The Economics of Professional Road Cycling PDF
Preview The Economics of Professional Road Cycling
Sports Economics, Management and Policy Series Editor: Dennis Coates Daam Van Reeth Daniel Joseph Larson E ditors The Economics of Professional Road Cycling Sports Economics, Management and Policy Volume 11 Series editor Dennis Coates, Baltimore, USA Theaimofthisseriesistoprovideacademics,students,sportsbusinessexecutives, and policy makers with information and analysis on the cutting edge of sports economics, sport management, and public policy on sporting issues. Volumes in this series can focus on individual sports,issues that cut across sports, issues unique to professional sports, or topics in amateur sports. Each volume will providerigorousanalysiswiththepurposeofadvancingunderstandingofthesport and the sport business, improving decision making within the sport business and regarding policy toward sports, or both. Volumes may include any or all of the following: theoretical modelling and analysis, empirical investigations, or descrip- tion and interpretation of institutions, policies, regulations, and law. More information about this series at http://www.springer.com/series/8343 Daam Van Reeth Daniel Joseph Larson (cid:129) Editors The Economics of Professional Road Cycling 123 Editors Daam VanReeth DanielJosephLarson Kortrijk Norman, OK Belgium USA ISSN 2191-298X ISSN 2191-2998 (electronic) Sports Economics, ManagementandPolicy ISBN978-3-319-22311-7 ISBN978-3-319-22312-4 (eBook) DOI 10.1007/978-3-319-22312-4 LibraryofCongressControlNumber:2015947950 SpringerChamHeidelbergNewYorkDordrechtLondon ©SpringerInternationalPublishingSwitzerland2016 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpart of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission orinformationstorageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilar methodologynowknownorhereafterdeveloped. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publicationdoesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfrom therelevantprotectivelawsandregulationsandthereforefreeforgeneraluse. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authorsortheeditorsgiveawarranty,expressorimplied,withrespecttothematerialcontainedhereinor foranyerrorsoromissionsthatmayhavebeenmade. Printedonacid-freepaper SpringerInternationalPublishingAGSwitzerlandispartofSpringerScience+BusinessMedia (www.springer.com) Foreword Theonehundredplusyearoldsportofroadcyclinggivesthepeoplewhofervently follow it many joys: history, beauty, speed, intrigue, strategy, effort, suffering, dignity, and perseverance. Cycling gives a face to the struggle of humanity as no othersportdoes.Thisinherentbeautyofhumaneffortiswhythesporthasendured for so long, through World Wars and economic crises. From generation to gener- ation, cycling has always found an audience of admirers. No more so is this true than currently. Growing at a substantial rate since the advent of reliable live tele- vision broadcasting, cycling is steadily becoming a worldwide sport, enjoying popularityonallcontinentsandinmostcountries,withitscrownjewel,theTourde France attracting tens of millions of cycling fans worldwide for each and every stage, three weeks in a row. Thisbook,however,isnotaboutthehistoryandbeautyofthesport,butinstead about the business of professional road cycling. Therefore, the key question that mustbeaskedinanyliteraturededicatedtoexploringthebusinessprinciplesbehind professional cycling goes as follows: Why does a sport, which during its season attracts hundreds of millions of viewers worldwide, struggle to find economic stability for its athletes and many of its key events? The answer to this question is notsimpleorsingular, butit isdiscoverable.Cycling’slong andincredible history comes with many entrenchments and hurdles. It was a sport designed as a free promotionalspectacleforallthepeople.Itisasportthathasalwaysvalueditsdirect link to the everyman on the roadside. Cycling has found its heartland, not in wealthy growthareas, but in oldand working economies who saw theirbesttimes decades ago. The history and romance of the sport makes it special and different from most others, but these elements also make it difficult to change. Difficult to move forward in a modern era of turning sports into value-based entertainment. Consideringtheentrenchedhistory,perhapsthebetterquestiontobeansweredisas follows: Is it possible for cycling’s business model to be reconstructed for the modern era without losing its popularity, quirkiness, and attachment to history? Iamoftenaskedwhatrunningacyclingteamislikeandwhatthechallengesare. In premise it is very simple: find initial angel investment dollars, purchase athlete v vi Foreword contracts and appropriate staffing/operations/coaching with said investment, and then race well to produce high caliber race results and the significant media attention that goesalong with racingin front ofthe camera. After this initial series ofsteps,thenextpartistogotopartiesthatmaybeinterestedincapitalizingonthe large quantity of branding and publicity naming rights to such a team of athletes might bring; to eventually sell the naming rights (or branding and image) of the teamandusethisasyourprimaryrevenuesource;andendeavoringtopaybackthe angel investors with funds above your expenses. Then one day, actually generate enoughrevenue viasalesofnamingrightsandmaybe somemerchandising tobea genuinely profitable organization. And all of this happens while enjoying winning races with incredible athletes in a truly incredible sport. That’s the theory. In practice, the pitfalls and hurdles are many. Most sports rely on media rights, ticketsales,andmerchandisingforthebulkoftheirrevenue,andsponsorshipsfora smallerpercentageoftheirtotalrevenue.Inprofessionalroadcycling,theopposite is true. All of the media rights are occupied by race organizations, along with the ability to sell tickets or VIP access. For many historical reasons, this is the current system,leavingcyclingteamstopaytheirbillsbysponsorship.Unfortunately,this burden makes the sponsorships very costly. Additionally, it makes selling the sponsorships