Feb. 9 (Bloomberg) -- Michael Phelps, winner of a record eight gold medals at the Beijing Olympics, may have lost two endorsements since the photo of him smoking a bong was published in a U.K. newspaper last week.

Phelps was photographed at a South Carolina party three months ago smoking a bong, an apparatus used to inhale marijuana. London’s News of the World published the picture Feb. 1. The swimmer, who pleaded guilty after a drunk-driving arrest in 2004, has acknowledged the photo was authentic and apologized.

So far, Kellogg Co., the world’s biggest cereal maker, said it wouldn’t seek to renew a sponsorship agreement with him that ends Feb. 28. He might have lost another deal from a consumer products company that was interested in hiring him until the photo appeared, said Bob Williams, chief executive officer of Burns Entertainment & Sports Marketing Inc., in Evanston, Illinois. He wouldn’t identify the client.

“They said the marijuana, in combination with the DUI four years ago, makes the significant monetary investment a risk they are not comfortable taking at this time,” Williams, whose firm finds endorsers for companies, said in an interview.

“The economy is in bad shape, and it’s difficult for corporations to be signing celebrities to expensive, public, long-term deals,” Williams said.

Terms weren’t disclosed for the Kellogg deal. Williams declined to comment on what his might have paid.

“He’s had a setback but the damage is not irretrievable,” said Tom Cannon, professor of sports finance at the University of Liverpool in northwest England. “If he does the right things now he can still get to the top level, in the hundreds of millions of dollars.”

Swimsuit Agreement

Phelps, 23, has endorsement deals including ones with Speedo International Ltd., the swimwear unit of U.K.-based Pentland Group Plc. and Blackstone Group LP’s Hilton Hotels.

Kellogg said the photo makes the wrong impression for the company.

“Michael’s most recent behavior is not consistent with the image of Kellogg,” company spokeswoman Susanne Norwitz said in an e-mail.

Subway, which signed Phelps to an advertising campaign for the sandwich chain, said it would continue with its plans for the swimmer although the company was “disappointed in his behavior,” according to AdAge.com.

Phelps earned a $1 million bonus from Speedo for breaking Mark Spitz’s record of seven gold medals in one Olympics and won another $670,000 in bonuses from the U.S. Olympic Committee and USA Swimming.

Competition Ban

USA Swimming banned Phelps from competition for three months on Feb. 6.

Phelps’s agency, Octagon, has declined to give financial details on his endorsements. Agent Peter Carlisle, who told the Wall Street Journal in August that the swimmer could earn $100 million in sponsorships during his lifetime, didn’t respond to telephone calls to his Portland, Maine, office or e-mail messages.

Speedo and Omega, a Swatch Group AG watch brand, previously said they wouldn’t pull their sponsorships. They didn’t return e-mails seeking comment on Feb 6.

Hilton Hotels recently extended its sponsorship of the U.S. swimming team through the 2012 Olympic Games, the Beverly Hills, California-based hotel chain said in an e-mailed statement.

“We continue to support Michael Phelps as an athlete whose numerous athletic feats outshine an act of regrettable behavior,” the statement said.

Olympic Sport

The nature of Phelps’s sport, which seldom gets publicity except during the quadrennial Olympics, might hurt his ability to recover in the public eye, said David Carter, executive director of the Sports Business Institute at the University of Southern California in Los Angeles.

When Los Angeles Lakers All-Star Kobe Bryant was accused of raping a woman at a Colorado resort in 2003 -- a charge that was later dropped -- he remained in front of his fans for several months, continuing to showcase the athletic skills that won their hearts to begin with.

“There aren’t many people thinking about the world of swimming or the Olympic Games,” Carter said in an interview. “And unlike Kobe Bryant, he doesn’t play for a global brand with an entrenched fan base like the Los Angeles Lakers or the National Basketball Association.”

Even though Phelps has shown poor judgment twice, he still has time to recover, said Steve Rosner, co-founder of sports marketing firm 16W in Rutherford, New Jersey. It may affect him more in the next six months. Rosner said.

“With longer-term deals, there is time to put this behind him,” he said.

Time to Recover

Rosner said Phelps can recover.

“I would advise him to do a mea culpa, and then lay low and see if it passes,” Rosner said. “The next thing to do is get him back in the pool, because that’s where his head would be straight. Then once he’s able to perform at the highest level, show the public the kid had a setback, but he’s back on track.”

In August, Spitz said Phelps was going to learn how hard it is to be the best in history.

“Let him carry the burden of responsibility of the highest of expectations for the next 20, 30, 50 years or for the rest of his life,” Spitz said in an interview. “And let me tell you, it’s a hard life.”

To contact the reporter on this story: Curtis Eichelberger in Washington at ceichelberge@bloomberg.net

Last Updated: February 9, 2009 00:01 EST