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Changing the Business Model: Building the sponsorship base

Editor’s note: VeloNews contributor Steve Maxwell and his TheOuterLine.com partner Joe Harris are publishing a multi-part series of articles about how to improve the sport of cycling’s business foundation. This is an excerpt from the second article.

One of cycling’s greatest attractions for fans is that it’s basically free to watch. The flip side is that, relative to other sports, there is much greater pressure on event organizers and teams to find external commercial sponsors to provide the financial foundation for the sport. And although there is an urgent need to diversify the sources of revenue in the sport, the fact is that pro cycling — by its very nature — will always be heavily dependent upon commercial sponsorship. Viewed from this perspective, one of the most pressing issues faced by the sport is the need to attract and retain more committed and global long-term sponsors.

The real problem (as pointed out in the first article in this series) is an underlying atmosphere of instability that affects everything and everyone in the sport, because the requisite sponsorship and financial backing are always in flux. Team managers are always on the hunt for new sponsors. Race organizers are trapped in revolving budget shortfalls. Marginal teams come and go. Riders and other employees worry constantly about whether their team is about to collapse — should they be looking for employment elsewhere? There is no sense of security. This continuous turnover, uncertainty, and sense of financial foreboding has a very negative impact on the sport — and it must be addressed.

Sports sponsors are after opportunities that will give their brand wide exposure, but they obviously steer away from options they fear could turn into liabilities. In this regard, pro cycling is at a distinct disadvantage. Doping scandals have overshadowed the sport for so long that it has developed a poor public image — with the general public, but also with much of the potential sponsor base. As Bob Stapleton, chief of the former HTC High Road team, and now chairman of USA Cycling, says, “You can’t talk about cycling sponsorship without confronting the doping issue.”

Because of this historical legacy, “cycling can look like a risky bet,” says Slipstream team owner Doug Ellis, especially vis-à-vis other sports. No one wants their name and brand to get bogged down in a doping scandal, and no company, even today, should enter the pro cycling market without directly confronting this issue and deciding how to deal with the risks.

Although it’s impossible to know what the real impact of doping has been, it is certain that there are many potential sponsors out there who fear that associating their name with pro cycling may hurt rather than help their brand image and customer awareness. Because of this, cycling has had to adapt to continuously high sponsor turnover — with new firms coming in and out of the sport almost every year. Despite recent and hopeful progress in this regard, numerous key sponsors continue to pull out of the business — Belkin, Liquigas and RadioShack to name just a few.

Beyond this primary issue of changing and overcoming its historical image, there are also a number of secondary challenges in promoting pro cycling sponsorship.

First, it is very difficult to measure and document the value of a sponsorship investment. Accurately measuring the benefit and economic value of any sports sponsorship is at best an inexact science, but more sophisticated metrics and means of evaluating the real financial returns would be invaluable in attracting cautious potential sponsors. One recent study estimated a six-to-one financial return on cycling sponsorship investments — a claim which was briefly bandied about by various parties who wanted to agree with the conclusion, such as the UCI and sponsor-hungry ProTeams. Unfortunately, however, these studies are often based upon very simplistic value calculations or unverifiable assumptions — making it difficult to judge their accuracy or conclusions. Many sponsors tend to fall back on what is easy to measure — like the number of logo or signage “views,” often measured as the number of seconds the logo is in view on television — rather than what may be important to measure, such as consumer recognition of the sponsors’ product, and whether or not the consumer trusts the sponsor.

Second, the visibility and potential revenue-generating capability of pro cycling is overwhelmingly focused on a single event — the Tour de France. Getting selected for the Tour is a huge consideration for existing or potential sponsors, and unfortunately, the system for selection has historically been somewhat opaque. The sport desperately needs to diversify its calendar and logically organize its structure (to be discussed in later article in this series) in order to spread the wealth around a bit better. Here again, the sport is heavily dependent upon the decisions and strategies of ASO to move it in a positive direction for overall growth — not just to consolidate and preserve its current lock on key events.

And even with key sponsors, many teams don’t cover all of their expenses. In many cases, there is a wealthy individual owner behind the scenes absorbing at least some financial losses incurred by the team. This has led to a growing disparity or “income gap” within the ranks of the teams on the WorldTour — where some teams struggle to survive while others are propped up by the likes of cycling patrons like Andy Rihs or Oleg Tinkov. This allows some teams to survive over the short-term, but it’s clearly not a sustainable long-term financial model; being a loss-leader rarely leads to market success. Moreover, when patrons pull out, these teams often collapse.

Finally, cycling events are just as dependent as teams are upon sponsorship arrangements and wealthy backers to survive — particularly in the United States. All three of the top races in the U.S. are essentially underwritten by wealthy individuals or companies — in addition to name sponsors. Event organizers face most of the same challenges that bedevil individual teams, and sometimes actually find themselves competing with their constituent teams for the same sources of scarce sponsor dollars.

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