Money’s too tight to mention
Pro teams are traditionally tight-lipped when discussing their finances, but as Cyclist discovers, many of them believe the current model is unsustainable and say it’s time to change the way they make their money
The Tour de France. It’s the biggest race of the year and earning your back number takes years of training. But it all hangs in the balance of a contract, usually a single year, and you’ll need to be offered one by a team that sits at the pinnacle of the sport: the WorldTour.
To make it here also takes an organisation of significant size that should operate just like any other professional sport – except that they don’t. Cycling teams rely on sponsorship dollars to fund their operations, not television revenue or ticket sales. Barring a few online transactions of team apparel and bidons, cash comes from whichever logos happen to be printed onto team kit shortly before January each year. Just like that of a rider, these deals are often just 12 months long.
Of course, it’s not doom and gloom for everyone. The likes of Peter Sagan, who is reportedly being offered in excess of €5 million ($7.3 million) to join Tinkoff-Saxo in 2015, break the mould. Remove the fortunate few – Sky and Tinkoff – with money to burn, however, and you’ll find most teams struggle to make any money at all, as the whole sport is based on a potentially unsustainable financial model.
Logo or no-go
By the time American Chris Horner won last September’s Vuelta a España, it was public knowledge that Basque outfit Euskaltel-Euskadi and Dutch team Vacansoleil-DCM were to disband at the end of the season through lack of sponsorship. ‘Today is a sad day for Euskaltel, for the team, for the current sponsors and for all of those who have supported the project,’ read a statement. ‘We regret that no company has opted to back this team, the doyen of the world cycling elite.’
Euskaltel had lasted in one form or another for 20 years since launching in 1994. As for Vacansoleil, ‘the original club actually started in 2005,’ says the team’s general manager Daan Luijkx. ‘Our budget grew and we progressed to Continental level. Then I met the owner of Vacansoleil [the luxury camping holiday company]. He wanted to have his own team and race in the Tour de France. His ambitions matched mine and, while I knew we didn’t have the budget to be the world’s best, we went onto record some great results.’
Vacansoleil’s CV includes winning three stages of Paris-Nice, a polka-dot jersey for Johnny Hoogerland and Thomas De Gendt’s third overall at the 2012 Giro d’Italia. ‘We were always at the front, always attacking,’ continues Luijkx. ‘The minutes we were on TV, well, Vacansoleil was very happy.’
But not happy enough to renew its contract for 2014. Neither was oil company Argos, despite reports suggesting it had signed a three-year contract to continue funding the Argos-Shimano team and the fact that the team possesses the new sprint star of world cycling, Marcel Kittel. Giant stepped in at the last minute to preserve the jobs of staff and riders. Throw in the collapse of HTC-Columbia in 2011 – at the time ranked number one in the world – and it’s clear that professional cycling’s accounts aren’t so much in rude health as sleepwalking into a coma.
‘The problem is simple,’ says Garmin-Sharp’s CEO Jonathan Vaughters. ‘Depending on the team, revenue from sponsorship accounts for 75% to 95% of a team’s budget. There’s a small amount from merchandising and race fees from the odd organiser, but this sponsorship model is at the heart of what’s wrong with the sport.’
Part of professional cycling’s appeal lies in its sheer accessibility. Anyone can watch the world’s finest sportsmen cycle right past them for free. That egalitarian notion – as well as alcohol – fuels Dutch Corner on Alpe d’Huez. It makes fans feel like they’re within touching distance (sometimes literally) of their heroes. On a human level it’s the ultimate socialist sport, but unless it’s a track meet, money flowing in via sport’s traditional source of income – ticket sales – is zilch.
Compare that to a professional football team such as Real Madrid, which received $290 million through ticket sales alone in the 2012/13 season, and you’re starting to scratch the surface of cycling’s accounting problem.
The other major earner for professional sports teams is TV revenue. Between them Barcelona and Real Madrid received a staggering $550 million in that 2012/13 season through broadcasting rights. Pro cycling teams? Again, zero – though whether TV rights in cycling would impact the sport as they have done
the English Premier League, which is in the middle of a $4.4 billion contract with Sky and BT Sport, is open to debate. Vaughters thinks not, arguing it could actually be detrimental to the sport. ‘If [Tour de France organiser] ASO had to split their television rights, firstly they’d go out of business so the Tour de France would disappear. And secondly, there’s not enough money to run a team.’
