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Sponsorship, testing and the Tour: a conversation with Slipstream owner Doug Ellis
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The professional continental team Slipstream-Chipotle (formerly TIAA-CREF) is heading to the Amgen Tour of California happy to know that it will also participate in this year’s the prestigious Criterium International stage race. ASO, the organizing body of the Tour de France, gave Slipstream-Chipotle the invitation late last week.
"Everyone is really excited about this, as it’s a race that all the young guys have read about and dreamed of competing in," said team director Jonathan Vaughters. “As an organization, we are very grateful that ASO has given us this opportunity to race in one of its top events. Things have been a bit rough between American riders and ASO the last few years, so we feel that it’s our obligation to help set things back on the right track.”
Perhaps the biggest question surrounding the new Slipstream-Chipotle squad - beyond the usual “What’s with the new argyle kits?” - pertains to the team’s lack of a title sponsor.
Running a team with service courses in both Colorado and Gerona, Spain, is a very expensive endeavor, and thus far, the team has not found a title sponsor to replace TIAA-CREF. New York-based private investor Doug Ellis, who until recently preferred to stay out of the public eye, has covered the team’s expenses. Slipstream is the name of the sports management company Ellis and Vaughters own; Chipotle is a Mexican restaurant chain. TIAA-CREF, a financial planning company, continues to sponsor Slipstream’s junior development team.
Several months ago VeloNews asked Vaughters about Ellis and his funding of the team.
“Doug put together a group of investors, or contributors, that want to see this team in the ProTour and there are a lot of ways we can do that. But essentially we sort of have certain amount of start-up capital to make it into the ProTour. And the more sponsorship revenue I bring in, the less of that start-up capital I have to use to in the future sign big names, and if I bring in fewer sponsorship dollars then I have to use more of that start-up capital.”
Ellis and Jonathan Vaughters met after Ellis, a lifelong cycling fan, cold-called Vaughters in February of 2005 and invited himself to the TIAA-CREF team presentation in Denver. They soon found they had similar ideas on how to build an American presence in the European peloton — by building, rather than buying, a ProTour team. Vaughters compared Ellis’s interest in the team as similar to that of other professional sports franchises.
“If you look at a lot of sports,” Vaughters said. “That is the model, a group of owners will come in and buy a baseball team for $100 million and initially they lose money on the team until the team is turned around and attendance is up. A lot of times baseball teams will lose tens of hundreds of millions of dollars before they turn around and become profitable, and that’s all done with private dollars. It’s sort of the same thing, you’re coming in, buying an underappreciated property and then building it up with investor dollars, and eventually it becomes an attractive enough property that it can be profitable with sponsor revenue.
“It’s a balancing act in that Doug’s goal with that investor group is like, ‘Here’s your money, get us into ProTour,’” Vaughters said. “And I have a trajectory and a timeline and I’m trying to fill as many holes as possible with sponsorship and hopefully it all works out. The problem is, to run a $700,000 domestic team, trying to find a sponsor is not that difficult, and to find a $10 million ProTour team, then you are on TV and you have such huge media impact, to find a sponsor for that is feasible as well. The place we are in now, we’re an organization at $2.5 million, with 23 riders racing on two continents, pushing towards the ProTour, we’re not on TV for the Tour de France, we’re not getting the massive impact. We’re in that space where we can find $700,000 sponsors no problem, but can we find a $3 million sponsor? That’s more difficult.”
Asked what Ellis does for a living, Vaughters answered: “He basically manages money. He’s not a financial planner — he’s a wealth manager. I don’t know how to define it, you should probably ask him.”
So we did. Ellis spoke candidly about his reasons for backing the team, the team’s new anti-doping policies and its need for a title sponsor.
VeloNews.com: Can you explain your role within the team?Doug Ellis: I try not to be operationally involved in a day-to-day way and try to focus more on long-term strategy what we are really trying to do over next two three years. A big part of that is focusing on sponsorship, and we’re really trying to turn the Tour of California into an event to show potential sponsors the professionalism of our organization and the high quality of the team and give them a taste of what our trajectory forward is. So there’s all that, organizing, plus getting the supporting Web site in place, and the anti-doping program, trying to get all the details with that, helping them get on their feet. So there are a lot of moving parts right now.
VN: So are Slipstream and the Agency for Cycling Ethics (ACE) sort of building this program together?DE: The ACE people come out of the Don Catlin lab at UCLA . They have come up with an innovative and solid, complementary approach to the way that anti-doping controls are done by the sport itself. I think that’s an important aspect — we’re not trying to take on the establishment and say you are doing it wrong. What we are trying to do is come with a way that enhances what [WADA and USADA] are already doing, because they themselves probably feel they are at a disadvantage because they don’t have the resources or money to test as much as needed to make the sport 100 percent clean.
