Why TV money won’t help team finances

March 6, 2012

Another year, another discussion on how teams should have more of a say on race radios, TV revenue sharing, globalization, etc. If you haven’t seen it, here’s the 2012 opening salvo by the AIGCP.

First of all, I fully agree with the principle that the teams have a bigger say. They provide the majority of the revenue, they run (together with the races) the biggest financial risks, they should get a fair share of the revenue and have some control over how the sport is run.

But they are deluding themselves if they think getting that share will help their finances. You see, all teams have a set of pretty fixed costs (travel, race participation, car park, etc) and the big variable is salaries (mostly the riders). So a team has a budget, covers those fixed costs and then decides how much of the remainder is spent on salaries and how much will be profit (or loss, as the case may be).

For these salaries, they all fish in the same pond. The salaries are what they are because that’s what all teams combined are willing to throw into that pond. The problem is that there are enough teams with an owner who doesn’t care about losing money or at least doesn’t mind barely breaking even. As long as enough owners are willing to spend all their available money and even more on salaries, other owners will be forced to do the same to stay competitive.

The idea that additional revenue will fix this is erroneous; whether the average available money per team is 10M or 20M is not the problem; that there are enough owners willing to spend 100% or even 150% of that money is the issue. Since these team owners have shown they are willing to spend all their revenue, they will also spend this extra TV money in an attempt to get this one special rider or another. There is no philosophical difference between spending all your revenue on salaries when it is 10 million or when it is 20 million, the issue is the attitude, not the amount.

The only way for teams to stop losing money is for them to work together, and sit down with a united front to negotiate a deal with governing bodies and riders to agree on some sort of salary cap. Not just in their own interest, but also in the interest of the riders, so that costs can be controlled and fat years provide a cushion for any lean years ahead.

Of course, you would think that with so few teams, an illegal kartel would form to accomplish this. But luckily the chance to win, which is always just one overpaid rider away, remains too tempting.

30 Responses to “Why TV money won’t help team finances”

  1. Jim Glover Says:

    Hi Gerrard: All the North American professional teams operate on a salary cap system, and the team owners are always “poor”, so I agree. These athletes are over paid for th emost part.The second question to this is “are the riders paid enough”? This would be the only reason to get more funding into the owners hands.

  2. Nick Says:

    I see what are you saying, but there is really two issues.

    1. Does a team have reliable funding?

    2. Is that funding enough?

    You are right, revenue sharing does not address the 2nd question. But I do think more stable revenues would address the 1st question. Whether TV revenue works, I don’t know.

  3. Chris Says:

    I disagree that some sort of revenue sharing wouldn’t improve things for the more cash strapped teams. If teams could take $4M each of TV revenue, yes, all that money will get spent. However, the difference between $20M and $24M for a big budget team allows them to hire a couple more big name riders, but the difference between $6M and $10M for a smaller team could determine whether or not they can continue operating.

    Having said that, I do think a salary cap is a good idea. Even if we would lose some of the satisfaction of seeing big budget teams outfoxed by smaller teams… and the teams doing the outfoxing often seem to be riding Cervelos.

  4. Interesting line of though Gerard.

    This whole revenue sharing argument assumes that the TV rights revenues are huge, and that the race organizers are making large profits. Except for a few cases, this really isn’t the case. Only the large races receive a large amount for TV rights, which go into their overall budgets. Smaller races often must pay to have their events televised.

    Further, for companies like ASO, profits from Le Tour support smaller races where they lose money, but keep alive for nonetheless. Cut the supporting revenue from these, and these races may go away.

  5. Spencer Says:

    Regardless of whether it fixes how the teams spend the money, I think the teams should get a cut of the tv revenue simply because they deserve it.

    Case in point is Nascar. Historically, each race promoter had to seek its own tv rights, but could keep the proceeds. This was a mess to deal with, and eventually Nascar brokered a $4 billion tv package with 65% to the promoters, 25% to the teams, and 10% to Nascar. In doing this, Nascar recognized and acknowledged that the teams and drivers are the product, and therefore should have a seat at the table.

    It’s true that the teams spend this additional revenue, but guess what? It has elevated the sport, brought more jobs, attracted more fans, increased the quality of product on the race track, and built a bigger brand. Why would cycling not want to do the same thing? I’d like to see cycling get out of this niche category, get an organized tv package, create a reasonable and fair distribution model, and build the sport globally.

    Ah, but the powers that be want to keep control, right? Likely, but even the benevolent dictator of Nascar, Bill France, saw a better future by working together and changed the landscape forever through the tv deal.

    • I always wonder about this argument; how does more money make the sport better for fans. Whether a top rider makes 1M or 2M, I don’t think that changes the amount of entertainment he provides the fans?

      But you’re absolutely right that if the different sides work together, everybody wins (at least everybody within the sport, still not sure about the fans).

    • tom hewitt Says:

      “It has elevated the sport, brought more jobs, attracted more fans, increased the quality of product on the race track, and built a bigger brand.”