Many disagree with Vaughters, including Oleg Tinkov, the billionaire owner of Tinkoff-Saxo, who suggested recently his team could boycott the Tour if they don’t receive TV revenue. But as it stands, cycling’s income column reads no TV money, no ticket sales, no stadiums – in short, cycling has no equity. From a business perspective, this is a disaster.
In a healthy economy, if revenues decrease there are two options: you either take on debt or sell equity. With nothing apart from a garageful of bikes (which might have to be returned), cycling teams have no equity, which means taking on debt isn’t always a viable option, either – unless, of course, the bank manager is a fan of Bianchi.
In a sport that races for more than 200 days a year, often sending two teams and support staff to opposite ends of the world, that’s not good news. Though not matching the expenditure of Manchester United, whose current wage bill is $237 million, you’re looking at outgoings that often eclipse incomings from this sponsorship-skewed model.
‘The median team budget is $21 million a year,’ says Vaughters, who has a unique insight into the financial machination of teams as not only the team manager of Garmin-Sharp but also as the previous head of the International Association of Professional Cycling Teams (AIGCP). ‘The mean is actually higher – more like $26 million – as it’s skewed by teams like Sky, Katusha and Astana. After the wealthiest teams, there’s a precipitous drop-off. We’re right on the median.’
Those figures are corroborated by Louis Chenaille at the UCI, who confirms the overall budget for the teams on the WorldTour and Pro Continental Tour in 2013 was $516 million, with an average budget of $12.9 million per team.
Analysing Team Sky’s budget sheet highlights Vaughters’s views of teams’ fiscal inequality. Their accounts for the 2012 season showed an ‘operating expense’ of $38.4 million. The majority of Team Sky’s income is drawn from headline sponsor Sky, but that’s split between BSkyB in Britain, Sky Italia and News Corporation. Each of these sits under the 21st Century Fox umbrella. Uniquely in the short-term world of pro cycling, Team Sky started life in 2010 with a five-year sponsorship deal of around $71.8 million from BSkyB. Sky Italia then came on board, meaning 2012 title sponsor revenue came in at over $23 million. And that’s not including revenue from other sponsors including Jaguar and Pinarello, which brought in over $7 million. That’s more than
$30 million from sponsorship.
Contrast that with Vacansoleil-DCM, who were operating on a budget of around $10 million per season, from all sources including appearance fees and prize money. That’s quite a disparity, especially when you consider (save a five-star hotel or two) the base costs for each of the 18 WorldTour teams are similar.
‘Fixed costs amount to about €2 million ($2.9million),’ explains Luijkx. ‘That’s for the UCI race licence ($73,000), anti-doping contribution ($175,000), renting cars… in fact, we spent €500,000 ($730,000) on hotels and plane tickets and €250,000 ($365,000) on petrol. In addition to that you have €2 million ($2.9 million) for the staff, so that’s a baseline of €4 million ($5.8 million). The rest you can spend on riders.’
Based on those figures, Vacansoleil had about $4.4 million to spend on rider salaries compared to Team Sky, whose wage bill in 2012 was around $29 million, including staff. The specifics of Sky’s rider remunerations aren’t public knowledge, but it’s clear the fiscal divide within the sport is vast. ‘There’s a big discrepancy between median and mean salary, too,’ says Vaughters. ‘The mean is around $438,000, the median $278,000. That’s for both WorldTour and Continental, and again is skewed upwards by the bigger teams who can afford to pay huge wages.’
Of course, for every Contador, who’s reported to be on around $7.3 million a season, there’s a journeyman who grosses a ‘normal wage’. UCI’s minimum wage for a Pro Tour rider is €29,370 ($42,930) for a new professional, rising to €36,300 ($53,060) for an existing rider. In the Pro Continental teams this drops to €25,300 ($37,000) and €30,250 ($44,200) respectively.
