Sky’s budget was an anomaly, so what does Dave Brailsford do now?
Alberto Contador, a year into retirement and happy to speak his mind, sat on a stool in front of a room full of Australian fans in mid-November and briefly pondered a question from the audience. Who scared him most, during his career?
He listed off the usual suspects — the Schleck brothers, Vincenzo Nibali, Nairo Quintana. And Chris Froome, but with a caveat. “Only Froome with Sky,” he said, holding his hands up and bringing them together. “Froome without Sky? No.” He shook his head.
Over the past decade, Team Sky changed cycling. It changed riders, too. For better or worse is a matter of one’s interpretation, allegiance, and willingness to believe. But the change — that part isn’t up for debate.
This is a team that contained three different British (or nominally British) world-beaters. It said, in 2010, that it would have a Tour de France winner in five years. It had one in three years. It had three within seven years. It took riders like Froome, who didn’t worry Contador one bit, and used him to win the Tour de France four times.
The specific means and methods of Team Sky have been subject to half a decade of hand-wringing. For the purposes of this discussion, they’re irrelevant. Take a step back and two things are responsible for the Team Sky we know: Dave Brailsford, and a huge amount of money. Somewhere between $40 million and $50 million U.S. Dollars per year, double most WorldTour teams.
Sky just announced it will end its sponsorship at the end of 2019. What happens when the money dries up? What’s next for Team Sky?
How it fell apart
The model behind Team Sky is somewhat different from most of the WorldTour. Sky, the telecommunications company, owns the team. Brailsford is team principal. This is how EF Education First now functions, since that company bought the team last year, but most teams are owned by a management company that brings on sponsors with multi-year contracts. The sponsors rarely own the team itself.
Brailsford has clearly been operating as if the team will continue past 2019. He’s made comments about funding through 2024. He has Egan Bernal on a five-year deal, and just put Ivan Sosa on a three-year deal. The team just signed a multi-year lease to a performance center a few hundred meters from the Manchester velodrome. He’s been holding any information regarding Sky’s departure close to his chest — riders and staff found out about Sky’s departure at a team dinner only hours before a statement was released to the press.
The cause of the reversal of fortunes is Comcast’s takeover of Sky, announced in September. Comcast outbid Fox in a $39 billion purchase. Because Team Sky is owned by telecommunications company Sky, Team Sky is now owned by Comcast.
That purchase reset negotiations between Brailsford and his team’s new owners. This explains why just a few months ago Brailsford was speaking and acting like the team was set for another half-decade.
Those talks would now take place with Comcast, not Sky.
This was bad news for Brailsford. We emailed with James Parrish, head of brand partnerships at the British firm Rush Sports and Entertainment, about how a deal may have fallen apart. He makes his living working deals between major sponsors and sports entities.
First and foremost, Comcast is an American company, while Sky is British. Comcast is less likely to support a team that has become a national emblem for Great Britain, particularly to the tune of £30 million.
“In all likelihood, a discussion took place to continue under Comcast,” Parrish said. “It could be surmised that the negative recent news around the team (TUEs etc.) may have played negatively in discussions with the Americans, who have a strong aversion to the sport given the Lance/Discovery era. I’m afraid to say that it does still play a significant role in corporate boardrooms, which are heavily risk-averse.”
Brailsford lost his angel investor to the acquisition, too. James Murdoch, the son of Sky founder Rupert Murdoch and the company’s head until October 9 of this year, is a personal friend of Brailsford’s. He supported the team through its series of high-profile scandals, publicly and privately. A future sponsor is less likely to overlook jiffy bags and poor medical record keeping.
“Given Brailsford’s comments about a secured funding cycle to 2024, he obviously believed, initially, that their future was secure,” Parrish said. “It’s not hugely uncommon for an outgoing CEO, or owner, to sure-up their legacy by renewing a new multi-year partnership before the hammer comes down, but [it] seems this hasn’t happened here with either [James] Murdoch or Jeremy Darroch.”
The result is Wednesday’s news: Comcast doesn’t want to hand Dave Brailsford £30 million past the end of 2019.
What happens next for Team Sky?
The good news for Brailsford and the rest of his team is that because Sky/Comcast owns the team, it has an interest in helping find a new owner or new sponsors. Brailsford has a full year to secure funding, though he’ll ideally want to have that nailed down prior to the Tour de France in July.
How are his prospects? Well, that depends on the goal. Finding £30 million from a single entity, directly replacing Sky, will be incredibly difficult.
“There aren’t many deals that large in sports, period,” said EF head Jonathan Vaughters, who has been on a near-perpetual sponsor hunt for about a decade. Parrish said the same. “There are a number of brands that spend those values, but sponsors today want to reliably project a tangible return on investment, and, naturally, justifying the investment of £30 million is much harder,” he said. “For cycling it would represent a major anomaly – which is what Sky were.”
There are plenty of sports team budgets that dwarf those of cycling — those associated with Formula 1, the National Football League, and Champions League for example — but just because budgets for those teams are far larger doesn’t mean the actual sponsor spends are that large. Formula 1, the NFL, and Champions League all share revenues from TV rights. Cycling doesn’t.
Parrish agreed. “Given £30m annual investment, this would be compared against other major sponsorship options: Champions League, F1 Team title partnership.”