We’re trying to carefully construct a program that they can be behind, officially or unofficially, and not feel like we are doing something that is slapping them in the face. From my point of view, the program is really important. One aspect is that it’s a third-party doing the administration of the tests, it isn’t us doing it ourselves and then choosing to disclose a problem or not. The deal we have with ACE is they are providing us with an ACE stamp of approval, and as soon as we break the protocol, that stamp of approval is publicly removed, and then the insinuation is that something wrong. And I think that’s a powerful differentiator between us and the kinds of programs that are being implemented at CSC and T-Mobile, which are more sort of in-house efforts. We applaud them for doing it, but we are looking for… we would love it to be 100 percent separate of us, and have these third parties doing it, who give you this seal of approval. We would love it if, two years down the road, lots of teams are doing this and it could bring the costs of a program like this down.
VN: Can you give an idea on what those costs are?DE: It’s their first time through, and there are some economies of scale that will be realized, but I am imagining between $300-500,000.
VN: That is very significant.DE: Yeah, you could run a small team for that. But from our point of view, there are lots of different arguments we can make as to why it’s something valuable — the health of the riders, the cleanliness of the sport… and we can demonstrate to the riders that this isn’t the case where we’re sort of telling you to be clean but then expecting results, and you have to figure out how to go and get those results. We’re really creating an environment where cheating is virtually impossible.
At the same time, on the business side, we are creating a kind-of guarantee and something that we can offer to potential sponsors, that if you form a relationship with us, you’re not going to have happen to you what happened to iShares or Liberty Mutual, which was a horrible way for good sponsors to be treated. Frankly, we’ve been struggling in the environment since last year’s Tour de France, trying to find sponsorship. That’s why we don’t have a proper title sponsor this year, and we think this is a way to aggressively go out there and say to companies, ‘Don’t be afraid. If you come and form a long-term relationship with us, you’re not going to have this happen to you.
Beyond the ethical side of it, it also comes across as an insurance policy for seeking sponsorship dollars. You may spend up to a half million dollars, but when you are talking about a potential $5 million sponsor, that insurance policy is only 10 percent of your budget.
I think once other people do sign on to the ACE program, or if ACE morphs into something else as the teams come together, I think those costs can be driven down. But as it is, if it is just a single team doing it… especially with our program, because we race so substantially overseas, just the collection and proper handling of the samples, shipping them, is a significant amount of the cost. There is a long article that is about to come out in the New York Times. They spent a lot of time at our camp understanding the mechanics of the ACE program. We thought it was smart to have them come and tell them the truth of what we are doing. We have to survive against a high degree of scrutiny, and that was the first place to go.
VN: Your team is in an interesting position, as a professional continental team without a title sponsor. The team’s not called Ellis-Chipotle.DE: We are searching for a sponsor, whether it is a U.S. company with European ambitions, or a European company with American ambitions, but something that can mirror our program. We’re committed to racing the new USA Cycling ProTour, but we’re really looking forward towards increased European exposure, and we are serious about making it to the Tour de France. We don’t have full control over that, there are a lot of things that have to go right, and people have to make decisions that go in our favor, but we’re going to make as good a run at that as we can, which includes hiring aggressively in the future and not comprising at all with our program. We just need to find an enlightened sponsor who believes in that and wants to do it with U.S. riders, which is our commitment. My line is 80 percent U.S. riders and really recreating what the original U.S. Postal team was a decade ago, I think that was a really great model to follow, it’s just a whole lot more expensive these days.
VN: I’ve read some things, and spoken with Jonathan, but can you give me your take on how you became involved with the team? Didn’t you meet at the team presentation dinner a few years back?DE: We met at the presentation dinner [in 2005]. I was fully uninvolved. The team was owned by the American Cycling Association. It was Jonathan’s team, and the title sponsor was TIAA-CREF. It was a piece of the ACA; it was a very developmental-focused program in those days. We changed it last year, this is our second year not being connected to the ACA. That was an amicable separation — it just didn’t seem appropriate to run a true pro program to have it be that way,
VN: I think the question everyone is wondering is how does a team exist without a title sponsor?DE: I think the straight answer is that we are just losing money. We are using investor dollars to - the way Jonathan and I talk about it - in order to get where we are going, we have to cross over a no man’s land. The economics of a continental U.S. team are understandable, and it was something that Jonathan was doing successfully before I arrived. The economics of running a Tour de France team are understandable, and there are 20 examples of it, with varying budgets, but they are big budgets, and there are sponsors who are paying those dollars. It’s the middle ground that we are in that requires some momentum to get across. The amount of television exposure, especially in the United States, is not what a sponsor wants to pay, and they would either go down or up in the market. And we didn’t want to just go hire a bunch of riders who wouldn’t necessarily form a coherent team, and Jonathan really believes we can do it by developing talent as well as hiring in some talent. We had to have a few of these awkward years where we are in the middle. I think in the long run it will pay off but it just means we have to be willing to not bring in enough dollars to meet the budget for a few years, and hopefully not create too big a hole, and if everything goes right, we can repay that debt just from whatever fee the management company makes in the decades going forward. But no one believes that there is a huge pile of money to be made from this. This is really a commitment to try to build a team of U.S riders and do something that hasn’t been done for a while. But it’s not a business venture first and foremost.
