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Mark Holowesko on pro cycling: It has to be a business

American cycling benefactor says that without large-scale change to the way cycling does business, he and others will leave

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SAN DIEGO (VN) — For over a decade, investment manager Mark Holowesko has written checks to organizations that support young American cyclists. From the USA Cycling Development Program to Slipstream Sports, and now the Hincapie Development team, the 53-year-old has stepped up with funds to help America’s future WorldTour riders get the European racing experience they need.

With cycling suffering its current credibility crash, VeloNews checked in with Holowesko to glean his thoughts on whether cycling’s collapse presents opportunities analogous to those he saw on Wall Street in October 1987. At the time, Holowesko was a 27-year-old working for mutual fund pioneer Sir John Templeton. His boss had just put Holowesko in charge of billions of dollars worth of Templeton funds when the Black Monday hit and the global stock market crashed.

Holowesko, a native Bahamian, recalled that at the time, Templeton didn’t despair. In fact, he was delighted by blood in the streets. Holowesko, a soft-spoken man who punctuates his diction with thoughtful pauses and who does not fit the abrasive hedge-funder stereotype, recalled that he saw Templeton practice what he had always preached: the time to invest is when people are panicking — that’s when values are best.

Holowesko took up cycling when recovering from a knee injury. That led to a life-long addition to riding. “I ride more than the average Joe,” Holowesko said of his five-day-a-week crack-of-dawn workouts. He has also completed multiple Ironman-distance triathlons and is a sailor, having competed for the Bahamas at the 1996 Atlanta Olympics.

Some 13 years ago he started a company called VMG Racing to sponsor Bahamian triathletes. “Actually, VMG is a sailing term,” Holowesko explained, referring to the acronym for “Velocity Made Good.” As Holowesko became more smitten with racing his bike, VMG’s charter grew to include American cyclists. In 2007 an 18-year old named Tejay van Garderen rode for the VMG Racing team, the name the U.S National Team rode under while in the States.

About the same time the teenage van Garderen was racing the 2007 Amgen Tour of California in a VMG kit, Holowesko visited the Tour de France with a group of Champions Club donors — supporters who contributed six-figure sums to help finance USA Cycling’s development programs. While in France, Holowesko met Jonathan Vaughters and Slipstream owner and benefactor Doug Ellis. The fund manager subsequently became both part owner of the Slipstream team and an underwriter of their development program. He also met George Hincapie on that trip. They remained friends and when Hincapie decided to back a development squad, Holowesko chipped in funding.

Holowesko was attracted to Vaughters’ then-audacious claim that his riders could go to the Tour de France without doping. “He was going to put an emphasis on being clean,” Holowesko said. He added that he was inspired to get his checkbook out for Vaughters’ clean-riding project because he “was sick and tired of the whole element of non-clean racing. I’d been involved with athletics at different levels in my life, and I thought the beauty of sport was just trying to test yourself and get yourself to a certain level. There is a certain beauty in just pushing yourself to the limit and I kind of felt bad for all the guys who were forced into doping or who decided to go in that direction because they thought they had to to compete. It just ruins the beauty of the sport. For me, the original attraction was that he was going to take a different approach.”

Though Holowesko did not know Vaughters well, he was a friend of Ellis’, and that New York investor’s confidence in what Slipstream was trying to do in the mid 2000s rubbed off on the Bahamian. Holowesko invests billions in companies large and small, and he added that the startup mentality also appealed to him, recalling that getting Slipstream “off the ground was fun as well.” Eventually his financial support grew to the point, he claims, that he was funding the professional and junior teams.

Holowesko has said that sailing appeals to him because it is a moving chess game on a fluid board; in a large regatta, boats play the infinite variables of wind, current, swell, and the other boats’ tactics. He sees similarities in the moving stratagems of cycling. “I was out sailing last night with some friends and I was trying to explain to them how complicated racing was when you are out there with 90 boats. In many respects cycling is like that,” he said.

