Business time in cycling (from RIDE #55)

In RIDE #59 we consider the state of cycling in North America after the collapse of the Armstrong myth and conclude that, with the likes of Joe Dombrowski, Ian Boswell, Lawson Craddock and Gavin Manion there’s enough talent on the bike to provide a bright future despite the dark cloud that hangs over the sport. The State of the States was written by one of RIDE‘s Californian-based contributors, Mark Johnson. A year earlier, at the start of the 2012 season the business of cycling seemed to be in a state of flux and Johnson spoke with numerous people involved with the sport to get their take on what the future held… we revisit that piece now and publish ‘Business Time’ online for the first time.

Grab a cup of tea and make yourself comfortable as this is a long feature but some of the points raised 12 months ago are still particularly poignant today…

The streets are alive with the sound of riding. Cycling has never been so popular and yet the professional component of the sport is in a state of flux. It’s big business now and what was once a relatively insular world has far greater reach than ever. How can we capitalise on this interest in what is a boom time for cycling?

 

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Business Time (from RIDE #55, March 2012)

 

– By Mark Johnson

 

At the tip of 2012, pro cycling is a paradox. On the road, among everyday participants, cycling has never enjoyed such bedrock stability and popularity. Consider, in the United States alone – a country of 300 million that is a barometer of global social trends – more people regularly ride their bikes than the sum total of Americans out there whacking golf balls, swinging tennis rackets and schussing on snow skis. While at home Australians have purchased more bicycles than cars for 10 years running and the sport is enjoying an all-time high in popularity thanks to a range of circumstances, success on the international racing scene now does translate to people riding more. The change on Australian roads on a weekend since Cadel won the Tour is obvious. More people are riding. You can see it. The same applies elsewhere.

Yet, in spite of cycling’s success with everyday participants, the racing profession is chronically unstable. Sports Illustrated writer Austin Murphy compares pro cycling to other pro sports he covers for the illustrious American magazine, noting that with cycling “the fragility is much closer to the surface.”

Teams, even great ones, disappear in a puff – think HTC. Pro cyclists are buffeted like day labourers from one short-term contract to another. And when it comes to the sort of serious, multi-million dollar sponsorship dollars that give a sport an air of stability that in turn attracts more sponsors, multinational corporations find their pens flow with a tad less friction when writing their cheques to soccer, tennis and golf tournaments and players. Indeed, Kia Motors and Heineken spent $9.25 million and $3.85 million respectively to sponsor the 2012 Australian Open tennis tournament. European soccer teams bring in nearly half a billion euros a year from companies who want to put their names on a jersey. And in 2012 America’s National Football League (NFL) signed an eight-year, $15.2 billion broadcast deal with the ESPN TV network.

With the sport growing yet still operating on a primitive business model that has not changed much since its beginnings at the turn of the 20th century, I surveyed the landscape to provide a snapshot of the state of pro cycling today. And because it can be something of an echo chamber, we also call upon sports observers from outside the world of cycling to provide their input on the state of the sport: where is it today, how it got here, and where it may be going.

I spent 2011 writing a book about Garmin-Cervélo so the piece often turns to that team’s constellation of riders, backers and directors for opinions. The sport’s complicated past make it difficult to unravel all details but the aim is to provide an understanding of the paradox of cycling’s enormous success among riders and its often amateurish operations as a business.

Fifty-five-year-old Sean Kelly is one of the sport’s all-time greats. The Irishman is now a TV commentator. He believes the number of people participating in the the sport has resulted in an attendant growth in the number of fans following it.

One way he measures that growth is by comparing today’s Tour de France press rooms to those of the 1970s and 1980s. The aerpolane hanger-sized Les Herbiers press room used for the early stages of the 2011 Tour held the 2,000 accredited journalists. During Kelly’s day, he says “it was a quarter of what it is now” and with an attendant reduction in the number of journalists, few of whom spoke English. “If you were riding down to the start before the race and somebody was speaking English, you would actually look around,” Kelly recalls. The same applied in the press conferences. “After winning a stage if somebody asked you a question in English, you would look up at him and think, ‘What the heck was that?’”

The rise of English-speaking audiences and riders, Kelly says, illustrates how the sport has become bigger and more global. As Australians, Americans, New Zealanders and South Africans entered the peloton, they brought fans at home with them. “The popularity of the Tour is just growing all the time,” Kelly says. And along with that growth in followers is the explosion of cycling participants. He cites the popularity of the Etape du Tour sportif rides as an example. “To get into those events is almost impossible,” Kelly says with a degree of wonder. “And it’s just a snowball effect.”