If you have the millions of Oleg Tinkov or BMC’s owner Andy Rihs, or are government funded like Astana, these salaries are insignificant numbers at the bottom of a spreadsheet. But for the majority of teams, impressing upon potential sponsors the value of a name in exchange for an amount that’ll see you compete with the richer teams is a tiresome, and often fruitless, exercise.
‘In the global sports market there aren’t sponsorships that big that are commercially driven,’ says Vaughters. ‘Take Manchester United. Sponsorship is probably 20-25% of their budget. In cycling it’s up to 90%.’
Manchester United have sealed a seven-year shirt sponsorship deal with Chevrolet that begins next season worth a reported $95 million per season. It’s a world record, but with the team’s predicted revenue for 2014 around the $772 million mark, that still only comes in at around 12% of overall earnings.
‘You go to a potential sponsor and say, “Hey, I know we’re a smaller sport but you get naming rights and a nice logo, so please hand over $37 million a year…”’ says Vaughters. ‘It’s not going to happen.’
It’s a situation made worse by cycling’s dark past. Someone cries
out ‘Festina’ and, while horologists think watches, for the majority it’ll mean 1998, Willy Voet’s car and a bootful of syringes, steroids and EPO. If shit sticks, needles penetrate to the very core.
‘If you’re into cycling, you recognise it’s a different world than it used to be,’ says Joe Vadeboncoeur, vice president of Trek. ‘The problem is, big companies that aren’t close to the sport are bombarded by mainstream press who are looking for click-throughs on their articles. The easiest way to get those is to put Lance Armstrong in the title. Inevitably that leads to how dirty he was. My hope is that the press will start to say it’s a different world than it used to be.’
This instability is heightened by WorldTour licences lasting a solitary year. Because of Euskaltel and Vacansoleil’s demise, and only Europcar rising from the Pro Continental Tour, securing a WorldTour slot wasn’t the bunfight of previous years, but with no long-term assurances, anxiety has always been rife in the peloton.
‘Teams are built on quicksand,’ says Vaughters. ‘All of the employees, the riders, soigneurs, mechanics, they have a constant feeling of insecurity. Is this team going to be financially viable six months from now? Yes? No? Maybe? That instability has been what, in the past, created an environment for doping.’
A sport reliant on sponsorship, the theory goes, seeks desperate means to win in an effort to attract more sponsors… which ends up tarnishing the sport’s image and deterring sponsors. It’s a sort of barbed catch-22.
So what can be done? The first option is to find yourself, as Luijkx terms it in the Netherlands, a ‘sugar uncle’ such as Oleg Tinkov. As well as entertaining the online social community, Tinkov has certainly added stability at Tinkoff-Saxo.
‘One of the great steps forward is that Oleg pays for the team,’ says Tinkoff-Saxo CEO Stefano Feltrin. ‘Of course, we’re going to look for new sponsors but if we don’t [find one], we’re not going to disband.’
A billionaire brandishing rubles is highly convenient, but it’s rare and isn’t a sustainable business model. The past couple of years have seen a breakaway World Series league mooted, headed up by Jonathan Price’s Gifted Group, but those plans have been shelved and replaced by Project Avignon. On the second rest day of last year’s Tour, 13 WorldTour teams met to form a working group investigating a more stable future.
Garmin-Sharp is one of the teams involved in discussions and, according to Vaughters, the most significant change involves pushing for long-term WorldTour contracts between the UCI and the teams.
‘You should reduce the number of teams to 14 and give them at least five-year contracts,’ says Vaughters. ‘Look at the sports league that has the most equity – it’s the NFL. Each of those organisations is worth about $1 billion. So if any of those teams get into trouble, they can always sell 10% of the organisation. How did it get to be that they were worth $1 billion? Because those teams have a permanent position in the NFL. All of a sudden private equity firms will be interested and cycling will be a completely different proposition.’ No promotion, no relegation, simply stability for the chosen 14 teams.
With that stability in place, you could even see big-money transfers, like in football, become the norm. But what about the democratic notion of professional cycling? What about the Pro Continental and Continental teams who themselves expend huge sums of money in the hope of one day racing the WorldTour?
‘It actually opens things up,’ says Vaughters. ‘By reducing the World Tour to 14, you’ll create more slots for Pro Continental teams to race the Tour de France, and ultimately that’s the one every team is after.’ It’s a sentiment supported by Luijkx and Vadeboncoeur, and would certainly lay a foundation for growth, albeit skewed towards the lucky 14.
