Commentary: A budget cap for WorldTour teams isn’t as simple as it sounds
Stephanie Constand works as a press officer for BORA-hansgrohe, and also provides PR work for other pro cycling teams and race organisers.
When Geraint Thomas won the Tour de France last month, it not only netted Team Sky its sixth victory in the past seven Tours, it also led to renewed calls for greater financial parity within the sport to quell the dominance of super-teams.
The French daily newspaper Libération recently published the comments of an unnamed French team director who insists that a salary cap has become necessary to make races more interesting and win back fans who have grown weary of predictable race outcomes, particularly in the Grand Tours. “The problem in cycling isn’t doping anymore,” he claimed. “It’s money.”
UCI president David Lappartient seems to agree with this sentiment, having recently re-floated the idea of financial fair play regulations alongside a series of other equally controversial and rehashed suggestions, such as banning power meters and team radios, and reducing team sizes even further.
While denying any attempt to single out Team Sky, Lappartient does acknowledge that the British outfit’s dominance may not necessarily be doing the sport any favours. He contends that “when the viewer sees eight riders of the team dictating the pace and locking down the race, they quickly change channels to watch a soap opera. The ball is in our court, it’s up to the UCI to make sure that its races are attractive.”
So does his plan to win back the soap opera-watching French public have merit? Or is it doomed to be endlessly debated back and forth until it is ultimately relegated to the wastebasket of unworkable ideas put forward by the UCI?
One thing is certain — a budget cap for WorldTour teams isn’t as simple as it sounds.
Budget Cap as an Agent of Competitive Balance
First, it’s important to distinguish between a budget cap and a salary cap. What Lappartient is proposing is the regulation of WorldTour teams’ overall payroll budget, as opposed to a ceiling on individual rider’s salaries. This would mean that teams which are bankrolled by backers with deep pockets could no longer monopolise races by buying up the best talent in the peloton only to consign them to the role of super-domestique.
It’s not difficult, at least in theory, to understand the rationale behind this suggestion. What cycling fans cherish are races that are characterised by unpredictability, excitement and, yes, panache, as opposed to an inexorably monotonous procession of the same team predictably dominating the same types of races. By placing professional cycling on a more egalitarian financial footing, we would be restoring competitive balance to the sport, which would in theory provide fans with the more exciting races that they so vociferously demand.
Indeed, studies in the North American context have shown that sports with relatively high performance parity routinely enjoy greater rates of fan interest and retention. The argument for budget caps is predictably even stronger with regard to sports in which there is a strong correlation between salary and results. Cycling is one of these sports, with bigger team budgets, at least in most cases, equalling bigger results on the road. Pro cycling, it would seem, is a prime candidate for the introduction of a budget cap as an agent of competitive balance.
A budget cap could also have the potential to positively impact the volatile state of cycling sponsorship. Uncapped team salaries run the risk of precipitating a potentially ruinous escalation of payroll costs, which could render the seemingly never-ending search for sponsors an even more difficult endeavour. This was a point raised by Alberto Contador, albeit in somewhat convenient timing, at his final race, the Vuelta a España, last year. The seven-time Grand Tour winner warned that “if budgets start to go through the roof, we’re going to find it difficult to attract sponsors at all.”
In mainstream sports, growing salaries are often partially bankrolled by revenue streams such as profits from merchandise and ticket sales, and all-important television broadcast contracts. Yet cycling is a sport that sells no tickets, fills no stadiums, and operates no turnstiles. Without such reliable and lucrative sources of revenue, the presence of a small number of big-budget teams pushing up the prices of top riders has the potential to inflate the market to an unsustainable degree.
In an era of marginal gains, the cycling talent market is becoming afflicted by the ‘winner-takes-all’ effect identified by the economists Philip Cook and Robert Frank, in which an athlete’s slightest advantage allows him or her to demand incommensurately high remuneration.
In cycling, it is sponsors that are expected to foot the bill of increasing payroll costs by investing more money into the sport. Yet in this instance, they would not necessarily be receiving a comparable return on investment. This type of wage inflation just doesn’t make good business sense, and sponsors may find that they can no longer justify such outlay. In light of potential outcomes such as these, the appeal of a budget cap becomes clearer.
One solution: A Soft Budget Cap
Despite its advantages, a budget cap will always have its opponents. What generally springs to mind when this topic is broached is the concept of a “hard” budget cap. An alternative to this relatively blunt instrument would be the introduction of a “soft” cap. While still an admittedly difficult undertaking, a soft budget cap would function as a type of fiscal control measure that would still enable wealthier teams to spend over the set budget cap, but in return, they would become liable for a luxury tax that is subsequently distributed among teams that have not exceeded the threshold. This would take the form of a progressive taxation structure, whereby the further over the cap a team spends, the higher its tax bracket will be.