He says this growth in cycling – of followers and participants – is further manifested in the teams’ increasingly branched organisation charts. When he raced, the structure was simple. There might have been two directors, who in addition to managing the riders, managed the team and sponsors. A third person took care of office work. “You had two people running the team on the road and maybe somebody who did the secretary work, organising the travel and that,” said Kelly. Along with two mechanics and two masseuses. “That was it.”

Today, pro squads routinely send 20 staffers to the Tour, a rider to staff ratio of two to one. “I think it’s modern times,” Kelly says of the teams’ growing staff. Bigger budgets require more employees to handle the workload of managing riders, more sponsors and ever-increasing amounts of equipment. It’s a self-perpetuating system were the more sponsors that are brought in, the more the teams need staffers to ensure that the sponsors are getting a marketing and experiential return.

In spite of this growth – and more corporate team structure – Kelly says that the sport’s basic organisation has not changed in one signature way. Cyclists have never effectively organised themselves into a cohesive, effective bloc. Kelly says one reason is that pro cyclists come from many countries. “If you are under one country, you are with one national association.” Just as in geopolitics it is difficult to get nations to agree on policy, getting national federations to agree on cycling policy is “impossible”.

This lack of cohesion also makes it tough to fully exploit television licensing rights. This matters because, in other major professional sports, television rights generate funds that are then shared. This franchise business model, where teams are bought and sold and passed down through the years, tends to create more consistent, year-over-year cash flow. That stabilises teams and makes them a more appealing marketing vehicle for sponsors who do not have to worry about the team disappearing when a title sponsor goes away, as was the case with HTC, the team that won the most in pro cycling during its reign.

In the past, cycling’s governing body, the UCI, tried to take control of more races by creating a World Cup that culminated in a champion at the end of the year. Their end game was to own all the TV rights. But, “nobody wants to give anything away,” Kelly says of the national TV networks that provide coverage of races like Italy’s Milan-San Remo, Holland’s Amstel Gold Race and Belgium’s Tour of Flanders. “Where in the US, if you are working with one sport, you have one TV network; it simplifies the situation. That is the problem with cycling. The TV rights are scattered all over Europe.”

Matthew Pace knows how TV rights can fundamentally alter the business structure of a sport. The New York lawyer has represented clients in sports from America’s NFL to Major League Baseball. He has also represented Jonathan Vaughters’ Slipstream team since its inception in the mid-2000s.

For Pace, cycling is fundamentally different from other pro sports in two ways: no income from media rights licensing is shared with teams and players, and the people who underwrite teams take on a huge risk with almost no chance of financial return. The sport is underwritten and supported by cycling enthusiasts like Doug Ellis in America, GreenEdge’s Gerry Ryan in Australia and BMC’s Andy Rihs in Switzerland.

While its backers are successful businessmen in their own right, in the words of rider Christian Vande Velde, ProTour cycling is “the biggest amateur sport in the world.” Because there are no franchises to own, there are no significant assets to put on the balance sheet. With no guaranteed income from media rights and ticket sales, a team’s income statement is a lopsided hobbyist affair as well. Pace points out, “The only real sort of meaningful revenue opportunity is to sell sponsorships. That is the most unique thing about cycling.” He believes these seemingly fiscally illogical decisions are not unusual at the dawn of professional sports.

Pace reminds us that both Formula One and NASCAR had their origins with a crowd that simply adored racing cars and got intrinsic value out of spending on their passion. “People get into it generally because they are gear heads, or they really like the sport.” Once those sports gained traction and started to tick to the beat of a competitive annual metronome, potent individuals bent the sports to their will. Though it has been around for longer than F1 and NASCAR, that evolutionary step never really happened in cycling. As a result the sport persists in an odd state of permanent adolescence.

As for organising the teams into a more powerful collective force, Kelly says they know that until they come up with the leverage to get the Tour de France organiser ASO to share its television rights, they will continue bumbling along in their tenuous year-to-year fashion. As for the rumours that floated in 2011 about the teams organising a separate league to force this very issue, Kelly says, “They hadn’t thought it out deeply enough. Reforming the pro cycling business model is going to be a much bigger task than they expected it to be.”

Paul Sherwen has been involved with cycling for as long as Kelly. The British commentator has covered 33 Tours. He raced seven of them between 1978 and 1985. He was also involved with the Motorola squad when it took over sponsorship of the 7-Eleven team in 1990, and subsequently introduced race radios into the peloton as a way to demonstrate the company’s wireless technologies to the world. Sherwen says the sport gravitates toward a more affluent, educated demographic. “It was a sport that for many years got you out of the gutter.” Yet, he speculates that even as riders change, the sport’s primitive, proletarian origins still beat down the value of cycling.

