Extracted from here:

INSTRUCTIONS:

1. make a copy of the tools directory and call this new directory tools2.
2. DO NOT USE ‘SDK Setup.exe’.
3. Instead open up a cmd.exe window as administrator and run the following from this new tools2 directory (obviously the full path on your local machine
   will be different):
   J:\android-sdk-windows>tools2\android.bat update sdk

Basically, as noted before in this thread, ‘SDK Setup.exe’ invokes
tools\android.bat, which makes it impossible for it to rename the
tools directory thereafter. It’s a bit goofy and should never have
passed QA validation..