      Really? There’s probably many fans and honest members of the NASCAR community that would disagree with that analysis.

  6. Larry T. Says:

    Nice bit GV though I think you meant to write DELUDING as in they are deluded rather than diluted, though some of them might be that too! There are many holes in the arguments put forth by the teams vs the UCI and race promoters but it takes some yelling and screaming I guess to get the other players to sit down at a bargaining table and try to work something out for the long-term stability of the sport. If they’d all worked harder on the doping side of things earlier this process might be further along or the situation less dire?

  7. James Says:

    I think salary caps are a great idea. Especially in sports where the athletes are not easily able to pack up and just change codes or competition.
    However, given the shady nature that a lot of cycling teams operate under it would be another area for mass scandal.
    It will eventuate that riders would be paid, say $1m, under a salary cap and then get $2m in endorsements and image rights, or payments direct from sponsors.
    It becomes a adminsitrative nightmare.
    Recently in Australia, the best rugby league team for several years got caught sneaking around the salary cap. Stripped of 2 premierships and all points for the current season.
    Talk about something that destroys a fans love for the game!

    • Absolutely. There is no easy solution when there is no trust and cooperation between the teams, and of course, if there were, we’d already be much further ahead in this sport.

  8. Tom Barrows Says:

    which rider(s) is overpaid?

    • Well, depending on the definition, one could argue no rider is. The salary is decided in an arms-length transaction between team and rider, so who are we to argue. Of course you can say that some then proceed to provide value for that salary, and some don’t.

  9. slim jim Says:

    There’s a salary cap in Australian rules football and there is still a division of have and have nots. The teams have a cap for the players but the richer clubs spend three or four times more than the poorer clubs on off-field areas such as coaching, sports science, and recruiting.

    • You’re absolutely right. This problem diminishes as the overall budgets go up, the percentage of extra spending is probably the highest where the salaries are relatively low. Spending an extra million in Aussie rules has a bigger effect than spending an extra million in the NFL, where everybody’s facilities are already pretty top-notch.

  10. Greg Says:

    The problems in the sport salary-wise are at the bottom end, not the top. Give the teams their share of the revenue but at the same time require them to run a women’s team and increase (or implement in the case of women) the minimum wage.

    That tempers the top teams’ desire to spend the extra revenue on more star riders.

  11. JC Webb Says:

    Economists rarely use the term profit. They tend to use the term ‘rent’. This implies that profit/loss is simply the value due the owners for having something or operating something. The greater the revenue the greater the potential for a well run team to maximize its rent.

  12. Joe Papp Says:

    Perhaps only someone who never tried to make a living racing a bike would suggest, with no apparent sense of irony, that the wages of those actually doing the pedaling be artificially suppressed – ostensibly so underfunded and/or poorly-managed teams can escape responsibility for their own failure to secure sufficient backing before applying for a UCI license.

    “The only way for teams to stop losing money is for them to work together, and sit down with a united front to negotiate a deal with governing bodies and riders to agree on some sort of salary cap. Not just in their own interest, but also in the interest of the riders, so that costs can be controlled and fat years provide a cushion for any lean years ahead.”

    Gerard, would you please explain how it is in the interests of the highest earners, such as Contador, Evans, or a pre-ban Valverde, to voluntarily agree to limit their salaries so that smaller teams, who normally would not be expected to match a BMC or OPQS or Movistar across an entire season (ex. the now defunct Cervelo Test Team?), become marginally more competitive over the course of an entire season? It’s not in their interests, of course, as they will find employment for a substantial wage regardless of whether or not under-budgeted teams have roster spots available to those GC stars willing to ride for a discounted paycheck.

    In fact, it’s because of the fact that TV revenue-sharing can’t help team finances (I agree with you there, Gerard) that an artificial wage cap for star riders falls flat. The Tour de France remains brilliantly-exciting for the spectators regardless of whether or not the bottom-end of the WorldTour and all of the teams in the lesser divisions have some salary parity. Having a superstar rider on your squad who you’re able to enrich to the tune of $4-5million/year, along with the supporting cast, doesn’t guarantee you a Tour win, let alone one achieved under blow-out conditions such that the racing becomes boring for the fans and TV viewership suffers. Just look at SKY’s inauspicious Tour debut in 2010, and their equally-disastrous 2011 TdF GC campaign. And super-team BMC has so under-performed thus far in 2011 that there’s already a thread on cyclingnews.com forum “BMC in disarray?”(http://forum.cyclingnews.com/showthread.php?t=16665) with over 20,000 views.

    What possible motivation could Zdenek Bakala have to “sit down with a united front to negotiate a deal…” alongside someone like Phil Southerland of Team Type 1?

    Although it pains me to say it, having dedicated my entire life to cycling, if pro cycling *really* was such a great marketing vehicle for potential corporate sponsors, then you might be inclined to think that the Fortune 500 would be lining up to hand over fist piles of cash to established and effective directors like Luca Scinto, and a sugar daddy like Andy Rihs wouldn’t be able to simply throw money at the problem of how-to-win-the-TdF and expect victory – regardless of whether or not he funds his star rider’s doping program, as he was alleged to have done for Floyd.