Cycling attracts an affluent crowd traditionally associated with golf and tennis, but its downscale past has yet to catch up with the reality of its increasingly posh present. Because of this disconnect, “You get a lot for your dollar when you look at pro cycling. If you want to get involved with F1, there are 15 races a year and it will cost you 20 million bucks to get a sticker on a car. Where for 20 million bucks (in cycling) you can get 25 men racing around the world – 200 days a year.”

Asked if there is a risk that, as cycling becomes the new golf for participants, it might lose the gutter-sucking, rain-swept primitivity that gives it such primal appeal, Sherwen responds quickly. “No. That’s not possible.”

 

 

While Wimbledon suspends play for rain and the players head in for massages and tea, “cycling is still a race against the elements, it’s a race against nature. There is no stadium for cycling; it’s out there – the Alps, the Pyrenees, Napa Valley or the Barossa Valley.” Those settings give cycling a sublime, soul-stirring appeal no billion-dollar stadium-bound sport can challenge. But mountains and valleys don’t have turnstiles. This presents real a challenge – it generates no ticket revenue. The democratic accessibility that gives cycling such value is, ironically, at the root of its essential instability.

As long-time New York Times cycling journalist Sam Abt observes from his home near Paris, in his nearly 40 years of covering cycling, “I went once, exactly once, to a race where they charged admission.” The retired writer was a voice of the early generation of correspondents who took the modern form of the sport to the public. “The zeitgeist for cycling is, it’s free,” he said. “And until you find a way around that you’re stuck with what you’ve got. I don’t think anybody can change this.”

 

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When it comes to an understanding of the current state of the business of pro cycling, it’s helpful to look at the evolution of two other sports, Major League Baseball and F1. Both became lucrative businesses only after being reorganised in a fashion where previously disproportionate allocations of power were shifted through collective bargaining agreements – something pro cycling does not have, neither on the part of the team owners nor the athletes.

Major League Baseball started as a professional sport about the same time as cycling in the late-19th century. Until the mid-1960s, the players were as disorganised as pro cyclists are today. In fact, US baseball players were so poorly compensated that in the 1940s they were going to Mexico to play for better pay – until the Commissioner of Baseball blacklisted them for pursuing their own economic interests across borders.

In 1965, after 20 years of high inflation and a minimum player salary that grew only 20 per cent (from $5,000 to $6,000) – not remotely matching the inflation rate – an auto and steel work organiser called Marvin Miller unionised the players. This granted the athletes leverage with team owners who, until then were reluctant to offer health insurance to players, let alone a salary vaguely commensurate with the ticket sales star players generated. Miller also negotiated a share of television rights for players, a move that today has magnificently enriched players and team owners. In 1965, before Miller organised them, the average player salary was $19,000. In 2011 it was $3.3 million.

Organising a previously scattered party also revolutionised motor racing in the early 1970s. Englishman Bernie Ecclestone organised F1 racing teams under the umbrella of the Formula One Constructor’s Association (FICA), largely by offering to take on the nightmarish financial and logistical burden of moving their tonnes of gear and autos between races around the world. At the time, the Automobile Club de Monaco (ACM) was the rough motor racing equivalent, in terms of power and prestige, of the ASO in cycling today.

Just as the privately-held French organisation ASO owns and runs the Tour de France, the ACM ran the most important race in motor racing, the Monaco Grand Prix.

In 1973 an earth-shifting showdown went down in F1 of the sort that has yet to happen in pro cycling. At the Monaco GP the teams, represented by Ecclestone, insisted that 26 cars be allowed to race on a course that the ACM wanted to limit to 16. The ACM initially refused, then upped the number to 22, but the FICA stood fast – not even losing the allegiance of a French team. It was to be 26 cars or none. Even after the ACM locked the teams’ cars in an underground garage, and with fans filtering into Monaco to see practice sessions, Ecclestone tightly orchestrated the teams’ response. Unless the ACM agreed to the teams’ terms, there would be no race. The ACM finally caved, agreeing to 26 cars. The race took place, and the balance of power in F1, a business that generates nearly $2 billion in annual revenue today – and is expected to grow that number to $3 billion by 2016 – was forever changed because the teams earned a spot at the sport’s negotiating table.

Unlike baseball and F1, collective representation never happened in cycling, and the sport grew in a state of imbalance. As a result, former Tour of California organiser Andrew Messick explains, while the UCI nominally governs cycling because it governs its rules and bylaws, “in reality, the ASO is in charge of the sport”. And because no negotiating with the teams and riders takes place, as a business the sport has long persisted in an anaemic state of business lopsidedness.

