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Well, not quite. Lehman Brothers, the investment bank that recently went bankrupt amid the turmoil in the financial markets, bought 40% of SRAM in August. Due to Lance's mass appeal, the bank invited him to participate in the deal, which he did, investing several million dollars into SRAM. (By the way, this means that every time you buy SRAM components you are putting a few dimes in Lance's pockets. I'll let you decide whether that's a good or a bad thing.)
All this happened well before anybody knew that Lance was coming back, and also before Lehman went down. But SRAM was already the provider of gruppos for Astana. Had Lance already decided, back in August, that he'd return to pro racing? Lehman, of course, should be really happy about his return, since a racing Lance will boost SRAM's business much more than a retired Lance. But Armstrong will be doing pretty good for himself too, since he owns part of SRAM. Will he?
SRAM will reach sales of around $500 million this year. I don't know what the margins in this industry are, but I'm going to assume that SRAM can make $25 million in net profits. (I'll do a reality check of this assumption if I can get data somewhere.) Suppose that Lance owns a 1% of SRAM. That would have cost him $5mm in August, since Lehman paid $200mm for a 40%, so it seems reasonable. (I also happen to know that Lance's stake in Trek is around 1%.) That leaves him with $250K in income from dividends or retained earnings. That's before the "Lance effect," which most likely will boost SRAM's sales and profits. Sales have been growing at 15-20% in the past, so they will increase at least as much in the medium term. In any case, under a million over the next one or two years. A very nice little something for most of us mortals but nothing to write home about for a super-star.
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On a related topic, Contador mustn't be sleeping very well these days--both he and Armstrong, now teammates in Astana, are going for the Tour in 2009. If you ask me, I'd say that Lance should just create his own team. He can take Bruyneel and the old teammates who are now racing for Astana, and just leave Contador and Astana alone. After all, Lance doesn't want money, right? It shouldn't be difficult to find a sponsor who can pony up the salaries of his teammates. Regardless of what happens, Leipheimer is in a difficult spot. He's too good, too old and too proud to work as domestique for anyone, and he should find a new home where he, finally, can wear the pants.
Cyclingnews article.
WSJ article:
Lehman's a Fan of Lance (Wall Street Journal, 9/25/2008)
by Peter Lattman
Here's one unexpected fan cheering Lance Armstrong's return to professional cycling: Lehman Brothers Holdings Inc.
The collapsed investment bank recently agreed to make a large investment in a high-end bicycle-components maker. That manufacturer stands to benefit from Mr. Armstrong's plan, announced Wednesday, to join a Kazakhstan-based racing team next year.
Team Astana uses components made by a Chicago company called SRAM Corp. That is big news in the cycling world, given that Mr. Armstrong spent much of his career using gears, brakes and other components made by Shimano Inc. of Japan.
[Lance Armstrong, speaking Wednesday at the Clinton Global Initiative in New York, where he also announced that he is switching teams - and bicycle components - to the delight of Lehman Brothers.] Agence France-Presse/Getty Images
Lance Armstrong, speaking Wednesday at the Clinton Global Initiative in New York, where he also announced that he is switching teams -- and bicycle components -- to the delight of Lehman Brothers.
It is a jolt of good news for Lehman, whose private-equity arm, Lehman Brothers Merchant Banking, struck a deal last month to buy 40% of the company for about $200 million. With its parent in Chapter 11 bankruptcy-court protection, the unit is scrambling to close the deal. Charlie Moore, a managing director of Lehman Brothers Merchant Banking, said he is confident it will close the first week of October.
Mr. Armstrong is investing several million dollars into SRAM, where he will serve as a technical adviser. He has agreed to use SRAM components when he races. A full set of top-of-the-line SRAM road-bike components retails for about $2,000.
The competition for a stake in SRAM had been hotly contested, with about 20 private-equity firms -- including Bear Stearns Merchant Banking, TA Associates Inc. and Carlyle Group LLC -- taking a close look at the company.
Lehman's private-equity team had a unique angle on the deal. The head of the unit, Charlie Ayers, had met Mr. Armstrong in the summer of 2007 at a Rolling Stones concert in Rome they were attending with a mutual friend. When Lehman started looking at SRAM, Mr. Ayers emailed Mr. Armstrong asking if he would be interested in helping Lehman take a look at the company.
As the sales process progressed, Lehman offered Mr. Armstrong an opportunity to co-invest. They also discussed ways to expand Mr. Armstrong's role, at which point Lehman introduced Mr. Armstrong to SRAM's co-founder and Chief Executive Stan Day.
Mr. Day said his choosing Lehman as a partner had little, if anything, to do with Mr. Armstrong. Mr. Day said he was initially wary of Mr. Armstrong's involvement, because the seven-time Tour de France winner had long used Shimano's components, and Mr. Day thought it would be awkward to have him as an investor. Shimano is more than twice the size of SRAM, which is expected to generate roughly $500 million in revenue this year.
But earlier this month, Mr. Armstrong surprised the cycling world -- and SRAM and Lehman Brothers -- when he announced that he will come out of retirement and return to competition.
"The funny thing, when we did the deal with Lance we were unaware that he was planning to return to competitive cycling," said Lehman's Mr. Moore. "It's serendipitous."
Now that Mr. Armstrong is returning to the sport and making the switch to SRAM components, Mr. Day is thrilled to have him on board. "You've got the former world's best coming back and switching components," said Mr. Day. "What a vote of confidence."
Whether Mr. Armstrong can return to his victorious ways is another issue. At a news conference Wednesday, Mr. Armstrong was circumspect about his prospects. "Honestly, I don't know. I've been off the bike three years," said the 37-year-old Mr. Armstrong. " I have a fair bit of confidence, but I don't have that kind of confidence, yet."
Write to Peter Lattman at peter.lattman@wsj.com
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