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The Economics of Professional Road Cycling, edited by Daam Van Reeth and Daniel Joseph Larson

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An invaluable introduction to the economics of professional cycling.

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The Economics of Professional Road Cycling, edited by Daam Van Reeth and Daniel Joseph Larson
The Economics of Professional Road Cycling, edited by Daam Van Reeth and Daniel Joseph Larson

The Economics of Professional Road Cycling, edited by Daam Van Reeth and Daniel Joseph LarsonTitle: The Economics of Professional Road Cycling - Sports Economics, Management and Policy, Volume 11
Authors: Wladimir Andreff, Jean-François Brocard, Benjamin Cabaud, Aurélien François, Wim Lagae, Daniel Joseph Larson (editor), Joel G Maxcy, Jean-François Mignot, Stephen Morrow, Luca Rebeggiani, Nicolas Scelles, Daam Van Reeth (editor) and Hans Vandeweghe, with a foreword by Jonathan Vaughters
Publisher: Springer
Year: 2016
Pages: 341
Order: Springer - UK US
What it is: An invaluable introduction to the economics of professional cycling
Strengths: Offers a more sober and nuanced take on the topic of cycling's economic model than is currently being heard in the financial reform debate that is being lead by the teams
Weaknesses: It really needs a native English speaker to go through it and polish the prose - too much of it reads awkwardly, a consequence of English not being the first language of many of the contributors

Disclosure: four articles I wrote for this site and elsewhere are cited in this book

It is a truth universally acknowledged that - financially speaking - cycling is fucked. Only one thing can save the sport: revenue sharing. And calendar reform. That's two things only that can save the sport, revenue sharing and calendar reform. Plus franchises for life. So that's only three things that can save cycling: revenue sharing, calendar reform and franchises for life. And...well you get the picture already, only an endless raft of reforms can save cycling, from revenue sharing down to the colour and length of riders' socks. But here's the question I never seem to see asked: save cycling from what?

Let's guess at some answers to that, shall we? Only an endless raft of reforms can save cycling from throwing a large number of riders on the scrag heap of sport as sponsors depart and the number of teams shrinks. However, virtually every set of proposed reforms you will read about - from those made by the UCI on the basis of the Deloitte report to every Tom, Dick and Harry chucking in their (often over-priced) two cents worth - will contain the following proposal: fewer teams with smaller rosters. In other words, cycling has a choice: accept reform and throw a large number of riders on the scrag heap of sport or reject reform and throw a large number of riders on the scrag heap of sport.

Let's try another, shall we? Only an endless raft of reforms can save cycling from losing any number of historic races that are surviving today in a hand-to-mouth fashion. You already know what follows, don't you? That's right, all the reforms you'll read about call for calendar reform that will lose to cycling any number of historic races that are surviving today in a hand-to-mouth fashion.

The key difference between the two states - the loss of teams, riders and races, with or without reform - is that in one scenario stuff is just going to happen and no one will have any control over it, and in the other stuff will happen in a way that suits those with their hands on the tiller. At the heart of the reform debate, then, is the same struggle that has been going on since race organisers, sponsors, riders and regulators first started working together at the end of the nineteenth century, the struggle for power over the sport, power which has - traditionally - been held by the race organisers.

At the moment, the loudest voices in the call for reform are those of the teams. And top of their agenda is revenue sharing, the call that race organisers surrender their vast wealth (a call, it should be noted, that dates back at least to the 1924 Giro d'Italia which was boycotted by many of the main teams of the time in a dispute over appearance fees). Revenue sharing is needed because cycling is blighted by here today, gone tomorrow sponsors, a shower of fly-by-night ne'er-do-wells who take without giving and then move on to the next sport dumb enough to accept them. A recent VeloNews article tried to sum up the situation:

"Team sponsorship is the critical financial under-pinning of professional cycling, and it is always something of an economic gamble. Sponsors come and go with alarming regularity; neither of the above-mentioned teams [MTN - Qhubeka and Etixx - Quick-Step] have the same sponsors today that they did a year or two ago."