Lacking an organised, cohesive rider or team presence, the ASO is the de facto leader, giving it a responsibility it takes seriously. The company has set the standard for highly professional, exquisitely-organised races. By dint of their position the ASO has “the credibility to establish the ground rules by which cycling is managed. And that’s okay. They have the race that matters.” The Tour de France has cornered the bulk of cycling’s financial, social, historical and media heft.

Messick has an MBA from Yale, he’s worked for the US National Basketball Association and now oversees the World Triathlon Corporation (Ironman). As for why someone from outside the sport has not come in and rebalanced cycling in the fashion of a Marvin Miller or Bernie Ecclestone, Paul Sherwen admits, “It’s been teetering on the edge for the last couple of years. I don’t see any reason why the teams don’t leave and create their own Formula One.”

“What stops it from happening,” Sherwen asks, rhetorically. “I don’t know what keeps it together. History? It’s always very difficult to change things. You’d think,” Sherwen snaps his fingers in the air, “you are going to do it like that, but mergers and acquisitions are a complicated process.”

As an owner of mining interests in Africa, Sherwen has an appreciation for the complexity below the surface of apparently simple enterprises. It’s complex enough for him to complete a merger with a French company. When you consider historic tendrils entwined with multiple countries, traditions, and governments, the burden of change and why cycling has not changed more quickly is easy to fathom.

Christian Vande Velde has seen cycling evolve since he turned pro with Lance Armstrong’s US Postal team in 1998. Asked why the riders have not become organised the way baseball players did, the American says the very primitivity of the sport works against the riders. In a tone not of complaint, but of simply laying out the facts, he says that any efforts would quickly fall apart because so many riders are willing to ride for love of sport. “There are so many people who are willing to take your spot at a fraction of the cost immediately.”

Collective bargaining requires short term sacrifice and risk in the interest of long-term gain and stability, but “because there are so many people willing to do anything to come up” into the pro ranks, Vande Velde suggests that the minute riders attempted to organise, team owners could fill their spots with riders banging at the gates of the pro cycling dream.

He also points out a list of other reasons working against organised riders, many of them echoed by colleagues in the peloton. Language barriers complicate the unification and introduce mistrust. It is difficult to organise riders when they come from different countries bearing different economic expectations. For instance, a rider from an Eastern Bloc country comes with a different definition of what constitutes a good salary relative to an American; what one may consider an insult and cause for a strike, another may consider a step up. Legal jurisdictions also make it difficult.

 

 

Tyler Farrar points out that Miller’s task was simplified as baseball was centralised. “It was a lot easier for them because it was all in one place. It’s all under one legal code.” Pro cyclists are from all over the world, and some are already represented by unions within their country. Ruling on labour laws could be completely different depending on where it goes to court.

Beyond those functional complications, Vande Velde says what it takes to get all of cycling’s stakeholders – riders, race organisers, team owners, governing bodies – to look at the bigger picture is leadership… “Someone who has a massive stance in the sport really needs to take the bull by the horns.” Repeating a refrain heard from others, Vande Velde says, “I feel like we missed a huge opportunity with Lance.”

Armstrong’s name repeatedly comes up as the one person who had the gravitas, fearlessness and leverage with the people that matter to effect change. Yet Vande Velde understands why the Texan hasn’t taken the lead. “I don’t blame him, it would have been a lot of work, and a lot of work for a long time for something that maybe never would come to fruition.”

A discussion of the business of cycling doesn’t got for long before Armstrong’s name comes up. He pulled cycling away from its change-rejecting, tradition-bound past and introduced an enlightened modern era. Putting aside the sinister refinement of doping that also went along with the Armstrong era, he did more than any other rider to transform the image of pro cycling from that of an eccentric European pastime to a truly international sporting business.

Sam Abt is aware of how Armstrong – and Greg LeMond before him – affected pro cycling, including how the two lifted expectations about how pro riders should be compensated. Along with the New York Times, Abt reported on cycling for the International Herald Tribune for nearly four decades. Today he does not think the cycling business has changed since he moved to France in 1971. “They have the same organisation they had, you know, back in the medieval times. The sport is stuck in the formula it has had since it was germinated. I can’t think of another team sport that has no intrinsic value.”

As for the riders’ role in this stasis, Abt does not mince: “Until they unionise, nothing will happen.”

Lack of association with an immutable geographic location – a city, a state, a province – is the fundamental distinction between cycling and other team sports. To Abt, that lack of a fixed fanbase along with the inability to charge admission contributes to the sport’s fragility. “Somebody has to come up with a structure that isn’t what it was like back in the 1920s.” GreenEdge, with its tight nationalistic association, represents an experiment with linking a team with a place and culture.