    Before leading the chorus cheering for wage caps or voluntary resource restriction agreements (RRA) like that in F1, it might be more valuable to start by explaining to your readership how and why cycling is still a good investment for companies looking to gain exposure through the sport, but happened that a seemingly-successful, competitive squad like Cervelo Test Team couldn’t find corporate partners to assume some of the sponsorship burden (likewise for Highroad), but without simply lamenting that doping is scaring off sponsors.

    I love cycling, I think it’s the most beautiful sport in the world, and it certainly gave me 10+ years of adventures that I doubt I could’ve realized through more conventional channels. But if someone such as yourself who was involved in pro cycling at a high level on the administrative and operational side thinks that the most significant cause of financial instability for teams (btw: which teams, at what level?) is the question of having to afford an additional $2-3million per year in salaries (when the salary total for all the riders in the WorldTour probably doesn’t surpass that of a couple of European football clubs), then I would be genuinely surprised.

    To your knowledge has any reputably consultancy done a structural analysis of European pro cycling, considering not just the conditions faced by the teams, but also the interests of the organizers, the broadcasters and other media, and – of course – the UCI?

    • Larry T. Says:

      Good points Joe. I too wonder what the “pro cycling’s a fantastic marketing buy” rhetoric is based on other than opinion and love for the sport? And no matter how good it may or may not be, the near-constant doping scandals, devalue it to the point where it seems only rich guys with a passion for it are willing to pony up the loot. I do think the sport is too expensive but wonder if the riders salaries are to blame vs the ridiculous amount of staff and equipment that seems to be necessary these days. I look forward to more of GV’s ideas as a guy who was intimately involved with the PR and financial sides of the sport.
      It’s interesting that the UCI is crowing about how healthy the sport is while races are begging for funds to continue and a breakaway league is trying to get started. I have a tough time believing anyone will pay big TV monies to see 4-day cycling events no matter who rides in them or where they have ’em – it’s hard not to see this in USA open-wheel car racing terms, IRL vs CART…which was little more than a battle of inflated egos….and ultimately did serious damage to the sport in general.

      • Joe Papp Says:

        Larry, I too, immediately thought of the IRL vs. CART debacle. And I *started* my pro career racing in a breakaway league – riding for the Pittsburgh Power team owned by NFL Hall of Famer Franco Harris, in the National Cycle League – look it up! lol Needless to say, it didn’t last. I hope the UCI crushes the breakaway league and bans any rider who participates in it from the Olympics and the Worlds, which is in their power to do.

        GV…still waiting for your response…thanks.

        • Hi Joe, I just posted the response regarding the salary cap. Regarding why companies don’t sponsor, that will follow soon, though I thought your question was quite ironic.

        • Tom Says:

          GV – perhaps the rationale behind the notion that cycling presents a fantastic marketing opportunity is because of all of the “brand” impressions presented/observed around the globe. The difficulty, of course, is how to “monetize” all of those eyeballs. The sport exists in a new media world and must find a way to adapt.

        • Hi Tom, you’re absolutely right, the brand impression data is meaningless and the whole methodology flawed. I don’t understand why teams use it.

        • larryatcycleitalia Says:

          Ciao Joe, I remember the NCL, and thinking “that won’t last long”. The ever-increasing corruption and incompetence of the UCI has me warming up to a breakaway idea, but ONLY if the monuments of cycling and the passion and history can somehow be included. Another XFL idea we DON’T need!

  13. Joe Papp Says:

    GV – I understand the not so subtle reference but if you genuinely think that companies aren’t sponsoring the sport primarily b/c of the doping scandals, then please say that directly. I haven’t been involved in trying to put a team on the road or managing one already set-up since Rock Racing in 2007, so I genuinely don’t know what’s actually being said in board rooms re. risk management. Companies have kept sponsoring the sport to one degree or another through Festina, Puerto, Landis, Armstrong, so I’ve wondered if the doping excuse is a bit of a red herring (ex. Stapleton can’t find a backer, doesn’t want to put his own money in, so throws in the towel and blames it on doping poisoning the sponsorship environment). But again, if that’s really the #1 inhibitor towards companies getting involved based on your recent experience, let us know. Cheers.

    • Although I will admit it was tempting to reply with phrases like “with no apparent sense of irony”, I did want to take your suggestion to cover the topic seriously but just haven’t had the time to finish it yet. Doping is definitely still a large factor, but by no means the only one. I want to get a MSR piece out first, then back to your question.

      • Joe Papp Says:

        Sounds great, GV – I’m definitely very interested to hear your thoughts on this, and appreciate Tom’s having brought up the conundrum of how to actually value the exposure teams supposedly provide sponsors. This has been a huge question of mine and something that I’ve been very uneasy with since 1995/96 when I saw the claims that were being made while pursuing the USPS sponsorship, as far as the potential value of the exposure that could be delivered.

        Is there a way to contact you directly GV?

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