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This Is Your Sport Off Drugs 

If only baseball would deal with the drug problem instead of cowering in fear

Wednesday, Jul 19 2006
Imagine that George Mitchell's conflict of interest-ridden whitewash-in-the-making of a baseball steroids investigation somehow turned into an aggressive, impartial probe. The Justice Department's token harassment of Barry Bonds, meanwhile, became a full-fledged, sport-wide doping inquiry. Baseball's feeble drug-testing policy grew teeth. And Congress' hot air on the subject of sports doping miraculously condensed into statutes making pro-sports doping a form of criminal fraud.

In other words, consider what might happen to baseball if doping were regulated as severely as cycling's Tour de France. As readers of the sports section's back pages know, Le Tour is a wide-open race now that a Spanish Civil Guard investigation blew open a doping ring that implicated 200 athletes, including more than 30 cyclists, causing the top five finishers from last year's Tour to be yanked from the 2006 race. (Last year's winner, Lance Armstrong, was not implicated in the Spanish probe. He retired in 2005 and is not competing.)

As a result, Tour director Jean-Marie Leblanc said, "Maybe we will get an open Tour with clean riders, with space for ethics, sport, and entertainment."

Baseball, on the other hand, seems to cower in fear that anything but the dope-ignoring status quo would be disastrous.

A Tour de France-like crackdown "might wreak havoc" on baseball, said David Carter, executive director of the Sports Business Institute at USC's Marshall School of Business.

"If people such as Roger Clemens were somehow touched by this, that might change the way fans looked at the game," said William Sutton, associate director of the DeVos Sport Management Program at the University of Central Florida.

But would it really be so bad? Couldn't a harder stance benefit baseball and other professional sports in the long run?

I recently peeked into this imagined alternative universe by examining the world of a San Francisco-based sponsor of the Tour de France's leading team. This sponsor's open acceptance of the Tour's hard-line anti-drugs attitude begs the question, are the Brahmins of American professional sports truly protecting their business by winking at drug cheats?

San Franciso's Barclays Global Investors announced June 19 that its iShares investment funds would become the new lead sponsor of the team backing Floyd Landis, a charismatic favorite to win the Tour de France. Like Lance Armstrong, Landis' story is one of brave perseverance through medical troubles. He's scheduled for surgery to replace a crippled hip after the Tour's finish.

For iShares, however, this recent venture into becoming lead sponsor of a major team wasn't pure feel-good corporate PR news. The Operación Puerto drugs scandal sidelined Landis' top two lieutenants in early June, the latest in a two-year string of drug-cheating headlines emanating from what is currently called the Phonak team.

But for Lee Kranefuss, CEO of Barclays Global Investors' U.S. Intermediary Business, which includes iShares, European cycling's relatively tough anti-drugs stance and resulting crackdown scandals have not scared them away.

Quite the contrary, the company has signed on for a three-year commitment that may cost it more than $30 million.

For this fund manager, dealing with the risk of having his company linked to a drug scandal isn't about poking one's head in the sand.

It's a matter of hedging, diversification, and taking the long view.

"We looked at that very carefully," said Kranefuss, who was in France for business meetings when news broke of the Operación Puerto Tour shakeup. "In any sport there are risks. The biggest one you run is, they don't do well, and nobody is as interested. So far, this is a situation we are very comfortable with."

So the question for Bud Selig becomes: "What are you afraid of?"

Judging from Kranefuss' analysis of his company's investment in cycling, it might be possible for other sports to confront the doping issue head on, without seeing sponsors flee for the exits.

The Operación Puerto affair didn't phase Kranefuss.

"So far we're very comfortable with it. We can't go into the details of the contract, but we watched, for example, what happened with Liberty Seguros and Team Mobile (two teams implicated in the scandal) and watched how people reacted to it, and we decided we could go ahead," Kranefuss said.

After the scandal subsided, cycling fans, myself included, settled down to rooting for overall favorites such as Landis, and reveling in the exploits of sprinters such as Robbie McEwen.

On July 13 Landis confirmed his status as a post-scandal Tour favorite by taking over the leader's yellow jersey with a third place in a 129-mile mountain stage finishing atop a 6,100 foot climb to Pla-de-Beret.

While U.S. viewership of the Tour has dropped since Armstrong's absence, European roadways are again packed in anticipation of watching the Tour roll by.