Referring to Bob Stapleton, who largely bankrolled the Highroad teams, Abt says, “It’s preposterous; it comes down to one guy. He put up all the money for the team. It’s not the way it should be, but it’s how it always has been.”

As for what motivates wealthy individuals like Stapleton, a Doug Ellis (Garmin-Barracuda), an Andy Rihs (BMC) or a Gerry Ryan (GreenEdge) to underwrite their teams when there is a risk of no financial return, Abt says it is a genuine desire to do right by their sport. “I think they are all sincere guys who care about the sport and want to underwrite it.” Without them, the peloton would be a lot different to what it is today.

Ellis would agree with Abt’s assessment of his motives. He first approached Vaughters about helping out with what was a development squad in 2005 simply because he wanted to help young American riders ease into the highest ranks without some of the traumas and temptations they were faced with. “I wasn’t even thinking about the business.” Unlike an investment in another pro sport, for all the money sunk into a team, other than a second-hand team bus and some bike tools, there are no significant assets on the balance sheet to show for their investment. Ellis owns a cycling team but it could disappear with loss of its primary sponsors. It is potentially fleeting when compared to a pro football – or baseball or NASCAR – franchise which effectively gives ownership of a share of the future income stream from larger sporting enterprise.

“Because of the structure you don’t have any power in the franchise… I don’t have a guaranteed piece the way I would if I was a Major League or an NFL stakeholder. The long-term fiscal certainty that is built into those sports allows the value to go up.” Cycling is limited, and teams find it difficult to do the sort of long-term business planning that is essential to stability because “The business model of just pure sponsorship ends up being limited by your television reach.”

Part of what hobbles cycling’s growth is the curse of its own low expectations. Ellis, like many of those who underwrite the sport, is driven on some level by the enthusiast’s passion for riding the bike and all the glories it represents.

He points out that if cycling teams were somehow able to make more money, the sport would organise itself. “If the rewards were higher – if we were talking about NFL-sized pay – people would get organised very quickly. There would be a layer of agents crop up who would be higher functioning than many of the agents we have today and they would protect the interests of the guys.”

Cycling photographer Graham Watson has had a catbird perspective on cycling for over 30 years. As a businessman whose own income from image licensing fees fluctuates with the popularity of the sport, he sees the sport both as a neutral photojournalist and a vested member of the cycling fraternity. He says the primitive nature of the sport on the road filters up through the sports management ranks when riders retire from the trenches of Belgium, France and Spain and start running teams. “There’s just kind of this primitive rivalry between cyclists when they were cyclists, between team managers when they are running teams and between entrepreneurs who want to be the leaders of the professional sport.”

And because teams are subject to the whims of the UCI and ASO, cycling is fundamentally unstable. “It’s a vulnerable sport,” Watson concludes. That instability does not personally bother Watson, who feels that while some races may fall by the wayside, the core events will always be there in the heartlands. In fact, the persistence of such an unstable business model atop such an enduring sporting and cultural foundation intrigues him. “It’s a soap opera. It’s totally fascinating.”

 

 

The UCI comes up in every discussion of the state of the pro cycling business, and usually not in a good way. Vande Velde’s opinon of the UCI is representative of many riders and others: “We don’t need the UCI. We have outgrown the UCI,” he says of the Swiss-based organising body. He isn’t being petulant; he believes that the UCI does a terrific job organising the sport, “from mountain biking to BMX to artistic cycling but they are more in place to keep the governing bodies together.” Outside of running the world championships for all these disciplines, “they should have nothing to do with pro cycling.”

Vande Velde’s opinion of the UCI is charitable compared to other observers. Sam Abt offers a scornful appraisal: “[The UCI] is the great weight around the neck, your feet encased in cement before they throw you in the ocean.”

President of the UCI since 2006, Pat McQuaid comes from a family of cyclists. The 62-year-old says once cycling cleans up its problems with drugs it will become financially stable and lucrative. “The most important fundamental priority of the teams is to deal with that and get credibility back.”

As evidence of the latent riches McQuaid assays in cycling, he mentions food companies who have eagerly approached him about getting involved because of its positive associations. “But the food trade and doping don’t go together. There is a huge clash there and they won’t come in because of it.” Once that risk is eliminated for sponsors, McQuaid is optimistic sponsor dollars will flow. “Pound for pound, return on investment, cycling is the most valuable sports sponsorship.”

McQuaid is also a member of the IOC, and he takes a macro view. He feels cycling is entering a “golden age”; an era which can attract multinational sponsors keen to unlock new markets. The enthusiasm he has is palpable when he says that the UCI intends to grow the sport in to BRIC countries. Brazil, Russia, India and China have huge populations and growing economies. Establishing races there theoretically gives multinational companies greater incentive to sponsor pro cycling.

