A mixture of shock and disbelief swept the United States yesterday as the nation woke up to an abject apology from the man it had hailed as its greatest Olympic athlete. Michael Phelps was a hero and role model for millions but now his career will be stained forever by claims that he smoked drugs.

The world's greatest swimmer was forced to say sorry after a British tabloid newspaper showed a picture of him appearing to smoke marijuana through a glass pipe, known as a bong, at a student party just weeks after creating history at the Beijing Olympic Games. In a spellbinding week, Phelps had won a record eight gold medals and turned himself into a $100 million superstar.

But his reputation is in tatters. As Phelps's face beamed out from cereal packets on millions of breakfast tables throughout the US - the lucrative result of just one of his many sponsorship deals - his apology came as a desperate act of damage limitation.

Although marijuana is a recreational drug not considered to be performance-enhancing, it is banned under World Anti-Doping Agency rules and athletes caught smoking dope could face a ban of up to two years.

“I engaged in behaviour which was regrettable and demonstrated bad judgment,” Phelps said. “I am 23 years old and, despite the successes I have had in the pool, I acted in a youthful and inappropriate way, not in a manner that people have come to expect from me. For this, I am sorry. I promise my fans and the public it will not happen again.”

Phelps has never failed a drugs test and even offered to take extra tests before the Olympic Games last August to promote an anti-doping campaign. Phelps has not broken any of his sport's rules as he has not tested positive for a banned substance, but his high profile may force the US Olympic Committee to make an example of an athlete who, on the face of it, may be regarded as untouchable.

USA Swimming, the sport's governing body in the US, said that it was disappointed by Phelps's behaviour. “Our Olympic champions are role models who are looked up to by people of all ages, especially young athletes who have their own aspirations and dreams,” a statement read. “That said, we realise that none among us is perfect. We hope that Michael can learn from this incident and move forward in a positive way.”

Team-mates and friends were quick to defend him. Jason Lezak, who swam the anchor leg in the 400 metres freestyle relay that kept Phelps on track for his gold-medal record, said he was saddened by the revelations in the News of the World. “If my wife and I can help him in any way, we will,” he said. “I believe he will grow from this and be a better person.”

But the fallout could be huge according to marketing experts, who believe that there could be a mass bail-out by the sponsors who had clamoured to sign up Phelps after Beijing.

“If this is all true, it will be nothing short of a disaster,” John Taylor, chairman of Sports Impact, one of Britain's leading sponsorship agencies, said. “Every sponsor has something called a disrepute clause written into their contracts and I will bet a few of them will be running through the small print first thing on Monday morning. This is terrible for his image.”

Phelps earns up to £5 million a year from deals with ten leading companies, including Hilton Hotels, Omega watches, Kellogg's cereals and Speedo swimwear. Speedo paid Phelps a $1 million bonus for capturing his eight golds in Beijing. His appeal has spread around the globe since he turned the Olympics into a personal triumph. Only last month, he became the face of Mazda cars in China.

He has been here before: in 2004, shortly after winning six gold and two bronze medals at the Athens Olympics, he was sentenced to 18 months' probation for drink-driving. It seems that the Olympic curse has struck America's sporting hero once again.

Recreational habits

Matt Stevens England prop who failed a test and last month admitted his addiction to a drug, believed to be cocaine. Faces a two-year ban from rugby union

Martina Hingis Shocked the world when she tested positive for cocaine at the 2007 Wimbledon Championships. She retired immediately from tennis

Wendell Sailor Banned from Australian rugby in 2006 for two years after testing positive for cocaine

Mark Bosnich The former Aston Villa and Chelsea goalkeeper was one of the first high-profile sportsmen to be banned for using recreational drugs. Served a nine-month ban in 2002

Kieren Fallon Champion jockey banned from riding for 18 months after testing positive for cocaine in 2007