Photo: Casey B. Gibson | (File).

Bouchard-Hall: USA Cycling will lose $1 million in 2015

USA Cycling CEO Derek Bouchard-Hall says the organization needs to tighten its belt and find ways to appeal to non-traditional events.

USA Cycling will lose $1 million in 2015. Without a series of planned belt-tightening maneuvers, including cuts to staff and elite athletic programs, next year’s loss would be more like $2.5 million — a massive gap in an overall budget of about $15 million.

To reign in such losses, USA Cycling must increase revenue and cut costs. It must do so in the midst of a dramatic shift in the ways that American cyclists race and ride, away from the criterium model and toward one decidedly less traditional, more informal, and outside the scope of USA Cycling’s old business model.

Last week, the organization sent out preliminary plans detailing 2016 costs for both racers, in the form of licenses and a new anti-doping surcharge, and for race promoters, in the form of insurance costs. It’s one small part of sweeping changes occurring within the organization. Highly condensed, new racers should see costs decrease while experienced racers will see them increase slightly, mostly to cover the cost of a new amateur anti-doping campaign.

In a phone call Wednesday morning, USA Cycling CEO Derek Bouchard-Hall laid out his organization’s financial predicament, and what it’s doing to pull itself back into the black.

VeloNews: How deep in the red are you? How grim is it?

Derek Bouchard-Hall: It’s not grim. It’s a real challenge; I don’t want to overstate it. On the one hand, I’ve been pretty open about where we are, because there’s a perception that we’re raking in all this money. That’s absolutely not the case. On the other hand, I don’t want to make it sound more dire than it is.

We’re operating at a $1 million run rate loss right now. If you take what it costs us to run the sport — staff here, the programs — versus projected revenues, it’s a $1 million gap [for 2015].

We have a very strong balance sheet because we had many nice growth years. We have about $12, $13 million on a balance sheet, which means we can survive the net loss we’ve incurred this year and the net loss we’re going to incur next year. Because of that we’re OK. But we cannot indefinitely operate at a $1 million loss.

We’re not going to solve it next year; we’re going to operate at a loss next year. To get to a place where our revenue matches our expenses, we’d have to really substantially cut, and we’re not going to do it.

We forecasted what will happen in 2016, and we added up the potential loss of VW [a major sponsor of USA Cycling – Ed.] — they’re not gone. They’re still our partner right now; they’re trying and may continue — but if we forecast what we think will happen in membership, sponsorship, and then we look at all the things that are being asked of us by the community, we forecast all that out and it came out to a $2.5 million run rate loss, which obviously we can’t do. So we had to really sharpen our pencils and figure out what we’re going to do.

We did have to raise fees; we wanted to do it in the right places, at the top of the sport, not the bottom. We are cutting a lot of costs, across all departments. Elite athletics, marketing, across the business. After all that work, we’ve gotten it below a million dollars. We think we’re in a good place.

The reality is that all business go through up and downs. We are in a down, because of the trend in participation and the loss of sponsorship.

VN: As you say, participation numbers are down. Is USA Cycling suffering from this industry-wide trend away from traditional road racing, toward non-traditional events? “Gravel grinding,” Giro’s Grinduro, Rapha’s Prestige rides, rides like that.

DBH: Yes and no. That is a key driver for us, it’s causing the drop in participation. The problem is not that there are fewer people out there participating in cycling, it’s that they are shifting away from traditional events that USA Cycling sanctions to non-traditional events that USA Cycling tends not to sanction. It’s a market share shift.

The overall community is still out there participating at a very vibrant rate. It’s a problem for us because it’s a transfer away from our ecosystem. That’s a revenue problem for us. Our relevance becomes reduced in that environment.

It’s not a problem in the sense that our mission is growing the sport of cycling. And we don’t want to lose sight of the fact that this trend is the result of people finding formats that they love and enjoy. I think all of us have participated in these sorts of events. It’s a great element of the sport. We should be pleased that people are finding these other formats.

But it is a challenge for us, because it shifts events away from us, and one of our core goals next year is to become more relevant in those non-traditional events. We want to play in that space, get more promoters to say ‘I want to do this with USA Cycling, because they offer me something.’ Our insurance, our ability to market, things like that. There’s a range of things that we’re trying to do develop the value proposition.

The best example of that is insurance. People are participating in events with woefully inadequate insurance. The volunteers, the officials, the race directors, the participants, have very little coverage in the event of bad things happening, and they’re left exposed. That’s one way we think we should be involved, we want to make sure our community is covered.

That’s only going to be successful if we create a value proposition that these race promoters care about. That’s a very important goal for us this year.

If we’re successful, it’s unequivocally excellent for USA Cycling. We’re helping guide and shape that in a positive way. If we stay where we are and the sport shifts outside of that, it takes away our ability to positively guide the sport.

VN: How do you tailor your product for those types of events?

DBH: That’s what we’re still working on. We don’t have the answer to that yet. But if you think about what a race promoter wants, they want insurance coverage — no more than they need — that’s cost effective. They want to market their event. They want registration and paying fees to be as simple as possible. They need all these things so they can focus on creating a great event.

The other thing is the race side. Upgrade points, results, and rankings. That’s harder. Because a lot of people are doing these things and don’t care about upgrades. But they do care about results, and finding a way to evaluate the effort. We’re trying to figure that out, the right way to become relevant in that space. We’re only going to do it if we create a value proposition for participants and race promoters that they think is a good deal.

There’s also an element of marketing. We’ve contacted race promoters who never even considered using USA Cycling. They didn’t even know we did something like this. We need to tell people that we’re there to support them. It’s a problem we’re still trying to wrap our arms around.

It’s a market shift that is threatening to pure racing organizations. There is an argument that it’s positive for the sport overall, but for those that have structured themselves to serve the pure, traditional racing market, it’s a difficult issue.

VN: The cost structure reforms have been out in the wild for almost a week now. What has the response been like?

DBH: We got less commentary than I anticipated. What we did get was a mix of stuff. Anytime we are increasing costs on our community, people don’t like that.

I think people are very pleased about things like reducing the one-day license fee, in particular. They were pleased about the increased anti-doping efforts, that has been a very positive source of feedback. The fact that we haven’t been doing large increases in license fees, that’s also getting a lot of positive feedback.

The things that people are concerned about are any time you raise fees. We’ve had some feedback to say that you can’t increase the racer surcharge at all, and that any increase on that number, you just can’t do it. You have to keep it level or drop it to get people in. That I totally understand; we were loath to do it.

The other one was around the surcharge for anti-doping, perhaps a narrower range of categories. That may be something we switch before we finalize this. Rather than $3 for cat 4 and above, maybe $5 for cat 3 and above. That’s something we’re evaluating.

VN: Many of the changes seem to be in line with the platform of new sanctioning body NACS (North American Cycle Sport).

DBH: Of course it influenced us, because we’re both trying to do the same thing. NACS is responding to criticisms they have of USA Cycling and we’re responding to those same criticisms. We’re working on the same base of concerns. It wasn’t a case of us looking at the NACS proposals and trying to match them, but it was a case of us trying to address the same concerns.

VN: Can you provide an insight into staff changes?

DBH: It would be inappropriate for me to comment on personnel changes, just because there are individuals involved. There are changes; we are taking costs out of the organization. Those will continue. But I can’t comment on headcount.