“We are very much going into a global phase,” explains the Irishman. And with that “changing of the balance of events, the UCI would hope that when that comes about there will be new sources of revenue for the teams.”

As for the notion that pro cycling has outgrown the UCI, McQuaid says his organisation plays a crucial role in structuring cycling – from the amateur ranks to the pros. He explains that there is a European and an American model for sport.

The American model is based on private professional-only leagues, while the European model is a more holistic structure where an organisation like the UCI identifies and nurtures sporting talent at a young age and provides a path for them to the top of their profession. “When you study the two models, what is below the private leagues in their respective sports? There is absolutely nothing. No structure, no nothing… it’s private leagues on their own and that’s that.”

The European model that the UCI represents has, in McQuaid’s estimation, the potential to provide connections from the professional and elite levels all the way down to the grass roots level of developing athletes. But to realise this potential, McQuaid believes that the professionals “should show more corporate responsibility, by working closer with the UCI on the development of the sport.”

The UCI is a lightning rod for criticism but not all opinions about the federation are bad. Tyler Farrar says standard rider contracts are an improvement when asked to cite an example. “That’s a huge step in the right direction. It’s much harder for riders to be taken advantage of.” He elucidates: “Ten years ago guys were still signing black contracts” – under the table payment agreements that were different than the ‘official’ contract used for consumption by governing bodies. He recounts stories of riders being asked to sign two contracts, “the official one where you ride for the UCI minimum, and then the black contract where you ride for however much.” Farrar quickly clarifies his perspective: “I never saw any of this first hand, but I hear stories from the 1980s… it was shady and mafiosa. That’s not what we want. It’s already made big steps to organise itself better – but there’s still a long way to go.”

To understand the mechanics of the pro cycling business, consider the point of view of broadcasters and race organisers. WorldTour Grand Prix de Montréal and Québec promoter Serge Arsenault is unique in that he sees the cycling landscape from both perspectives. Arsenault, 63, worked as a broadcaster during the 1974 Montréal world championships. Later he promoted a race in Montréal for five years, all while running and building a broadcast and production company. In 2010 he went back to his racing roots by organising his Québec and Montréal races. The cost of staging such events is expensive. Arsenault is obligated to transport all the teams – mainly from Europe – to the event and house and feed them while in Canada. The total race promotion costs run him $4.5 million each year, and he is not yet breaking even.

He believes the current situation has a corrosive effect on cycling’s health and stability. Because “the Tour [de France] is the only event that counts”, cycling does not offer a sponsor a product that they can hook its brand to through the year.

“Tennis solved that problem 40 years ago when Wimbledon was nearly alone,” Arsenault explains. Tennis grew and created a cohesive international circuit “with Paris, with the US Open, with the Australian Open.” To be economically viable and stable, professional cycling will have to do the same thing. “And it will hurt at first. But we have to make sure that cycling is something else than (just) the Tour de France.”

Arsenault is a believer in cycling’s future and he underscores his belief with millions of dollars that will again go into the Québec and Montréal races in 2012. “The product is there, the riders are there, the top countries are there. The only thing that we have to do is organise ourself.” He adds, very diplomatically, that the UCI should focus on creating and enforcing the sports rules while also staying cognizant of the fact that the UCI is not the only one with skin in the game of cycling.

“We need an electroshock,” Arsenault adds. Today, there are four players in cycling: the riders, the team directors and owners, the race organisers, and the UCI. But they never sit together at the same table. “Normally the people who make the most money in cycling don’t want things to change.”

Referring to F1, Arsenault says “The road is right there. Ecclestone, with all his critics, understood 40 years ago. Car racing and F1 was dying. He took it back and he said now we have to have top competition all around the world. Forget about the Monaco GP only. We will have quality races, we will go around the world, we will have a full calendar and after that we will control the TV and have a full world-wide network. Now his business is worth billions and billions of dollars.

“Cycling is nothing else than Formula One on two wheels and I strongly believe in it. I’m not negative. I’m just trying to point out, business-wise, what is wrong.”

The enlightening takeaway from Arsenault’s perspectives is that he has decades of experience running TV networks. He is on the buy-side of sports like F1, tennis, golf, baseball and cycling. He understands what needs to be put on the tube in order to attract sponsorship dollars that will in turn filter down to riders and team owners. “The market is ready for it. The sponsors are ready. But they are saying, ‘Make some sense out of your product!’ It would be great if we could have 22 races that were televised worldwide… But guarantee the product.”

