Behind the scenes of the pro cycling business model

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Given the massive media attention and television coverage races such as the Tour de France attracts, most outsiders would look at the sport and conclude that it is replete with money. Glitzy team buses, expensive bikes and slickly-presented kit; the presumption is that it is a cash-rich sport, yet senior team officials communicate a very different set of circumstances for many WorldTour squads.

CyclingTips spoke to Giant-Alpecin team owner Iwan Spekenbrink, Cannondale-Garmin CEO Jonathan Vaughters, Orica-GreenEdge general manager Shayne Bannan and Simon Thompson, the director of Sports Marketing and Racing at the Trek Bicycle company.

Each are involved with some of the most successful teams in the sport, yet they were clear about the challenges facing the sport in its current incarnation.

The problem with now

“The current financial model is not a financial model,” Vaughters said with a laugh. “It is basically like a donation model.

“In theory right now is you set up a holding company, the holding company goes out and garners sponsors that are looking for a set amount of publicity. They raise revenue and then they go and contract riders and soigneurs and mechanics and so on.

“It is based on impression-based publicity from jersey signage, naming rights and so on. There is no other sport in the world that is using that model alone, although some do use it as an add-on to other sources of revenue.”

Spekenbrink owns the holding company for the Giant-Alpecin team and said that he regards the most important stakeholders as being the sponsors.

“Our economic model – and that of the industry – is currently a sponsor-based economical model. This is the case for each team at this point in time. There is no team that can exist on television rights or, say, merchandising rights.

“All the cycling teams including ours are fixed in their current economic situation, which means sponsorship-dependent.”

Thompson recently spoke in detail to CyclingTips about the setup with Trek Factory Racing, saying that the team operates on a much smaller budget that the richest squads such as Sky. The latter is believed to have an annual budget of 40 million euro; CyclingTips understands that Trek’s figure is approximately 14 million.

Thompson has made clear that his team cannot have anything like the same depth as other squads without a big increase in cash. Fabian Cancellara earns 45 percent of the total salary amount on the team and is its marquee rider.

In contrast, squads like Sky have much greater strength in depth. “They lose their top guy and they have got enough other guys who can step in and make a really good showing,” Thompson said.

“For me that is the big difference between the teams. Everyone’s got pretty much the same operating costs. It cost the same amount of money to put two buses, two trucks, 14 cars around the world, all these people. But the rest is tied up in salaries. That is the difference.

“And Team Sky is spending more on riders alone than we are on our entire team.”

As for Bannan, he too is running a team with a lower budget than the likes of Sky. He said that this means the team is vulnerable to bigger squads when it comes to contract negotiations, being unable to compete euro for euro. Instead, he said the team tries to build strong personal relationships and hope that is enough.

“If we have done our job well enough, we would like to think that while we might have X amount and another team might come in with a higher amount, if the rider feels they really enjoy the team, they enjoy the environment, they enjoy their own personal progression, then we are hoping that carries over into our favour.

“We can’t get into the real contract wars, though…if another team comes in and offers double, you just shake the rider’s hand, say ‘that is fantastic, well done and good luck to you.’”

Giro d'Italia 2015 stage - 4

Three financial models, a wide disparity in budgets

Vaughters is a former pro who set up the Slipstream team in 2007. He has worked closely with the American businessman Doug Ellis, who has made substantial contributions to the team budget over the years and helped keep it afloat.

Despite that, and despite the addition of Cannondale as a backer going into the 2015 season, he said that his team is in the bottom 25 percent of budgets. The dollar total is just under 20 million per year.

He states that there are three basic models in existence at this point in time.

“One is your wealthy donor model, like BMC and Andy Rihs,” he explained. “BMC is a very small company that could never afford a 40 million dollar investment in a team but Andy Rihs bankrolls that. So that is a private donor team.

“Then you have got your government, pseudo federation entity team. Astana fits into that, Katusha fits into that, Orica-GreenEdge fits into that. Well, Orica is a little bit a combination of the two; they have got a wealthy backer, then they have also got a federation behind them, then they have got a sponsor.

“It is a huge sponsor [in terms of name] but it is not a huge dollar figure.”

He said that he is unsure how to place Sky, being uncertain if it is best to regard it as a federation team or a sponsor team.

“The last one is a sponsor that has commercial interests. It is a sponsor that wants a set image, a set brand, and a certain amount of publicity. That is what we are, that is what Giant-Alpecin is.”

According to him, the wealthiest teams at this point in time tend to be based on the private donor or the government/federation model. The reason for this is simple. “For a publicly-owned company, investing ten million US dollars makes sense, but investing 40 does not,” he explained.

“The return on investment isn’t high enough at 40 million. For a publicly-traded international company that is looking at this strictly from a business standpoint and not from an enthusiasm standpoint, they are unable to invest as high a dollar figure as the teams who have private backers.”