While Kranefuss would not reveal financial details, cycling sponsorship deals, such as the one where the U.S. Postal Service backed Lance Armstrong's former team, are typically worth at least $10 million per year. Currently iShares is a secondary sponsor of the Phonak team, with the eyes of millions of fans worldwide seeing the company logo appearing prominently on the shorts and jersey of Landis.

For the past two years Team Phonak has been up to its ears in drug scandals. In 2004 star rider Tyler Hamilton and his helper Santiago Perez were found by doping tests to have had blood transfusions in order to thicken their blood and boost endurance. Hamilton maintained his innocence, a stance initially backed by team managers.

Team directors who spoke out in Hamilton's defense were ultimately fired and replaced.

A new scandal emerged last month, as the Spanish Operación Puerto drugs probe implicated Landis' top two teammates, 2006 Giro d'Italia runner-up Jose Jose Enrique Gutierrez and Colombian star Santiago Botero, both of whom have been suspended. (Though judged on individual results, cycling is a team sport, where a lead rider's lieutenants such as Botero and Gutierrez protect him from the wind, bring him water, and chase down opponents.)

"What we saw is that the team took aggressive action," Kranefuss said, adding that the swift benching of suspect riders made him more comfortable about sponsoring the team.

For Kranefuss, mitigating cycling's ever-present danger of drug crackdowns is similar to the kind of risk-reward analyses that guide ordinary investment decisions.

Savvy investors carefully calculate investments' potential upside. They balance individual risks against a portfolio of dissimilar assets. They hedge against catastrophe with compensatory measures. And they take a long-term view that eventually smooth out unusual bumps in the road.

So it goes with a sponsor seeking to benefit from a sport that lives with the possibility of drug scandal.

For iShares, potential upsides include expanding its business in Europe, where self-service investing is in its toddlerhood when compared with the U.S. Kranefuss likewise hopes to use the sponsorship to elevate the profile of Barclays Global Investors (BGI) at home. Though BGI is one of the world's largest financial services firms, with more than $1.6 trillion under management, few people in the Bay Area have heard of the brand.

In the U.S., cycling spectators tend to be relatively wealthy, meaning there are plenty of doctors, entrepreneurs, and other potential customers who might enjoy hobnobbing at iShares Tour de France hospitality tent.

"The viewer demographics are better on average than golf. It tends to reach a very affluent, well-educated population," Kranefuss says.

In finance, portfolio diversification mitigates financial risk.

In sports sponsorship, diversification spreads around the risk of losing, or scandal.

In that spirit, Barclays Global Investors backs symphony concerts, golf tournaments and other cultural events.

In the world of investment funds, managers take compensatory measures to counterbalance possible loss.

In its bet on cycling, sponsors hedge with contract language insulating financial backers from possible doping scandals.

Since the doping scandals of the late 1990s, team contracts in cycling typically have morals clauses, which call for expelling riders shown to have used performance-enhancing drugs. Rules of the elite Pro Tour, meanwhile, call for banning an athlete found guilty of a doping offense for four years.

Typical sponsorship contracts allow sponsors to cut ties immediately with team managers who allow doping.

"We don't want to be affiliated with someone who, in any way ... casts a negative shadow that people might associate with us," Kranefuss said.

Finally, as a savvy investment manager might, Kranefuss takes a long view of his company's sports sponsorship.

"I was in Europe as all this was unfolding, and was on a plane back to the U.S. that Friday, and landed in San Francisco," Kranefuss said.

By that time, fans had shifted from rooting for suspended stars Jan Ullrich and Ivan Basso to untainted riders such as Landis.

"The world moved on," Kranefuss said. "Now, everybody wants to know who wins the Tour."

That's a contrast to baseball, which hasn't gone nearly as far addressing its drugs problem.

Last week William Sutton of the DeVos Sports Management Program attended the Century 21 Home Run Derby in Pittsburgh and noticed a fan nearby pointing to his bicep, saying the athletes were juiced. I asked Sutton if he thought the sluggers were on steroids.

"Five or 10 years ago, I wouldn't have even thought about it. But now, I don't know," he said.

Is that a problem?

"Certainly. I wish there wasn't the possibility that steroids were diminishing the achievements of people who came before, or people who tried to make it into the game, but couldn't," Sutton said.

Judging from the experience of cycling sponsors such as iShares, perhaps baseball needn't fear making a real effort to deal with its drug problem.

About The Author

Matt Smith


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