Arsenault wants to stop wasting energy with infighting among fiefdoms. “If we can succeed, this sport will become one of the top five sports in the world. Everything is there.”

Arsenault reiterates that cycling is unusual among major sports in that the television revenues are not shared. “The key would be to have a partnership with the teams and say, we will split the profit. Guarantee your product. We will organise it and when profit is there, we’ll split it. We’ll have an agreement.” He adds that entrenched race promotors “will hate me” proposing a revenue share, but he insists that the current imbalanced structure is not the foundation for a sturdy business that benefits both the organiser and the athletes.

Andrew Messick says the Tour of California is making progress. “We have good television agreements and we make reasonable money on our international distribution,” he says. Still, licensing TV rights still does not bring in enough revenue to support the race on its own, let alone leave the race’s owner AEG with a profit. To fill that fiscal gap, AEG pays its expenses by inking deals with sponsors like Amgen. In the long run, “the ability to sell the rights to broadcast are critical to long-term success.” He says that international television, social media and Internet coverage of his race has only increased over the years.

“Once you make the decision to produce a television feed of a race, there are increasing numbers of ways in which you can monetise that and find ways to bring people in and engage with the race.” Once cycling fans around the world get hooked on the Tour of California, the race coverage becomes a medium for communicating with that group of people on TV, online and in a host of as-yet undiscovered media.

When it’s suggested that cycling is F1 on two wheels, British pro David Millar says it’s a fool’s errand to try and recast cycling in the image of motorsport. In his opinion, cycling is moved by a different set of factors – cultural, historical and human. In his view the F1 business model is incompatible with cycling; a different type of people have forged the two sports. Millar says the motorsport drivers of 30 years ago who created the F1 sport of today are “incredibly well educated, they are men with initiative, they are natural born leaders, and they are social animals; they tick every psychological box that cyclists don’t have.” In contrast, pro cyclists “by their very nature are loners”. Cyclists are more like farmers than wealthy investors; they work all day, eat, sleep, wake and repeat.

Millar believes the sport should capitalise on the panoply of races that have evolved over time. “You have wonderful races in Belgium. You have Paris-Roubaix. You have some history! Go to Beijing? Who gives a fuck?”

Adding to his thesis that the sport should maximise the value in what it already has before spreading itself thinner across the economic new world, he says with exasperation: “Christ, we’ve got a wonderful sport, it has that individualistic, nationalistic nature about it. Each event has its characteristics.” That individuality, rather than the polished familiarity of an 18-week circuit, Millar feels, is what the sport should celebrate – and capitalise on – rather than turning it into something akin to F1, where every site in the world “is exactly the same.”

Still, Millar admits that one thing cycling can learn from F1 is professionalism, that fans admire well-run organisations. “Their teams are beautiful things. They aim for perfection, and that’s what should be done.”

Jonathan Vaughters gave Millar a second chance in 2008. After the British rider confessed to doping, he sat out the sport for two years as a penalty then came back as a clean-riding role model for Vaughters’ young team. Hiring Millar was, and remains, Vaughters’ commitment to a shift away from drugs that he is adamant must happen to open the sport up.

In this regard, Vaughters is in complete agreement with McQuaid that greater stability lies in a clean peloton. Beyond this, the Slipstream CEO says a more logical race calendar will help build a bridge between the pro riders and recreational cyclists – a group he calls “the golden egg in cycling.” The two are mutually dependent. “If you can tap into the recreational community the sport will open itself to such an incredibly affluent and important body of people world wide.”

The calendar Vaughters has in mind would be limited to about 15 pro teams and lead to an overall prize at the end of the season. “It’s got to be narrowed down, focused, engaged, simplified, cohesive. Currently,” he says, “it’s not cohesive, no one understands it. It cannot appeal to a broader audience.”

Vaughters is vexed by cycling’s illogic, and excited by the potential in its reform. He points out that the business model of races is that they all aspire to draw the top riders. Smaller races survive by paying appearance fees to top riders, who then pump up the race’s apparent importance and help the organiser cobble together a raft of sponsors every year. That model should go away, Vaughters thinks.

 

 

“The role of smaller races is to highlight aspiring riders who are striving to make it to the big leagues. The secondary races have their value, but they are not the path to the SuperBowl; they are the path to get on a team that goes to the SuperBowl.”

Giving the smaller races this sort of consequence is what will make them exciting, not “having five disengaged riders” who are only there to train and collect their appearance fee.

By streamlining the structure of the season, the sport could work with the laws of supply and demand, rather than against them. Because star riders race so often across a whole spectrum of prestige, it waters down the riders’ value. For example in 2010 and 2011, F1 offered 19 races. By limiting supply – the opportunities viewers have to see the stars is limited – demand for both in-person and TV viewing goes up.

