Making a Splash

Michael Phelps steps onto the blocks of a large indoor pool in Omaha. He's about to swim the 100-meter butterfly at an Olympic tune-up meet this month. He bends into his starting position, flaps his arms across his back and launches at the sound of the horn. In the first lap, he's only in second as he makes his flip turn. But with 25 meters to go, he turns it on and the crowd roars. In a few soaring strokes, he's two body lengths ahead and pulls away. He touches the wall in 51.04 seconds—the fastest in the world this year in the event. Backstage, reporters swarm Phelps. But instead of asking about his amazing finish, they pepper America's swim king with questions about the high-tech Speedo swimsuit he's wearing. "I don't usually get questions about my suit," he said. "It's kind of funny."

Don't laugh. Phelps's quest to top Mark Spitz's seven gold medals is only the second biggest swim story in the run-up to the Olympics. Speedo's LZR Racer swimsuit is causing the biggest splash in and out of the pool. The rubbery full-body corset would look more at home in a Batman movie than on the pool deck. But since it was introduced in February, swimmers wearing it have set a stunning 38 world records. Rivals' suits have set just three world records during that time, which has them crying foul (while scrambling to come up with their own sci-fi suits). The coach of the Italian team calls the LZR Racer "technological doping." The second largest U.S. swimwear maker, TYR, filed a federal lawsuit in California, alleging anticompetitive practices, against Speedo's parent company, the coach of the U.S. swim team and even a TYR endorser, Olympic medalist Erik Vendt, who switched to the Speedo. A Japanese swimmer under contract to Mizuno just set a world record in a LZR (pronounced laser), which he'll wear in Beijing. Swimming's governing body, FINA, approved the LZR for the Olympics, but controversy still swirls, which is fine by Speedo. "It's very nice to have your competitors recognize they're at a disadvantage," says Speedo's marketing chief Stu Isaac. "They're doing our marketing for us."

And Speedo will take the help. Despite its dominance in the pool, Speedo is not that big a fish. It does just $250 million in annual U.S. sales and about $555 million worldwide, say officials at Warnaco, its U.S. parent. With those relatively modest revenues, Speedo certainly can't afford to advertise on TV for the Olympics. But Speedo's athletic performance has made it the No. 1 swim brand in the world. In the United States, where it faces fierce competition from Nike and TYR, Speedo commands 61 percent of the competitive-swimwear market, according to sports-marketing researcher SportsOneSource. "Speedo is the Kleenex of swimwear," says analyst Marshal Cohen of the NPD Group. "But not since the advent of steroids have we seen so many record-smashing events."

This week at the U.S. Olympic trials in Omaha, even more world records could fall. And come August in Beijing, says U.S. swim coach Mark Schubert, "every world record is in jeopardy. The suit is definitely a factor." Throughout most of the modern Olympic era, Speedo has been leaving rivals in its wake. Founded in Australia 80 years ago (that's the origin of the boomerang logo), Speedo won its first Olympic gold medal at the 1932 Games in Los Angeles. During the 1956 Olympics, the Australian team debuted that barely-there brief that remains Speedo's signature look, and it swept the golds.

Spitz wore iconic red, white and blue Speedos when he won his record-setting seven golds in Munich in 1972. At the 2000 Olympics in Sydney, Speedo debuted its full-body Fastskin suits that covered swimmers in fabric patterned on sharkskin, which Phelps wore four years later in Athens while winning eight medals. He says the LZR, with its water-repellent fabric and slick polyurethane panels, makes him feel like "a rocket," which is apt since NASA helped engineer it.

But there aren't enough Olympians to keep a swimwear company afloat. Speedo uses them, though, as show horses. It says it spent "tens of millions" developing the LZR Racer over the last four years, knowing it would never directly recover those costs. After all, the LZR is priced from $290 for men's jammers (think bicycle shorts) to $550 for the full bodysuit. The idea is that the 300,000 kids on swim teams—and everyday sunbathers—will want a piece of Phelps glory. Speedo will be ready with replica suits with the same flowing stars-and-stripes motif, but for $40-$78. "LZR Racer is a pretty small part of our business, under 5 percent," says Warnaco Group president Helen McCluskey. "But it's what gives us credibility. It's the couture version of Speedo."