All four of those who spoke to CyclingTips were clear that no owners are getting rich from the proceeds.

“I don’t know of any team that is making a profit under the current situation,” said Vaughters. “I know a lot of teams are usually losing money and they will get the losses at the end of the year covered by an owner or a wealthy donor or whatever.

“In fact, I don’t actually know a team ever that has been, by typical definition, profitable.”

Bannan echoes this. “It is just covering costs as opposed to making a profit. And even if there was – and we are not talking about big margins of profits – it would go back into the team to assist with better performance such as training camps and so on,” he said.

Spekenbrink said that he has a bigger priority in mind.

“The objective of our team, just to be clear, is not making money in terms of making profit. For our company, the aim is to continue.

“I think the most important thing is stability, because in that way you can create continuity for years. Then sometime you can get a very good income for a long time. That should be the first priority.”

Ster ZLM Toer 2015 stage-2

Evolution necessary for sport’s future

All four are unified in saying that things must change. Vaughters, Bannan and Thompson speak about how difficult it is to compete when there are wide variations between team budgets in the bunch.

Vaughters gives an example. “Over the years I have tried to get Ian Stannard and Geraint Thomas. I have lost every single time on all of those,” he said.

“As a smaller team, you have to be more resourceful in terms of your talent identification. You can’t just shotgun it and say, if we guy these 15 guys, at least five of them will end up riding really fast.

“If you look at our team, you have Andrew [Talansky], you have Dan [Martin], you have Ryder [Hesjedal]. Then after those three guys it gets a little thin. So if one of those guys is injured, one of them is sick and one of them is a little bit off form, our team literally is dead in the water.

“Whereas with Sky, you have Kirienka and Henao and Stannard and Thomas and Froome and Porte and it keeps going down the line. If you get three or four of them that are injured or sick, ‘oh that is okay, we still have three or four.’”

The longer-term issue with this is that the richer teams will continue being more successful because of that depth. This in turn will likely exacerbate the discrepancy in backing as it will be easier for winning teams to attract and retain sponsorships.

The sport will become more and more skewed, with a small number of teams dominating and the others struggling for backing and acting as pack filler.

So what’s the solution? All four were united in calling for a new financial model. This argument has long been laid out by teams, and so there is nothing new in that. It doesn’t make the need any less pressing, though.

Under this alternative view, additional revenue would be generated through various mechanisms.

“In the perfect world, we would certainly like to bring some self revenue and have that up to around 50 or 60 percent,” said Bannan. “But that could be five years away, it could be eight years away. It could be ten years away. It depends on the progression of the sport as it currently is.”

Velon is a group comprising 11 out of the 17 WorldTour teams. Others are thought to be considering joining, meaning the group will have a greater clout.

Bannan, Spekenbrink, Vaughters and Thompson each see positives in the group, saying that the unified push for a new financial model is vital.

One proposal is for the group to offer in-bunch images and data to race organisers and broadcasters. As CEO Graham Bartlett told CyclingTips in the past, once this is in place and live transmission becomes possible, the value should escalate.

He stresses that Velon is not trying to take a share of ASO’s current revenues. Instead, he argues it should be possible to grow the pie, earning each of the shareholders more.

However to do that cooperation is necessary. Thompson, who is a board member of Velon, said that there is no sign of this happening.

“If they were willing to work together with the teams, I think we can evolve this and grow it really substantially. To have it become one of the biggest and best sports in the world,” he explained.

“But unfortunately from what I can tell, they don’t see it that way. They believe that they should have all of the rights. To be the only body who can exploit those rights and that the teams should have no rights whatsoever.

“It is really disappointing. It is a shame. I believe a collaborative approach would get us to where everyone wants to go and, in the long term, they would be making a lot more money that way.”

He spoke at length on this subject to CyclingTips, saying that Velon wanted a peaceful solution, but that he felt ASO was trying to bring things to a head.

The peloton attacks sector 12: Orchies.
The peloton attacks sector 12: Orchies.

“When you share the value you get the second economic stream”

Time will tell if collaboration rather than conflict can be achieved. If so, and if all the stakeholders pull in the same direction, it seems logical to conclude the sport would have a better and more stable future.

“When you have true cooperation then you can create a new modern model of cycling,” said Spekenbrink. “You create value and when you share the value then you get the second economic stream.

“This creates more stability, and then when you create more stability you also change the doping culture because when you have stability, you don’t need doping for your survival any more.”

However he and others caution that an influx of cash in itself isn’t the be all and end all. Salary caps are something they believe to be necessary, not least to prevent any extra money simply being soaked up in a more lucrative bidding market.

Spekenbrink sees another advantage of such a control. “It keeps things interesting. The more competition you have, the better. It’s different if you have one or two teams that are so much richer than the other teams and they collect all the stars…

“I think for a competition, it would be more interesting to have it more balanced.”

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