“Now if you want to see Fabian Cancellera race,” Vaughters says, “you can see him anywhere.” If Cancellera were only racing at events that lead to some sort of world title, Vaughters argues that his value would increase. “If you are an advertiser and you want your name associated with Fabian Cancellera, here’s your opportunity. That creates value.”

Vaughters suggestion is not radical. It’s really only modelling cycling on other successful sports. Soccer has the Champions League and baseball has the Major Leagues. Golf has four championship tournaments and an elite PGA Tour. Like F1, these sports increase their value by limiting supply and clearly delineating for the public what to watch to see the sport at its acme. Vaughters argues that the sport can spread the value that is currently almost entirely focused on one race and shared almost entirely by the Tour’s organisers. Until then, for teams “it’s cash in, cash out”.

If it were easy, someone else would have already made these changes. He also maintains that an autocratic figure like F1’s Ecclestone could kill the sport. To completely recast cycling in the mold of top-level motorsport could well eliminate what Vaughters calls the “quaintness” that also gives cycling its appeal. “You lose that and the sport’s dead.”

James Emmett is a writer for Sports Pro magazine, a journal that covers the business side of professional sports. Emmett has reported on cycling since 2007. Compared to other international pro sports, his observations tell him cycling is “quite backwards” in a commercial perspective. Emmett cites two ways it could change to bring itself more financial stability.

One is to have teams beef up their event management staff. A hallmark of a sport that has evolved is when it is used as a platform to generate business between businesses. Emmett says that, compared to other sports, cycling has opportunity to create a memorable hospitality experience at races, which in turn facilitates business-to-business type of interactions.

 

 

Emmett mentions that getting sponsors into team cars at races is a good start, “but there must be a lot of extra things they could do just by building up their events team.” A more robust hospitality experience would capitalise upon “all these CEOs who are getting into cycling across the world… They love to cycle, just as they love to run. It’s a hobby and they’ll definitely be drawn to these things. There needs to be more of that kind of stuff, but I’m not sure they do that very well.”

Emmett points out that most modern F1 circuits are built “purely with hospitality in mind.” He says corporate decision makers are becoming more and more infatuated with cycling. It’s natural that teams should capitalise on mass participation events like the Ronde van Vlaanderen and the Tour de France’s Etape du Tour events that come before the pro races. “Mass participation; one of the main draws of cycling is that people like to cycle. You are automatically drawn to watching athletes who do it a lot better than you on TV.”

Emmett brings up marathons as a participation sport that has successfully brought in major sponsorship dollars by fusing elite racing with mass participation. “Marathons have become seriously big business.” Sponsors of major marathons are often deep-pocketed financial institutions. For example, the New York City Marathon is sponsored by ING Bank, and London’s marathon is underwritten by Virgin Money, a subsidiary of Sir Richard Branson’s business empire.

With these events, the sponsor’s return is multifaceted. In addition to getting the brand recognition that comes with title sponsoring these major events, the financial institutions also get the business that comes with handling the hundreds of thousands of transactions involved with the charitable fund drives that often go with the races. Emmett says Virgin Mobile paid in the vicinity of $16.5 million to sponsor the London Marathon “as a one off event”. It’s a no-lose proposition for Virgin Money, because in the months preceding the marathon they recoup their up front investment due to the fact that all the charitable donations related to the marathon are processed by Virgin Money. “They make their money back immediately.”

Running and cycling attract driven, high achieving, affluent followers. In Emmett’s mind it’s an opportune time to seize this reality and move beyond the rudimentary past. Given the right leadership and financial incentive for all, he thinks there is a possibility that the sport can surpass what, in Emmett’s words, is “a kind of commercial strategy that’s still quite rudimentary compared to many other sports.”

As cycling kicks off a season that sees its races broadcast globally and taking place in diverse locations from Argentina to Adelaide, Beijing to Boulder, the sport faces a fundamental question of values. While the UCI wants to push the race into these New Worlds, the sport seems uncertain about adopting the pecuniarily-grounded value systems that set horizon-seeking Americans and Australians apart from Europe.

In America, making money is a worthy occupation, a virtue unto itself. Yet in Europe, where races like the Tour de France are historical and cultural treasures whose value transcends something as tawdry as the massing of capital, monetisation of cycling is not an automatically-accepted justification for revolution. More than sitting at the cusp of competing business models, cycling in 2012 is confronting an era of self examination about the very principles the sport has represented in the past and wants to manifest in the future.

– Mark Johnson


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RIDE Media publishes RIDE Cycling Review, a quarterly magazine all about cycling.
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Author: rob@ride

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