VN: What other sources of revenue exist for a ProTour team?DE: It’s the title sponsorship and the supporting sponsors, the bike sponsor and all of those dollars that come in. Lots of the other things end up going directly to the riders, like appearance fees. But we can imagine turning Slipstream Sports into an organization that in some ways would look like Riis Cycling, which has the same sort of relationship with CSC. We just don’t have the CSC part of it yet, but he has a very professionally run company that manages the team and does the accounting and arranges the sponsorship and everything. And even if CSC were to go away and be replaced by someone else, we can image the sort of continuity of the Riis Cycling organization behind the scenes. That’s really the model we are shooting for, and once we are established and on our feet in the pro realm, we can imagine starting a women’s team, an under-23 team, maybe doing some event, having some races. All of those things we are open to, but we don’t want to lose focus right now. That would be a way to bring in some dollars that would subsidize the team. But the ultimate goal is to find a sponsor who can foot 80-90 percent of the bill, and then get the rest from everyone else.
VN: So is there a plan to pay back these investment dollars, maybe not in one year, but over time?DE: I think that’s probably a tall order. I think in the end you write off the start-up dollars. The last thing a sponsor wants to hear is that you want to take their money and pay yourself back and it’s not going to go into the season. Maybe if we can create a brand and a team that is very successful, we can create some auxiliary businesses, like race management, or travel-related business, maybe there are some revenues there that can compensate the investors down the road.
VN: Who are these investors? I’m not necessarily looking for names, but are these investors cycling fans, entrepreneurs, venture capitalists, all of the above? What is their motivation?DE: The way the vehicle was set up, we were providing for there being a group of investors. Up until now, I’ve just made the decision to have it be myself. So as of now, the only person putting money into the team is me. [In a second conversation, Vaughters clarified that the others are “contributors” as opposed to “investors.” – Editor] I’ve been approached by other people who are interested, but it seemed more important to me to retain control and not get confused about what we are trying to do. Whenever you give up some ownership you end up having to answer to others, so I decided to keep focused on what our long-term goal is, and not worry about the dollars right now.
VN: What kind of work do you do? This is a small fortune we’re talking about to have this team racing and living in Europe. DE: It’s just private money. I don’t have a better answer for you than that. It’s just family money. The truth is, the premise that this is built around is that if we can quickly enough build the organization and accomplish on the road what we are hoping for… like for me, getting the invite to Criterium International is a fantastic milestone to accomplish. It shows that the race organizers [ASO] like not only the composition of team, and Jonathan, but they believe it is professional enough to do their race justice, which is part of the whole equation. Our premise is that if we can do this, we will find sufficient sponsorship down the road. If we reach these goals, and if we ride in the Tour de France next year, or the year after that, and we can’t find a sponsor, then we misjudged the business. But I don’t think that’s a possibility. I think that we’re going to find it, and we’re just not going to wait. If we had to wait, I think we would miss this opportunity. This is a great time to be doing this. We’re going forward, and in two or three years we’ll find out if it worked. We’re actively soliciting sponsors now, and we hope to find one soon who really believes in that growth pattern. We had Javelin, which was a good bike sponsor, there are good people there, but I think they weren’t prepared to commit the kind of dollars and resources we were going to need to do this big of a team. I think with Felt,, our bicycle sponsor, they see this growth trajectory, they have the same growth ambitions themselves, and they are our first new partner and the hope is that maybe they can ride the same tide with us. Chipotle, is the same way. They are not at the title level, but the team is powered by Chipotle… and their commitment is growing over the years. Their own corporate growth trajectory is very ambitious, so they are someone who maps very logically on to us. We just need to find that U.S. company that is growing in the same way with the same European interests, and I think our sell is easy then, with the U.S. exposure, European exposure, television exposure, it’s really a lot to offer, but maybe not if you are a domestic-only company.
