The marketability of record- breaking Olympic swimmer Michael Phelps could suffer after a British newspaper published a photograph purportedly showing him smoking marijuana.
While some major sponsors such as Speedo and Omega said they had no plans to pull Phelps from their campaigns, analysts said the news had tarnished the image of the 23-year-old and may cost him some marketing dollars going forward.
Britain's News of the World newspaper ran a picture of Phelps with a glass pipe, saying it was taken at a student party at the University of South Carolina in Columbia last November. The newspaper did not say Phelps was smoking marijuana, but said the glass pipe the swimmer was photographed with was generally used to smoke the drug.
Phelps -- who has won more Olympic gold medals than anyone else after his eight at the Beijing Olympics last year -- apologized for his "regrettable" and "inappropriate" behavior.
"It is absolutely damaged by this," Robert Boland, professor of sports management at New York University, said of Phelps' marketability. "Given the economy, a lot of companies have pulled back on sports marketing deals."
While Phelps' agency, Octagon, said it has been in touch with his sponsors and none have indicated any intention of opting out of their deals, analysts noted this was not the swimmer's first transgression.
In 2004, a few months after winning six gold and two silver medals at the Athens Olympics, Phelps, then 19, pleaded guilty to a drunk-driving charge and publicly apologized.
"This will make advertisers or sponsors very cautious," said Tony Ponturo, chief executive of Ponturo Management Group in New York and former head of Anheuser-Busch's global media and sports marketing division. "If you want the sponsorship dollars, then you have to understand you're under a very bright spotlight.
"Advertisers or any sponsor paying that kind of money to have the rub-off of the talent, they're not paying a lot of money for the downside," he added.
MORALS CLAUSES
Phelps has signed several endorsement deals worth millions of dollars. Ponturo said typical endorsement agreements include "morals clauses" that allow sponsors to terminate deals early if they feel the athlete has behaved poorly in public.
Boland expects some companies will use that clause to eventually opt out of their deals, given the recession and the likelihood the companies signed their endorsement deals at the top of the market in September.
Last August, the swimmer reportedly was earning about $5 million a year from endorsements, but Octagon declined to comment on that figure.
Analysts said companies such as Speedo tend to stand by athletes that do not make major scandals that violate public trust, because they offer a strong platform for communicating the corporate brand name and message to the public.
Speedo paid Phelps, who has never failed a doping test, a $1 million bonus for breaking Mark Spitz's record of seven gold medals at Munich in 1972. Phelps, who plans to make the 2012 Summer Games in London his final Olympics, has said he would use the bonus to start a foundation.
Speedo said "it does not condone such behavior and we know that Michael truly regrets his actions." The swimwear maker added that Phelps remains a part of its team and deserving of the company's support.
High-end watch maker Omega went as far as to call the story a "nonissue" that involved Phelps' private life.
"Omega is strongly committed to its relationship with Michael Phelps, whose accomplishments at the Olympic Games in Beijing in 2008 are still among the defining sporting achievements in the history of sport," it said in a statement.
Phelps' other sponsors include video game publisher 505 Games, Hilton Hotels Corp, Kellogg Co, PureSport, Subway and Visa Inc.
"We continue to support Michael Phelps as an athlete whose numerous athletic feats outshine an act of regrettable behavior," Hilton said in a statement.
"You can't pick these things and blow them up too big," said Dan Mintz, chief executive of DMG, a media and entertainment firm focused on greater China that signed Phelps last month as a brand spokesman for Japanese automaker Mazda Motor Corp (7261.T: Quote, Profile, Research) in China. "He's never failed a drug test. He's not a cheat. As an athlete, nothing has changed.
"It's all over Internet in China, so it's quite a big thing, but I don't think you want to go through any kind of knee-jerk reaction," Mintz added in a telephone interview from Beijing. "The key is really not to make some sort of emotional reaction to it and know you're in it for the long term."
(Source: Reuters)