Those direct comparisons will make Brailsford’s job more difficult. Formula 1 doesn’t come with a few decades of doping controversy. The NFL and English football don’t seem to care much about their own doping issues, and neither do their fans.
Team Sky, as a business, doesn’t have many tangible assets. But it does have Brailsford and its stars — Froome, Geraint Thomas, its duo of next-gen Colombians. “Presuming that Dave Brailsford still has the passion to continue under new ownership, a new buyer or sponsor will be acquiring a turn-key team, in the short-term at least,” Parrish said. That’s good news for the team.
“That said, I wouldn’t count out that the team is sold for a nominal sum,” Parrish said. “The reason for this is that once acquired, there’s a huge annual capital expenditure (about £30m per year, to keep it running as it does currently), and little means to develop tangible assets at the end of ownership.”
This isn’t all that uncommon. An example cited by Parrish, for example, was Ross Brawn’s purchase of the Honda team in F1 for a whopping £1.
Potential buyers, then, include Brailsford himself. He could purchase the team for this nominal sum and then run it like most other WorldTour teams are run. He’d have a management company and sponsors would pay that company to run the team and provide a return on their investment.
The team could also be purchased by a private equity group or investment company, according to Parrish.
“Sports properties are an attractive investment currently, as sport is must-have content,” Parrish said. Sports are one of the few segments of broadcast television that continues to grow, making them invaluable to broadcast companies. “They’d likely build the commercial team, fund the team through sponsorship, [and] hope to make a small annual profit, whilst developing tangible assets that give the team a franchise value at sale after five to eight years.”
McLaren, for example, diversified into the supercar company we all know and the applied technologies company many don’t. They also built their state of the art McLaren Technology Centre headquarters. “These commercial decisions helped have raised the value of McLaren far above that of other F1 teams that have traded for nominal sums: a 10% stake in McLaren was sold for £200million last year,” Parrish said. Sky is likely the only team capable of a similar feat.
The final possibility is that another large multinational company steps in to purchase the team. This entity wouldn’t have to put up the full £30 million. It could seek to “recoup some of the budget from other corporate sponsors,” Parrish said.
The bottom line is that finding £30 million, roughly $40 million US dollars, will be difficult. Brailsford is now diving back into competition with the rest of the WorldTour. Granted, he has a proven track record. And, as Vaughters said, “he has an impressive ability to reach into the toilet and pull out chocolate.”
Still, even if Brailsford finds a solution, it’s likely that Team Sky enters the 2020 season with less cash than it’s had for a very long time. What would that mean for the team? What would it mean for the sport?
Cycling without a dominant Team Sky
I put the question to Vaughters directly: Would you be happy if Sky folded, or downsized?
“I’m certainly not pleased at the news,” he said. “But I don’t see it as necessarily entirely negative. I think that probably the sport is due for a bit of a reset financially.”
The argument goes like this: There aren’t many sponsors willing to put up £30 million or more, which means that any team with that kind of cash is going to have a stranglehold over the transfer and talent market (look no further than Sky snatching Ivan Sosa from underneath Trek-Segafredo for proof of this) and, in a highly technical sport, a rich team is likely to find advantages elsewhere as well. This makes it difficult for teams with less funding to compete where it matters — at the Tour de France.
“A 50-million-dollar buy is really hard,” Vaughters said. He sees cycling as more successful in the $15 million (£12 million) range, which happens to be where most WorldTour teams currently reside.
Fifteen million dollars is still a lot of cash, though. “If you’re going out and selling a $15 million sponsorship and you’re saying, ‘We don’t have a shot at being the best team in the world at $15 million, or more importantly we don’t have a shot of winning the Tour de France at $15 million, it’s just discouraging for people in marketing who might want to enter cycling but they’re going to say, ‘jeez, for 15 million bucks we can’t even get a shot at the ring, so let’s do something else.”
The extension of this argument is that chopping off the richest team in the sport, and thus removing that team’s stranglehold on the Tour de France, the only event that truly attracts the attention of major corporate sponsors, could prove beneficial to the sport as a whole. It’s the same argument made for salary caps, and it’s an argument that clearly serves smaller teams like the one Vaughters runs.
The counter-argument is that a team like Sky forces the rest of the WorldTour to raise its collective game. Sky’s ability to pay has helped raise salaries across the top of the sport, which is good for the pros themselves. But if there’s no cash — if sponsorship at that level competes with larger sports with more reach — there’s no game to raise. The two philosophies are fundamentally at odds with each other.
According to experts like Parrish, finding a direct replacement for Sky is going to be a tall order. That means Brailsford’s team is likely to downsize, if not disappear. Either outcome will have a dramatic impact on pro cycling. Brailsford cannot afford to keep all the talent his roster currently holds on the average WorldTour budget of about $20 million US per year; with that budget he could barely afford to pay his eight-man Tour team, let alone 20 more riders. That means the team’s big-name riders either take pay cuts or head elsewhere.
And if those riders land on different teams, without the financial, athletic, and personnel support they currently enjoy, will they ride at the same level?
Put another way: How much of Sky’s dominance is the method, and how much is the money? Is Contador right, and Froome without Sky is hardly Froome at all?
Come 2020, we may find out.