A host of complementary measures could also be introduced here, such as a tax apron, with additional restrictions applying to teams that spend above that point. Such a system would have the advantage of deterring excessively lavish spending on a cluster of star riders, while still allowing wealthier teams to bring additional money into the sport, if they choose to do so. It would also simultaneously facilitate a system of financial support for smaller outfits. This setup can essentially be rationalised as a trade-off of sorts, a quid pro quo for wealthier teams signing top-tier riders away from medium- to lower-level teams.
While the freer and less heavy-handed operation of a soft cap would predictably do little to allay criticisms of riders such as Chris Froome, who last year equated the UCI’s potential introduction of budget caps with “becoming communists,” a soft budget cap would nevertheless still reward entrepreneurship within the industry, while at the same time ensuring an element of fairness and sustainability.
//INRNG: The Finances of Team Sky https://t.co/5VkEmaZ9bY
— the Inner Ring (@inrng) September 28, 2017
Is a budget cap a Good Fit for Cycling?
In theory, then, the concept of legislating financial fairness into the sport would seem to carry merit. In its current state, the professional cycling business model is hardly being reproduced in economic textbooks as a shining example of a viable revenue-raising sports business prototype.
It’s also hard to deny that there would at times appear to be a sword of Damocles hanging precariously over the future of many teams in the professional peloton, particularly recently with two WorldTour outfits having only narrowly been rescued from the precipitous drop into oblivion, and many more still unable to ween themselves off the purses of their billionaire backers. Something is awry in the state of the financial model of professional cycling, and the introduction of budget caps has potential to ameliorate this issue. The question is, in the process, will this only create further difficulties?
Whether a budget cap is primarily aimed at transforming the sport into a more viable site for sponsorship and investment, or curbing the dominance of super-teams, there is no doubt that a complex interplay of intersecting and at times conflicting interests are at play here. Legislating any changes will not be an easy feat.
For Lappartient, the path towards legislated financial parity may indeed be a treacherous one, beset with difficulties in enforcement, issues of legality, and potential hostility from the more financially-endowed teams. One need only think back to the disastrous 2011 NBA lockout, or the fiasco that was Max Moseley’s attempt to introduce a budget cap into Formula 1 — which may be back on the books in 2021 — to see what kerfuffle could befall us.
While it has admittedly been some time since I last dusted off the sports law textbook at law school, it goes without saying that this is a notoriously complex area. The legality of budget caps under the UCI in international and European sports law, not to mention the mishmash of multi-jurisdictional issues in which this would be entangled, remains to be seen.
Even post-implementation, the system could find itself rife with difficulties regarding policing and enforcement. There would always be the potential for enterprising team managers to take advantage of crafty loopholes by, for instance, allowing separate contracts and income streams between sponsors and individual riders, as was the case with Contador while he was at Astana. (Ahead of the 2010 season, Contador reportedly signed a contract for 700,000 Euros to ride Specialized. This was a contract between the rider and the bike company, as opposed to a contract between the team and the bike sponsor. At the time, it was the first instance in quite some years that a rider had entered into an individual contract with a bike manufacturer before the team had finalised their own negotiations with the company.)
For the UCI, the entire scheme could transform into a convoluted exercise in forensic accounting just to ensure fair implementation and the closing of legal loopholes.
If Lappartient’s plan is, as some have suggested, little more than an unwholesome vendetta against Team Sky, perhaps first investigating the possibility of pursuing other revenue-generating ventures or income streams would be a more constructive and less radical path forward.
Several suggestions have been mooted in recent years, such as teams launching a reinvigorated attempt to claim a slice of broadcasting rights revenue, the establishment of longer-term licenses with the UCI to bring the stability which is so attractive to potential sponsors (akin to what we see in the NFL), or even the introduction of transfer fees.
It must be remembered that cycling differs, in a multitude of ways, from other mainstream sports. It has a unique, and some would say inherently flawed, financial model. We must be cautious to not push onto our system a model that has proven successful in sports that operate in vastly different context. Cycling is not the revenue-generating machine that the NFL is, for instance, and what has proven to be successful elsewhere may not be applicable or appropriate within the professional cycling environment.
I would wholly welcome further investigation into a nuanced budget cap system and certainly other financial reforms to promote greater stability. Yet any changes must be implemented following judicious consideration and consultation to avoid a stalemate situation and ensure that any proposed amendments are a good fit for the industry.
While the adage “if it ain’t broke, don’t fix it” certainly does not apply to the financial model of professional cycling, we must remain cautious to not break the system any further through any overzealous or impetuous attempts to fix it.
About the Author
Stephanie Constand works as a press officer for BORA-hansgrohe, and also provides PR work for other pro cycling teams and race organisers. Having originally worked in academia and as a lawyer, with a special interest in sports law and economics, she has written for a range of online and print magazines and is currently working on a book. She can be found on Twitter at @stephconstand as well as at her web site, creativecyclingpr.com.