Under new ownership: How will EF Education First impact Cannondale-Drapac?
The deal that saved Slipstream Sports from collapse over the summer was far more complex than the usual sponsorship contract. As part of the transaction brokered by team CEO Jonathan Vaughters, EF Education First not only gained naming rights to the team, it also bought out the majority stakeholder of the program, Doug Ellis, and is the team’s new owner. For the first time in more than a decade, Vaughters and Ellis will no longer have final say in the team’s direction.
What does that mean for Slipstream? There’s still a tinge of argyle on the team’s 2018 jerseys (see the cuffs), but the new owners are certainly making their presence felt. The delicate balance between the existing culture and new owner was put on display last week when Slipstream Sports announced the signing of Swedish national road champion, Kim Magnusson. Vaughters confirmed that the signing of Magnusson was a direct function of the new ownership, which has its roots in Sweden.
“They [EF Education First] definitely wanted a Swedish rider, so we have the Swedish national champion,” he said.
POC, the team’s apparel, helmets, and eyewear supplier, is also based in Sweden.
That announcement, along with a relatively low number of North American riders on the roster for 2018 — seven, the same as in 2017 — leaves questions about the vision and direction for the future of the team.
Vaughters’ argyle-clad team has always put its hand up as America’s team. While Trek-Segafredo and BMC Racing are also US-registered WorldTour teams, the Slipstream Sports organization has, for years, hired the highest number of American riders, and most often served to develop young and upcoming American talent. Vaughters doesn’t hide the fact that the team ownership has changed, but he does push back on the idea that the new-look team will abandon its American roots.
“Going forward, we will be more and more interested in developing more North American riders,” he said. “This year  we have fewer Americans on the roster than ever before. But that was just a function that we were late to market. For instance, we had a deal with Neilson Powless that went away in those two to three weeks of uncertainty. He would have been a major, major focus for future development, but that got taken away from us, and understandably so. Once we regain our footing a little bit, we will be back to that.”
It wasn’t always the intention to sell a majority stake in Slipstream. The original verbal agreement Vaughters made with EF chairman Philip Hult was for a single year of sponsorship. “I was about ready to sign that deal, and then something in me at the last minute, was like, ‘no, we’ll just be back here again next year,’” Vaughters said.
A one-year patch on the team’s finances wasn’t particularly attractive in large part due to creative accounting Vaughters had indulged in to inflate the budget of the team.
“There are all of these other background problems because I sort of hot-rodded the team from a budget standpoint a little bit in 2017 to make it work,” he said. “What I mean by hot-rodded is that you have the UCI bank guarantee which is stuffed away. You’re not really supposed to touch that except in an emergency.
“I budgeted the team so that the November and December payrolls were just going to come from the bank guarantee, which means you’re going bankrupt, which we were going to. I didn’t budget for a complete year. So in 2018, there would have been this debt overhang because we would have had to finance that money and carry over.”
When the initial one-year sponsorship offered was declined, Vaughters made it clear to EF that much of reason was the budget overhand issues caused by the draining of the UCI bank guarantee (The UCI requires that every team deposit 15% of the season’s payroll into a rainy-day fund to cover potential contract shortfalls).
The single-year deal was also unworkable on a personal level, as Vaughters feared another difficult sponsor search a year down the line. “This whole process has had an incredibly negative effect on me, and my family, and I just became unwilling to ever have to be sort of that down a hole in my personal life,” he said. “I was basically depressed for over a year. Depressed in a sense that I was thinking about one thing and one thing only, it was myopic.”
He pushed for a three-year deal to give the team a longer financial runway. According to Vaughters, EF’s response was that they were willing to be a long-term partner, but they wanted more. The message from EF was clear: We’ll do the longer-term deal, and we’ll solve all of your budget overhang and cash-flow issues, but if we are going to do that we need to own the team, not just sponsor the team.
Vaughters couldn’t say what the exact ownership percentages were, how much of an ownership stake would be acquired, and if current owner Doug Ellis would retain any shares. However, a recent VeloNews piece on the acquisition reported that EF Education First would be replacing Ellis as majority owner of Slipstream Sports. Dorel Industries, a Canadian manufacturing conglomerate and owner of the Cannondale bike brand, also has a large stake in the WorldTour team.