MTN, of course, have just come to the end of a nine year run backing Doug Ryder's squad, having started with the team when it was first launched in 2007. Compared with Pat Lefevere's sponsors, MTN's nine year run is definitely fly-by-night, the Belgian's relationship with Quick-Step, the Unilin company's flooring brand, dating back to his Mapei days in 1999. After Mapei the two were re-united in 2003 when Lefevere created the current version of his team after the collapse of the Domo - Farm Frites set up. Lefevere's relationships with his co-sponsors have been less stable, but that's not so much down to them being here today gone tomorrow types, more to do with the way some of cycling's sponsors are like one of those characters in a soap opera who has to end up having been married to most every other character at least once. Marc Coucke's Omega Pharma healthcare conglomerate - of which Etixx is a subsidiary - first started sponsoring Lefevere's team in 2003, through the vitamins and supplements brand Davitamon. But after just two seasons together Coucke got something of a wandering eye and walked out on Lefevere in order to shack up with the team next door, Lotto, where Lefevere's former Domo partner Marc Sergeant had decamped to. Lefevere, he put Coucke behind him by jumping into bed with the mattress supplier Latexco, whose Innergetic brand had been involved with him at GB-MG, Mapei and Domo. Latexco stuck around for three seasons before moving on (today they're in bed with Tinkoff - Saxo. And back in bed with Lefevere at Etixx - Quick-Step). After seven years with Lotto Coucke caught the itch and, in 2012, returned to the arms of Lefevere where he's happily been ensconced since.

If the alleged fly-by-night nature of the sport's sponsors is not the real problem, maybe the real problem is that they're all a bit...how shall we put this politely? Low rent? Mattresses, vitamins and flooring products, they're a bit, well, cheap, aren't they? What cycling really needs is international brands with deep pockets. Pockets, perhaps, as deep as the NYSE-listed Mohawk Industries who bought Quick-Step parent Unilin for €2.2 billion in 2005, or the international pharmaceutical company Perrigo who bought Coucke's Omega Pharma group of companies for €3.8 billion earlier this year.

If the stability of sponsors isn't the real issue, and the size of sponsors isn't the real issue, what is the real issue? That's easy: cycling teams have only a single source of income: sponsorship. In 2012 - according to Ernst & Young figures reported by the UCI - cycling had 40 professional teams with a combined budget of €321 million (this compared to 39 ProTour and Pro-Conti teams with a combined budget of €235 million in 2009). Those 40 professional teams in 2012, 73% of their income (€171.6 million) was coming from their 61 principal sponsors (an average of €2.8 million each), with other sponsors accounting for another 22% of income (€51.7 million). That's 95% of income coming from sponsors and only 5% (just €11.7 million across all 40 professional teams) coming from other sources.

That, of course, is the figure across 40 WorldTour and Pro-Conti teams, and we all know the numbers differ massively between the toffs at the top and the plebs at the bottom. Let's look at the numbers from one of those top teams: Sky.

2014 2013 2012 2011 2010 2009
GBP
000s
% GBP
000s
% GBP
000s
% GBP
000s
% GBP
000s
% GBP
000s
%
Title Sponsor Revenue 15,457 63.1 14,594 66.2% 13,383 62.5% 10,529 63.1% 9,997 68.5 665 100%
Performance Sponsorship Revenue 5,841 23.9 5,850 26.5% 4,105 19.2% 3,138 18.8% 3,326 22.8
Race fees and other income 3,181 13.0 1,617 7.3% 3,910 18.3% 3,013 18.1% 1,280 8.8
Total income 24,479 22,061 21,398 16,680 14,603 665
Source: Tour Racing Ltd accounts filed with Companies House

Sky, as you can see, take in far more than the average 5% of income from sources other than sponsors. That money comes from a variety of sources. Included in 'Race fees and other income' is - it is presumed - prize money won at races and disbursed to the teams by the race organisers via the federations. This is income which has a matching expense, its onwards disbursement to riders and staff, but that expense means the team itself can offer a lower bonus package to riders and staff, thus saving them money.

The race fees part refers to the appearance fees the UCI today requires race organisers to pay to teams (a change from the position only a generation ago when teams had to pay to enter races): for WT teams at WT races that's a minimum of €7,500 at the classics and lesser tours (I was informed in 2012 that the Tour of Beijing and Tour Down Under both paid considerably above the minimum appearance money, €15-30,000), with the Grand Tours paying more (in 2012 the Tour revealed it was paying appearance fees of €51,243 per team with a performance-related bonus on top of that of €1,600 per rider for teams that finished with seven or more riders). With 29 events making up the WorldTour in 2014, you can guesstimate that Sky took in a minimum of €375,000 (£300,000) in appearance fees that year. (A 2011 L'Équipe report claimed that AG2R received €550,000 in appearance fees across their full racing calendar with Vincent Lavenu's team spending €1.275 million on race costs (travel and accommodation), which compares with £1,366 million (€1.950 million) spent by Sky in 2011.)