As someone who appreciates the finer strategies and tactics of six-hour road races, Holowesko also follows the progress of the U23 riders he helps. “A lot of the guys on the Hincapie team are new,” he said. “So I had them all down to Nassau [Bahamas] for training camp last month.”

He also traveled to he team’s February camp in Greenville, South Carolina. “They are super young, and there is an enormous amount of talent in some of these guys, so it will be fun to see what they can do,” Holowesko said.

It is somewhat ironic that Holowesko first learned about Slipstream while traveling with a USA Cycling group, for Holowesko feels that the deeply entwined roots extending from the sport’s world governing body, the UCI, to national governing bodies hold cycling back from its full economic and sporting potential.

“There are certainly opportunities,” Holowesko said of pro cycling rubble left by Armstrong’s collapse. But he added a strong caveat to finding possibilities in chaos: “The regulatory bodies that manage cycling are such huge obstacles to that. I’m not big fan of the way the sport is managed from the standpoint of the federations. They don’t handle conflicts of interest well, to the extent that they even know what those are. That’s a real impediment to cycling and if there’s no change in those bodies — you’ve already seen some sponsors leave the sport — I think you are going to see a whole wave of sponsors leave the sport.”

“Cycling needs to make some changes and those changes need to be forced on those people,” Holowesko said of the UCI and many of the national federations falling under the sport’s global governing body. While he feels that how that happens is open for debate, Holowesko said the first step he would take would be to create a franchise system that confederates team owners and sponsors. While he also believes riders would benefit from a union of some sorts, Holowesko thinks the team owners and sponsors would be most effective at forcing change because they currently keep the sport on life support.

Holowesko explained that a franchise system like those in most every other major international sport would take cycling out of its 100-year position in the critical care ward and give it sustainable, lasting value.

“I really think the future of cycling is dependent on it forming a business structure,” Holowesko said. Currently, teams are not much more than shell companies that depend on outside advertisers’ money to survive; once the marketing dollars dry up, a team withers and dies. (A current example is Blanco, a team previously sponsored by Rabobank that is literally riding in a blank kit because of its lack of sponsors.) Without franchises, there are no real assets to be nurtured and grown from season-to-season. Holowesko suggested that capping the WorldTour at 15-to-20 team franchises would create both economic control and planned scarcity that in turn increases the teams’ value.

“You could buy and sell them. If you wanted to get into cycling you would need to buy into one of the franchises, just like you do in other sports,” Holowesko said. “If those international and national bodies would recognize that we need to create enough business incentives for people to get involved in the sponsorship level with this sport and in essence create franchises that can be bought and sold, and give people something more than just pumping money into them, for me that would be a massive change and huge opportunity from the business perspective relative to cycling.”

“Organizing the sponsors would be a real jolt to everybody,” he said. Because the sponsors of the 19 WorldTour teams hold the financial keys, they ultimately wield power to clean the government house and develop a stable franchise system.

In theory, wherever there is an unmet need, economic forces eventually come to bear and flush out a stagnant status quo. When asked why economic forces have not pushed out UCI management and the national federations that prop them up, thereby freeing investors to capitalize on cycling’s latent economic potential, Holowesko said one reason is that “the whole economics of the sport is backwards.” In other words, rather than building lasting worth in teams, the sport has amassed value in its governing institutions, leaving the teams with empty balance sheets and hats out to sponsors.

Citing this economic regression, the lack of ticket sales revenue, and the relatively low value of cycling television rights, Holowesko said he thinks the economics of cycling will change, for the worse.

“Because people will just start leaving,” he said. “I know a number of very important sponsors in the cycling community and I think if they don’t see change in the federation level, regulatory level, they won’t be around in 12, 18 months — including myself,” he said.