or naming rights a bit of a desperate game. In most businesses, sales of inventory might increase or decrease by 10 % on an annual basis, causing management to make adjustments to account for growth or shrinkage. In profes- sionalcyclinghowever,namingrights sponsorshipsaccount forover80%oftotal revenue,meaningyoursaleseffortisoftenabinaryequation.Eitheryouareableto sell the naming rights or you must close the business. There are no expense adjustments that canoffset an 80%reductioninrevenue. Case inpoint, attheend of 2011, the winningest team in the world, HTC (owned by Highroad sports), just disappeared, as they were unable to sell their one true asset for an amount that would sufficiently cover expenses. No other major professional sport in the world faces this scenario. Manysuggestionshavebeenmadeastohowtochangethisuglycycle.Themost obviousistoconvinceraceorganizers(mainlytheTourdeFranceorganizer,ASO) tosharetheirvaluablemediarightswiththeteamsandathletes.Whilethisisagood suggestion, race organizers do not like profit being taken from them. These rights have been legally theirs since the inception of the races, and the athletes have simplybeeninvitedguests.So,whatmighthappeniftheathleteschosenottoshow upuntilappropriatedistributionsweremade?Ofcourse,theraceorganizerswould be forced to concede. The outstanding issue here is why naming rights sponsors wouldwanttopay$15–$30millionforateamthatmightrefusetoracetheTourde France?Itispublicitytheypayfor,soanyhintofnotattendingtheTourdeFrance ismetwithextremedispleasureandbreachofcontract.ASOiskeenlyawareofthis andkeepsincontactwithmanyoftheteams’sponsorsjusttopreventthisproblem from ever surfacing. Besides, even if additional funds were distributed to teams from media rights, it would only serve to bolster wage wars for top talent, not Foreword vii stabilize long-term finances. To force the funds tobe usedfor stability, you would probably need salary caps in place as well. But that’s a story for another time. Another suggestion has been to make the rights of participation contractually permanentforteamsinimportantracesliketheTourdeFranceorthemainclassics. This would give the holding companies that manage the teams’ true equity, as the participationwouldbelimitedtothem,notanyonewhohappenedtofindthecash. This equity could be converted into capital in hard times where the sales did not match the expenses. However, once again, the traditionalists find this prospect unappetizing, preferring the “easy come, easy go” nature that cycling teams have always had when it comes to survival and stability. All of these hurdles in no way overshadow the enormous upside the sport of professional cycling has, from a business perspective. In the most basic terms, cyclingisthelastmajorprofessionalsportthathasnotyetmonetizeditspopularity. Cyclingisstillrunwithanamateurishandfragmentedstyle,whichpreventsitfrom creating demand and scarcity for the product, which is broadly popular. These seeminglynegativeaspectsareactuallyanenormousopportunityforthoseboldand powerful enough to try and change this antiquated system. Cycling already lends itself so readily to modern trends such as micro-demographics within social media and environmentally conscious transportation, and it has a unique participation-friendly aspect. Many cycling fans ride bikes themselves and are advocates of healthy lifestyle and green transportation. No other sport can draw connections to social issues like this on a truly global basis and create competitive fervor as well as cycling can. Perhaps these are the ways cycling can maintain its “sport of the common folk” feel while moving into the future? In any case, eventuallysomebrightmindwillfindawaytocapitalizeontheunrealizedpotential professional cycling has. I sincerely hope that with this effort will come financial stability for the athletes and teams, as a stable foundation is the first step to con- tinued growth. Hopefully, the eventual players in the world of sports business will be able to understand these problems and then find solutions that have yet to be conceived. Professionalcyclingisnotoriouslyclosedandnepotistic,meaningoutsidesolutions are rare. However, my hope is that slowly this will change, out of necessity and desperation. We need the advice and creativity of (young) business professionals, not old retired bike racers like myself. I hope you enjoy reading this book on an incredible sport and the business activities that surround it. Jonathan Vaughters Slipstream Sports Contents 1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Daam Van Reeth and Daniel Joseph Larson 2 The History of Professional Road Cycling . . . . . . . . . . . . . . . . . . 7 Jean-François Mignot 3 The Organizational Structure of Professional Road Cycling . . . . . 33 Luca Rebeggiani 4 The Finances of Professional Cycling Teams . . . . . . . . . . . . . . . . 55 Daam Van Reeth 5 Peculiarities of Sponsorship in Professional Road Cycling. . . . . . . 83 Wim Lagae 6 TV Viewing of Road Cycling Races. . . . . . . . . . . . . . . . . . . . . . . 99 Daam Van Reeth 7 Human Capital Development in Professional Cycling. . . . . . . . . . 129 Daniel Joseph Larson and Joel G. Maxcy 8 Agents in Professional Road Cycling . . . . . . . . . . . . . . . . . . . . . . 147 Jean-François Brocard and Daniel Joseph Larson 9 Globalization in Professional Road Cycling . . . . . . . . . . . . . . . . . 165 Daam Van Reeth 10 Strategic Behavior in Road Cycling Competitions . . . . . . . . . . . . 207 Jean-François Mignot ix x Contents 11 The Tour de France: A Success Story in Spite of Competitive Imbalance and Doping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233 Wladimir Andreff 12 Modeling Performances and Competitive Balance in Professional Road Cycling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257 Benjamin Cabaud, Nicolas Scelles, Aurélien François and Stephen Morrow 13 Doping in Cycling: Past and Present . . . . . . . . . . . . . . . . . . . . . . 285 Hans Vandeweghe 14 The Future of Professional Road Cycling. . . . . . . . . . . . . . . . . . . 313 Daam Van Reeth and Wim Lagae
The list of books you might like