Personnel rarely remains unchanged when a company goes through a merger or acquisition. Talking down a possible managerial shakeup, Vaughters made it clear that he would not be leaving the new organization anytime soon. “EF wasn’t going to close the asset purchase of the team equity until I signed my contract,” he said. “I have a very long-term deal in place with them. I’ll be around.”
Even with Vaughters staying on board, the team suffered a few key personnel losses between the announcement of the budget shortfall and the acquisition by the new owner. Promising classics talent Dylan Van Baarle jumped ship for Team Sky, while marquee American rider Andrew Talansky made a surprise retirement announcement in the midst of the sponsor search. Vaughters expressed that Talansky’s decision was in no way related to the team’s budgetary issue — that Talansky was simply “sick of racing” — and that the retirement would have occurred regardless.
Vaughters did express that his relationship with the team’s star French rider, Pierre Rolland, suffered, due to the Frenchman feeling betrayed by the team’s sudden financial trouble. At the time of the interview, the two were no longer on speaking terms, despite Vaughters doubling as Rolland’s personal coach.
The financial shortfall seemingly came as a surprise to Rolland, his teammates, and fans. The team’s star riders immediately called their agents, who in turn called rival team managers, while Slipstream Sports even took the unconventional route of setting up a crowdfunding campaign in an attempt to close the gap.
But a look at the quarterly reports from Dorel Sports, the owner of the Cannondale bike brand, title sponsor of the team and partner in the Slipstream management organization, shows consistently declining revenue.
Last week, Dorel Industries reported that third-quarter revenue in the division housing its mass-market and IBD bikes businesses plunged 18%, citing factors such as hurricanes and other extreme weather in North America, the bankruptcy filing of one of its largest customers, Toys R Us, in September, and overall weakness in the global bicycle market. Third-quarter revenue at Dorel Sports — which includes Cannondale, Caloi, Pacific Cycle, Schwinn, GT, Mongoose, and Sugoi — totaled US $205.5 million, down $45.2 million from a year earlier. For the nine months through September, Dorel Sports’ revenue is down 10.7%. The division’s operating profit also declined during the quarter, down US $5.6 million to just $200,000.
There were no specifics provided on where the team’s funding shortfall originated, but the VeloNews piece chronicling the team’s brush with death states that a source within the team confirmed that Cannondale decreased its commitment. Vaughters was aware of this in advance and had lined up another title sponsor to take Cannondale’s place, but was left in a lurch when their board of directors failed to ratify the deal. Several reports claim the new sponsor was to be online betting website Unibet, but Vaughters has declined to identify the company in question.
Either way, that’s in the past, and the team’s future is in the hands of EF Education First.
No longer having to deal with the headaches of these sponsorship issues is undeniably a major upside to the new Slipstream ownership structure. While there is always a danger of losing a company’s DNA when selling a controlling stake to outside investors, the increased financial security and ability to shift resources from constant funding search to acquiring and developing talent is a positive.
Vaughters admitted that the constant searching and financial concerns syphoned a significant amount of energy and left him unable to even enjoy the team’s biggest success.
“One of the Drapac guys said at our after-the-Tour party, ‘I’ve never seen you smile, what’s the deal? Why are you not smiling after getting second place in the Tour de France?’” Vaughters said. “It’s just because I never got to enjoy it, because I knew that, yeah, we got second place, but we were on very tenuous footing going forward.”
The purchase of Slipstream Sports by EF Education First has a great potential to infuse the team with much-needed cash and shift focus away from a constant sponsorship search, but also has the potential to strip the team of its character.
For the moment, the team’s 2018 roster holds seven North American riders — Nathan Brown, Lawson Craddock, Joe Dombrowski, Alex Howes, Logan Owen, Taylor Phinney, and Canadian Mike Woods. It’s the same number as in 2017, and essentially the same riders, with Owen replacing Talansky as the seventh North American.
Fans of the original argyle-clad Slipstream teams, and the integral role they played in developing young American riders, can only hope that the team’s new owners recognize how key the team’s character has been in cementing loyalty for the team — the kind of loyalty that led to over half-million dollars in crowdfunding donations.
A few things are for certain, however — the team will be around for at least another three years, and Vaughters will be able to spend his time focusing on something other than securing a new title sponsor.