Race fees and prize money, that's about as far as revenue sharing has gone at the moment. But they're not the only non-sponsor income Sky has. There's also the merchandising. There's the books: in 2012 Sky published 21 Days to Glory - The Official Team Sky Book of the 2012 Tour de France and the following year they had The Pain and the Glory - The Official Team Sky Diary of the Giro Campaign and Tour Victory. And then there's the replica jerseys and other team-branded kit. Everybody by now knows that, since 2013, Rapha have been Sky's official kit sponsor, having replaced Adidas. That deal requires that Rapha pay Sky a royalty for every piece of Sky-branded kit they sell. How much Sky-branded kit does Rapha sell? In July 2013 Rapha boss Simon Mottram said Sky-related sales were running at 11% of the company's turnover over the previous six months. If we can assume that that held true for the whole year, then in 2013 Rapha took in about £3 million on Sky sales. How much of that went back to Sky in royalties is not clear. (Nor is it clear whether those merchandising royalties are included in the Sky accounts under the secondary sponsors heading - which includes Jaguar, Pinarello etc - or other income: the issue of merchandising income in cycling is nothing if not confusing, with many even claiming it is an income source not available to the sport.)

Wealthy as Sky is, one would assume that the team would not be averse to accepting a greater slice of the race organisers' revenues. But here's an interesting thing about Sky: that 'Title sponsor revenue' - which comes from the team's Murdoch empire sponsors (BSkyB, Sky Italia and 21st Century Fox/News Corporation) - is described in Sky's accounts as being "recoverable expenditure net of any performance sponsorship and other income." More revenue sharing would not see Sky get more money, the benefit would pass back to the title sponsors.

* * * * *

Team budgets accelerating as fast as they are ought be taken as a sign of cycling's strength, the sport's ability to expand its revenue base something to celebrate. The UCI E&Y figures show that cumulative budgets grew 36.7% between 2009 and 2012. Sky's accounts show growth of 68.7% between 2010 and 2014. Even lowly AG2R - generally ranked toward the bottom in the WorldTour's wealth rankings - has seen its budget grow by 50.4% between 2010 and 2014:

2014

000s
2013

000s
2012

000s
2011

000s
2010

000s
Total income 13,551 11,769 10,635 9,288 9,011
Source: France Cyclisme SARL accounts filed with the Registre du Commerce et des Sociétés

But as fast as budgets are growing, so too are the costs of operating a professional cycling team, in particular the cost of paying riders and staff, which for most teams amounts to about 70% of income. According to the UCI, between 2009 and 2012 the average salary for a rider with a professional team rose from €190,000 to €264,000, an increase of 38.9%, or about 12% per year (this at a time when the global economy was growing in the (very) low single-digit percentages).

Is it wage inflation that is driving the growth in team budgets, riders demanding above inflation salary increases and driving teams to demand more from their sponsors? Or is it the growth in team budgets that is driving wage inflation? Some see the latter as the most likely explanation: a small number of 'sugar daddy' sponsors - Oleg Tinkov, Andy Rihs, Igor Makarov etc - are throwing their wealth at their teams, enabling those teams to spend more and more on riders' wages (Oleg Tinkov and Peter Sagan being the perfect whipping boys for this argument today while those who look for historical antecedents will blame Bernard Tapie and Greg LeMond for setting the spiral in motion) and thus making life difficult for everyone else. And so the call goes up that cycling needs to rid itself of these archaic patrons, these ego tripping dilettantes, and embrace global capitalism, that cycling needs to bring on board major international corporations. Such as those, perhaps, that make up the Murdoch empire. Who sponsor team Sky. Where salaries of riders and other staff have more than doubled between 2010 and 2014:

2014
GBP
000s
2013
GBP
000s
2012
GBP
000s
2011
GBP
000s
2010
GBP
000s
2009
GBP
000s
Staff and rider remuneration 18,223 15,630 15,394 11,001 8,660 360
As a % of income 74.4% 70.8% 71.9% 66.0% 59.3% 54.1%
Source: Tour Racing Ltd accounts filed with Companies House

* * * * *

The problems with cycling's financial model are, then, confusing, as are the multitude of calls for the reforms that need to be imposed upon the sport. And this is where a book like The Economics of Professional Road Cycling comes in handy, offering as it does analysis of cycling's economic model. Written mostly by academics - drawn from KU Leuven Campus Brussels, University of Oklahoma, Fraunhofer Institute for Applied Information Technology, Drexel University, University of Limoges, Université Paris 1 Panthéon Sorbonne, University of Stirling, University of Ottawa, and Vrije Universiteit Brussel - this is a weighty, detailed look at various different aspects of the economics of cycling, from practical topics directly relating to the current financial reform debate to more cerebral topics such as the application of game theory to race outcomes.