Holowesko feels cycling can become more stable, but that change will require the UCI to forfeit some of its conflicted current roles as race organizer, rule creator, rule enforcer, and arbiter (through an opaque qualifying system) of which teams join the WorldTour. Of the movement toward a more modern franchise model, Holowesko explained that, “you need to give up some of the power at some of the different levels to get that done. You know, right now sponsors are basically just doing this for publicity. And with the things that are going on in cycling, publicity is not positive unless changes are made at the top.”

As for who it is that makes that happen, Holowesko doesn’t think it is the riders, but rather, it’s a major sponsor like Garmin or or a team owner that can craft an agreement among at least half of the sport’s top teams.

“Once we have that,” he said, “it has much more power than some of the riders getting together.”

According to Holowesko, cycling’s maturation is also retarded by the fact that it is an Olympic sport tangled with “these terrible national federations, which are all tied up in terrible domestic cycling and Olympic programs.” As an example, he cited the Bahamian federation as an example of nepotistic national Olympic federations around the world.

“It’s approved by the local Olympic association and the same guys have been in charge of the Bahamian Cycling Federation for 20 years. And they are basically appointed and they get money from the Olympic association, so it’s all about money. And they get to travel overseas and they get money to do that. Local cyclists pay them and they are a joke and they don’t do anything to promote cycling — it’s all about themselves. And those are the people that vote for different representatives on the UCI body.”

Holowesko believes changing this self-perpetuating old boys’ network is more complicated than pulling a few weeds at the UCI. “Most national Olympic federations outside the United States and other major countries are a joke,” he said. “The whole system feeding into the UCI is corrupt.” The organization that oversaw Armstrong and much of the peloton get away with defrauding the sport for 15 years extends to, and is supported by Olympic bodies and the voting members around the world. Tearing out that deeply rooted, sinecure reality, Holowesko said, is cycling’s greatest challenge.

One could discount Holowesko’s support of a franchise system as a one-percenter’s effort to turn pro cycling into something that will financially benefit him as a fractional team owner. However, Holowesko’s argument — like the money he spends supporting young cyclists — comes across as one that is sincerely in the interest of stabilizing the overall sport rather than a ploy to further enrich himself.

Holowesko studied at College of the Holy Cross in Massachusetts, and has said that the Jesuit university, which his parents also attended, left a lasting impression on his dedication to service. Along with his mentor John Templeton’s well-documented worldview that humans are obligated to help others, not just themselves, the motivations for Holowesko’s support of young cyclists comes into focus. And with a personal net worth reportedly north of $400 million, Holowesko does not need to make money by building and flipping a cycling franchise.

Comparing his role as a cycling philanthropist to his job as an investor, Holowesko said the inability to effect reform in cycling — something that he can do with a mismanaged company —is very frustrating.

“After a while, you basically say, ‘well why am I doing this?’ You know, I love to ride my bike,” he said.

Rather than invest his time and money in a sport whose governing bodies put self interests before cycling’s overall financial fitness, Holowesko said he wonders why he simply doesn’t just “go to France or Italy and ride around in the hills with some friends and drink wine and coffee and go back home?”

“Most people don’t realize that most of the major teams, particularly most of the major North American teams and a couple of the European teams, only survive because of the good faith of one or two people,” Holowesko said.

Referring to benefactors like Garmin team owner Doug Ellis, the now-defunct High Road’s Bob Stapleton, and BMC Racing’s Andy Rihs, he pointed out that many teams like these survive because of the largesse of wealthy people who simply love cycling. While major sponsors pay many team expenses, they do not cover all of them, and it takes benefactors to pony up financial bridges to keep these teams above water from year-to-year. Holowesko calls pro cycling teams more philanthropies than for-profits.

“It’s not a business,” Holowesko said. “If cycling is going to be sustainable long-term and improve, it has to be a business. It can’t be a bunch of guys who for just charity’s sake want to throw money at cycling. … Those are the people in cycling who can hopefully be convinced to stay and group together and agitate for change.”