The federal government’s lawsuit against former cycling champion Lance Armstrong could potentially cost the fallen icon nearly $100 million in damages. But the U.S. Postal Service, on whose behalf the government is seeking to collect, has shown it knows a thing or two itself about tilting the playing field to disadvantage its competitors.
At the pretrial hearing earlier this month, a Justice Department attorney argued that Armstrong lied repeatedly while denying that he was doping to improve his performance. The Postal Service paid Armstrong’s cycling team $32.3 million in sponsorship fees between 2000 and 2004. Armstrong, an inspiring and charismatic cancer survivor who became a symbol of perseverance after winning the Tour de France seven times, eventually confessed to extensive blood doping in 2013, and was stripped of his championships.
The government’s case hinges on proving that Armstrong knowingly defrauded the government through false claims that he was not using banned substances. But demonstrating specific monetary damages, if required, may be substantially more difficult. The verdict could hold broad implications as a precedent for the sports sponsorship industry generally.
What would the Postal Service hope to gain from media exposure as a result of the sponsorship? Would Americans mail more greeting cards or letters to their relatives as a result of the association with cycling glory?
A 2003 audit by its Inspector General concluded that while it was not illegal for the agency to engage in sports sponsorships, “The Postal Service needs to consider sponsorships in light of its monopoly status, financial condition, investment returns and core mission.”
As operating deficits drive up debt with every new operating quarter, most of its advertising these days targets its flagship, express package delivery competitive product, Priority Mail, to online sellers and customers.
The audit noted claims by Postal management that the cycling sponsorship generated $18 million in revenue, but auditors could only verify $698,000 of this. Postal management described participation in promotional activities by clients and executives as a benefit, but auditors criticized the Postal Service for failing to track how 62 percent of tickets or invitations it received were used.
Auditors in 2003 noted that Postal Service executives cited increasing revenue and sales globally, in international markets, as objectives of the deal, and also that international sales represent just 2.6 percent of the agency’s annual revenue.
The Postal Service enjoyed then, and still benefits from, measurably steep competitive advantages in international delivery markets. Distorted pricing for international products via the system known as terminal dues offers heavy discounts to customers sending mail, including small packages, to the United States, especially from designated developing countries including China, as has been observed by both the Inspector General and the Postal Regulatory Commission.
Another, far more dangerous system of distortions in international mail occurs because small packages mailed here across international borders are not subjected to the same screening and inspection procedures as what is required of similar packages sent via commercial delivery companies. Law enforcement authorities have frequently detailed cases where Fentanyl and other lethal synthetic drugs have arrived in this country by international mail without ever being presented to customs authorities for screening. Online pharmaceutical sellers regularly exploit this loophole to reach U.S. markets.
The most lucrative benefits the Postal Service reaps, however, result from distortions in domestic markets as a result of its statutory mail monopoly and the ways it is being leveraged. The agency operates a government monopoly for first-class mail and other products, and benefits from laws granting it exclusive access consumers’ mailboxes. But it also participates in competitive markets as well, and its arcane pricing system allows these to contribute far less to institutional overhead than what it requires monopoly customers to pay.
Further, economist Robert Shapiro estimates the annual value of indirect subsidies, including exemption from state and local taxes, parking tickets and tolls, at over $2 billion.
Fairness in competition resides close to the core of the values government lawyers are seeking to demonstrate were betrayed by the dishonesty of Armstrong and his team. At one level they are surely correct. Especially as the Postal Service’s total operating deficits continue to eclipse $50 billion, public transparency and fairness are values that should characterize its own operations, and not just those of its sponsored athletes.
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