Sports economists and students of sport management are the obvious audience for such a book but The Economics of Professional Road Cycling shouldn't be dismissed as simply a book by academics for academics. Many of the people working within the sport - race organisers, team owners, rule makers - will find value in it, as will those tasked with reporting on cycling. Much of the current reform debate is being driven by team owners whose grasp on the real economics of the debate is at best questionable1 while their ability to be economic with the actualité is beyond doubt2. Much of the current reform debate is filled with lies, ignorance and misleading statements. A book like The Economics of Professional Road Cycling is able to offer a more sober and nuanced take on the topic.

That said, most of the contributors to The Economics of Professional Road Cycling - most of those who express a view on the topic - share with the team owners the notion that the current sponsorship model does not work, that race organisers will have to share TV revenues, and that in order to increase the value of that TV income cycling will have to adapt itself to the needs of television, which will then lead to large (multinational) companies - Nike, Sony etc - engaging on a long-term basis with the sport. However, while there is an attempt to argue why the current sponsorship model is wrong, it is something of an article of faith that only TV and the likes of Nike and Sony can save us.

Despite (mostly) favouring the TV revenues argument, The Economics of Professional Road Cycling does offer some sobering analysis of the current TV situation. An IFM/Repucom report is cited which suggests that as much as 57% of the reported audience for 2012 WorldTour races came from news broadcasts while the live audience was as low as 13% of the reported audience (8% watched on highlights shows and the other 22% came across the races in magazine shows, alongside other sports). Or there's this on what just one broadcaster actually gets in return for its investment in cycling:

"French TV channels France 2 and France 3, the official broadcasters of the Tour de France, record a net loss of about €25 million with their broadcasts of the Tour de France (Toutelatélé 2014). The total costs amount to €35 million (€25 million broadcasting rights3 and €10 million production costs), while advertising revenue did not exceed €10 million."

(One bugbear I had with the book is that, too often, secondary sources are cited instead of primary. Rather than Toutelatélé being the source of the numbers in the above quote, it was actually Les Echos. This also happens with things like relevant CAS judgements, where rather than pointing to the actual judgement, a report of it is referenced. It is particularly annoying when Wikipedia (twice) and YouTube (once) are being cited as sources.)

The Economics of Professional Road Cycling should also be praised for this explanation of what the real problem facing the sport today is: "cycling at the top level has become too global (and thus too expensive) for smaller local sponsors but, at the same time, is not global enough for big multinational companies."

Based as it is on current academic research The Economics of Professional Road Cycling does have to cope with certain limitations. Little or nothing is said about women's cycling, the editors putting this down to a lack of existing academic research in this area, a shortcoming they hope will be overcome in future editions of the book. Another area that needs addressing in a future edition is the possible role of salary caps: too much of the current debate - at large and within the pages of this book - focuses on increasing revenue even when acknowledging that wage inflation is a major concern (salary caps, of course, are no panacea: if the UCI's policing of its minimum wage rules can't cope with pay-to-play deals it is extremely unlikely they could cope with the tricks used in other sports to circumvent spending limits). A third area that should be considered for inclusion in a future edition is the financing of races: race organisers face more and more demands on their income as effective local and national government subsidies are withdrawn (road closures, policing etc) and replaced by bills, while at the same time more and more race organisers are using mass participation events - sportives, fondos, call them what you will - to balance their books, increased TV revenue being but a pipe dream to the many race organisers who have to pay to get their event televised.

Overall, The Economics of Professional Road Cycling is a valuable contribution to a debate that is not going to go away any time soon, a book that all who have an interest in the economics of the sport should read.

* * * * *

1 Pat Lefevere is my favourite. In 2014 he argued that 3.5 billion people watch the Tour each year, so getting 10 million of them to pay €5 each for a Tour app should be child's play and net the eleven participating Velon teams more than €4 million each. Even if such user figures could be achieved this still ignores all the costs to be taken out of the €5 a user pays (taxes, App Store costs, development and maintenance costs).

2 Jonathan Vaughters has claimed that "ASO may get as much as $200 million from TV rights, while the 22 Tour de France teams typically have an annual budget of $10 million each from sponsorships." $200 million is in excess of ASO's total annual income, across all sports.
ASO

Amaury Sport Organisation (ASO) Income and Profit

3 This is actually the cost of acquiring a package of events from ASO which includes not just the Tour de France but also Paris-Nice, the Critérium International, Paris-Roubaix, the Flèche-Wallonne, Liège-Bastogne-Liège, the Critérium du Dauphiné and Paris-Tours. The deal also includes other ASO events such as the Paris Marathon and the Dakar Rally. Accordingly, the full €25 million should not be claimed as a cost of broadcasting the Tour.