While ambitious Pro Continental teams such as Aussie outfit Drapac would presumably – and perhaps rightly – question the anti-competitive nature of any such change, you can’t argue with the Tour de France’s worth. ‘For many teams, including ourselves, the Tour is credited for 70% of the year’s media coverage,’ says Luijkx. ‘It’s why teams are reticent to openly talk about a different future direction – they don’t want to upset the ASO.’
Vaughters also floats the idea of draft picks, like in the AFL, where the bottom team has first choice from a pool of available players, while Vadeboncoeur suggests teams and race organisers could work together to forge a greater revenue stream. ‘Many organisers have done a good job of building their events, and they deserve that income, but there’s a line in the sand where we can help them build greater revenue and there’s some sharing that should go with that. Maybe by providing content of what’s happening beyond the race. The teams deserve a piece of that.’
The idea of fewer races has also been mooted, and this is something the UCI is looking into. Currently teams race for more than 200 days a season between January and October. It’s an almost bizarre schedule that might rack up the air miles but adds significant expense to the bottom line.
Many team owners are also in favour of a salary cap, like in the Aussie football codes. When you look at the wages Vacansoleil could pay compared to Team Sky, the benefits in terms of equality are clear. How that would sit with wealthy owners and EU employment law remains to be seen, but it would almost certainly make for exciting racing. ‘There are studies that show sports that go down this route become more competitive and fans grow more interested,’ says Vaughters. ‘In means no team has a huge advantage over anyone else, so what does it come down to? Better coaching, innovative tactics, training. In cycling right now it’s very easy to buy wins. Put a cap of $22 million per team on salaries and you open things up.’
For instance, if Sagan earned $6 million a season, the remaining
28 riders would have to share $16 million (working out at a still-healthy $571,428 each) but crucially stopping anyone being able to ‘do a Real Madrid’ and create a team of Sagans. The UCI Athletes’ Commission has discussed salary caps, and such a move would certainly level that playing field. In addition to its success in Australian football codes, it has also worked in the NFL, the most sustainable model in world sport.
Cycling teams don’t carry the heavy debt burden of some NFL clubs, although with annual NFL budget caps set to rise to $142 million next season and stars such as Green Bay Packers’ quarterback Aaron Rodgers earning upwards of $43 million per season (nearly a third of his team’s total allowance), you don’t need to pass around the collection tin just yet.
Over to the UCI
The election of Brian Cookson over previous incumbent Pat McQuaid has seemingly provided the stimulus for teams to challenge what appears an unsustainable model. While McQuaid forged a reputation as a closed book, Cookson, while still new to the UCI presidency, is regarded as more open and receptive to change. Of course, he has many stakeholders to placate – TV, teams, race organisers – and with potential change comes much resistance. How would ASO react to dishing out a share of TV rights? How many Pro Continental teams would shut up shop without the lure of making the WorldTour? Would Sagan be happy to have his salary capped?
There are many issues up for resolution, but the fact that professional cycling is no ordinary business means, whatever the business model, there’ll always be a professional tour. As Vacansoleil’s Daan Luijkx surmises, for even the business-savvy cyclist the heart will rule the head.
‘I want to try again because once I had a dream to have my own team, to race in the Tour de France – and we did it three times. I’ve learned a lot, and next time maybe I’ll come back with a bigger sponsor.’
Show me the money
Team Sky’s running costs for year-end 2012
Title sponsor revenue: $24,027,460
Performance sponsorship revenue (Rapha, Jaguar, Gatorade, Shimano, Pinarello…): $7,370,000
Race fees and other income: $7,019,900
Total revenue $38,417,460
Staff and rider remuneration: $27,637,960
Race costs (travel and accommodation): $2,628,420
Bike and performance equipment: $3,818,800
Sports science and medical: $396,780
Vehicle running costs: $387,800
Office expenses: $719,940
PR and marketing: $1,761,260
Legal and professional fees: $287,260
Foreign exchange revaluation: -$452,430
Total expenditure $38,350,922
Sky made a profit of about $66,538 in 2012