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Changing the Business Model: Strengthening the financial foundation

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 first article.

Cycling is a unique sport, freely accessible to tens of millions of fans every year. Whether it is the estimated 15 million people who watch the Tour de France in person each year, or the countless spectators of the classics, regional pro races, and downtown criteriums, almost no one has to walk through a turnstile or pay admission for the privilege. This is one of the great allures of the sport — the ability to get up close and personal with the riders, and truly experience the race first-hand.

Other sports, which are played in large stadiums, can collect tickets and charge admission. But because cycling lacks this fundamental source of revenue, it has always wrestled with financial challenges — and has historically been almost totally dependent upon commercial sponsorship for its financial viability. Unfortunately, to make the situation worse, the sport’s image has been stained and overshadowed by decades of continuous doping scandals — diminishing its public appeal, and often shrinking the general level of sponsorship interest in the sport. After all, who wants their product or brand to be associated with a sport perceived to be saturated with cheaters and illegal drug-takers?

This underlying atmosphere of financial uncertainty and instability means that cycling suffers from a state of constant worry and insecurity that affects everyone and everything in the sport. Sponsors come and go on a regular basis; team managers must always be on the hunt for new funding. Teams with limited budgets and marginal results appear and disappear. Riders, staff, and management have to constantly worry about whether their team will survive — and not if they should be looking for employment elsewhere, but how soon during the season they should start. This atmosphere of continuous turnover, uncertainty, anxiety, and the sense of financial foreboding is very unhealthy and detrimental to the future of the sport.

Even more problematic, from the long-term perspective, it is this lack of dependable and sustainable sources of revenue and profit which makes it difficult to create teams or events with significant economic value. And without the ability to create sustainable economic value, cycling will never be able to attract long-term investors to the sport. Until cycling teams and cycling races are able to build real and sustained economic value, cycling will never be able to attract the necessary level of financial investment. This is the root economic problem of professional cycling.

Hence, cycling faces several critical financial challenges which it must address: first, in the shorter-term, it must develop better means of attracting and retaining dependable and global sponsors; second, over the longer-term, it must explore and develop new means of revenue generation, and diversify its historical dependence upon third-party sponsorship; it must find a way to make television viewing of the sport more compelling, in order to develop stronger TV revenues; it must determine a reasonable and equitable way to share those revenues — small though they may currently be — among the various stakeholders for the maximum benefit of the overall sport; and it must continually work to control the cost side of the equation.

Fortunately, there are numerous specific steps that cycling can undertake to address these challenges, and develop a more predictable and sustainable financial foundation. Because the sponsorship issue is such an overwhelmingly critical aspect of the financial health of pro cycling, we will deal with it in a separate, second article in this series.

Read the complete article >>

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