of ways to turn the sponsorship into a net positive deal. But it took very little to realize that USPS did not give a fuck times a million. During the Armstrong era, post offices had every kind of tri fold and display, even at the lamest faux gift shops where you could buy postal themed crap. But you never, ever anywhere saw a US Postal cycling team display. No Sam the Eagle in a USPS jersey, none of those USPS themed action figure sets, where you might have a car and eight cyclists made of plastic or something like that. No posters, no caps, no jerseys, no rah-rah. No flat fucking nothing. USPS had checked out almost from the start because they were running a business based on losing money. Lance might be able to whoop up on cancer, but he was an impotent little clown show in the context of USPS’s debt. Did I mention the number $90 billion?
Even things as basic as Champs Elysees sales never happened. The vendors on the Champs Elysees as the Tour comes through make incredible money. Everything for sale is shlock, over-priced and ugly, dumb. But people want a memento. Do you remember those awesome USPS commemorative stamps that showed Lance and the team winning the tour? Lance in the yellow jersey? Lance and the guys doing a TTT in postal blue? Lance sticking a red hot poker up cancer’s ass? Remember those stamps? No? You know why? Because they never existed. USPS never even bothered with a vending truck near the finish line selling vintage USPS Lance commemorative stamps, items that would have sold by the book and by the sheet at ungodly markups. If there were ever a stamp someone would never use, it was a stamp purchased in France when they went over to France to watch Lance win the Tour. And not just win it, but crush it, leaving nothing in his wake but defeated dreams, empty syringes, howling Betsy and outraged Greg and Kathy.
USPS could have easily sold sheets of 50 cent stamps with a center image of the USPS eagle logo, and sold them as posters, or framed them, or framed and signed posters by Lance, or even Lance and the team. But nope! Nothing. Ever. USPS didn’t make money on Lance for the reason they never made money on anything. The first class mail cash cow had been slaughtered, skinned, butchered, packaged and sold at Safeway for pennies on the dollar. So the irony, here on the eve of trial, is that Lance’s best argument is the one he can’t use: USPS knew it was entering into a money loser and was defrauding the American public along the way by pretending that sponsorship deals of any kind were anything besides a breach of fiduciary duty to the taxpayers. The great news though, is that Armstrong can rest easy. Department of Justice lawyers may be clumsy in pretrial, but they are horrible in front of a jury, especially when they have to contend with top dollar private sector lawyers who are sharper than shark’s teeth. Armstrong’s team has, through relentless procedural mud fighting that has set Sir Lance back a cool $15 millskies, whittled the entire case down to a single issue: Did USPS lose more than it got? And by the time Armstrong’s lawyers get through with the fake numbers a dodgy calculations of the government’s experts, the case will be too muddled or too in tatters for a jury to do anything other than render a defense verdict. That’s my call.
Lance will still be able to hang onto his hundred millsky, his house in Aspen, his house in Austin, his bike shops, especially his tainted tour jerseys. Because even though close to twenty years have passed, no one from the years of 1999 to 2005 has stepped up asserting THEY raced clean, to claim them. You know what? No one ever will. Now isn’t that funny?
POSTSCRIPT: Lance settled with the government, paid a paltry $5M, and went his merry way.