VN: What about a computer company with a growing European market, like Apple? I know they are expanding their iTunes store in Europe.DE: A lot of those companies, like Apple or Google, never touch sponsorships. They are afraid, and you can understand. What if you were Apple, and there was a doping scandal on a team you supported? It would bring down this unbelievably valuable global brand. I wish they didn’t take that opinion, but I don’t blame them for having it.
VN: But your team has this built-in doping insurance plan.DE: [Laughs] Well, that’s what we are hoping, that we’ll find someone that was otherwise conservative about it will say, ‘Well look, they are investing their own dollars, trying to make it easier for us, let’s go with it.’ I know the companies are out there, we just have to knock on the right door.
VN: So that is your role, to pursue sponsorship, while Jonathan handles day-to-day operations for the team?DE: I have no competence myself in the bike-racing world. Jonathan calls all the shots as far as how we race, selection and invitations and all that, and he has strong team behind him with Johnny Weltz, but he’s a super experienced guy and a really great part of our organization. I am more involved in other aspects, which do include things like sponsorship, but we actually have a sponsor broker who works with us and helps us bring in contacts and make the pitches and all of that.
VN: I can see how it would be easier to find a $300,000 sponsor for a continental team, or a $10 million sponsor for a ProTour team, than to find a $3 million sponsor for a professional continental team split across two continents. That seems like it would be the hardest of the three levels to sell.DE: Yeah, and I’m not sure from pure value-proposition point of view, if you look at newspaper and magazine hits and Web hits and TV exposure, I’m not sure that the middle ground doesn’t pay, but I think there is a psychological barrier for people. But we have very good numbers. We’re having IEG do a media evaluation to help us come with a value of our property, and I think it’s going to be a lot higher than some potential sponsors believe, but we’ll see.
VN: Any word on whether the cyclo-cross team will return? The TIAA-CREF 'cross team has been extremely successful.DE: I think it may in some form. That’s really Ben Turner’s project. I don’t know what their sponsorship will be like for next year. I know in the big scheme of things we would love it if there were a Slipstream-branded ProTour team, women’s team, cyclo-cross team, mountain-bike team, a whole product line, but it’s one of those things, we can’t do everything in the first year. I don’t know what exactly will happen to that piece of it. I’m not sure a decision has been made. We have a little time to worry about it.
VN: It seemed like that ’cross team not only brought exposure to TIAA-CREF, but it also served as a feeder program for the road team. DE: I know a few riders that got their start racing ’cross with the TIAA-CREF team ended up racing on the road with the team afterwards. And that’s important, just as the track team is important. If you look at guys like Mike Friedman and Brad Huff, I know they were established, but they kind of came out of nowhere. For us, it was because we were building this track program, and they were premier athletes for that, and only then did we realize their value on the road. Huff was doing great at Langkawi, getting thirds and fourths. These satellite programs are really important in picking up the talent for tomorrow.
SLIPSTREAM-CHIPOTLE (USA)
SPONSOR: Sports management company, restaurant chain
TEAM DIRECTOR: Jonathan Vaughters
ASSISTANT: Allen Lim
EQUIPMENT: Felt bikes, Shimano componentry
WEB SITE: www.slipstreamsports.com
FULL ROSTER Tyler Butterfield (Bermuda), 2/12/83 (formerly Vendee U) Blake Caldwell (USA), 3/27/84 Steve Cozza (USA), 3/3/85 Michael Creed (USA), 1/8/81 Jason Donald (USA), 1/1/80 Timmy Duggan (USA), 11/14/82 Huub Duyn (Ned), 9/1/84 (formerly Rabobank) Lucas Euser (USA), 12/05/83 Michael Friedman (USA), 9/19/83 Will Frischkorn (USA), 6/10/81 Alex Howes (USA), 1/1/88 (formerly 5280-eSoles junior development team) Brad Huff (USA), 2/5/79 Ben Johnson (Aus), 1/7/83 (formerly Agritubel) Michael Lange (USA), 4/21/83 Craig Lewis (USA), 1/10/85 Ian MacGregor (USA), 4/13/83 Pat McCarty (USA), 1/24/82 (formerly Phonak) Francois Parisien (Can), 4/27/82 Danny Pate (USA), 3/23/79 Kilian Patour (F), 9/20/82 (formerly Crédit Agricole) Tom Peterson (USA), 12/24/86 Peter Stetina (USA), 8/8/87 Taylor Tolleson (USA), 7/13/85
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