Kadisco: Cycling, Marketing, Sponsorship, Social Media

Team might be better off financially without Astana

Posted on 06. May, 2009 by Josh in Bike Racing, Sponsors, Sports Business

After underreporting last month’s news that Astana riders hadn’t been paid on time, Cyclingnews led off today’s news with a story about the team’s possibly imminent collapse. (VeloNews had yet to cover either story at the time of this entry.)

On May third, [Sports.kz] quoted Kazakhstan’s cycling federation vice president Nikolai Proskurin as saying that even if the team takes part in the Giro as planned, it is likely to be the final Grand Tour in the history of the Astana project. The only way to save the current incarnation of the squad appears to be for one or more Kazakh backers to move in and commit to supporting it. Alternatively Johan Bruyneel, who owns the ProTour licence, will have to find funds to enable the team to continue.

“A week ago, even the reserve account of the Astana team, which the UCI law states must contain an untouched sum of two million dollars, was emptied,” Proskurin stated. “These funds are a guarantee of participation for any professional team in the ProTour racing series. In order to prevent the seizure of the license of the Astana team, we have to replace this amount within a month [of it being emptied]. That means that we still have about three weeks.”

It sounds dire, and relative to Proskurin’s role it probably is. But Johan Bruyneel, Lance Armstrong, and everyone else involved with the program might even come out ahead in the event that the team’s Kazakh connection falls apart.

The current status

Just so we’re clear, here’s my understanding of how the team is structured. Bruyneel owns (or at least controls) Olympus sarl, a Luxembourg company that owns the team’s infrastructure and ProTour license, and holds contracts with the riders, the non-Kazakh sponsors, and the Kazakhstan cycling federation for a title sponsorship under the name Astana, which is the capitol of Kazakhstan. (See correction below.) The federation, meanwhile, pays Olympus sarl with money it receives from a consortium of Kazakh companies. Those companies are unwilling or unable to pay the federation, which has in turn put Olympus sarl in financial straits.

Luckily, if the Kazakhs pull out entirely, Olympus sarl will have all the pieces in place for a new title sponsor to “save” Lance Armstrong’s team just in time for the Tour de France. Even in this economy, that’s a very saleable sponsorship.

It might even be better in the long run than if Astana had stayed on. Why? Sponsorship activation and metrics.

The marketing stuff

There are two parts to the value of a sponsorship: the benefits that the sponsored property creates for the sponsor, and the benefits that the sponsor creates by promoting their involvement with the property. In the case of a cycling team, the former includes the exposure from media coverage, race broadcasts, etc. that contributes to the sponsor’s brand positioning and awareness. The latter is about how the company incorporates the team into advertising, corporate events, and other marketing efforts. In theory, a company sponsors something and promotes that sponsorship because the promotion is better off with the sponsored property than without it. In other words, a company like Trek feels that an ad featuring an Astana rider is more effective than one featuring someone else. This is usually called activation, and the Kazakhstan cycling federation does none of it.

Even if a sponsor like Astana isn’t concerned with activation, not being activated is still bad for the team. It has a brand just like any other company, and sponsorship activation can make that brand more valuable. Think about how Nike’s campaigns made Michael Jordan more valuable to Gatorade and his other sponsors.

Astana presumably isn’t closely tracking marketing metrics, which could also hamper the team’s ability to set a price for its sponsorships. Bruyneel can’t walk into meetings armed with data about how Astana’s sales and stock price increased during the sponsorship. Fortunately, he brings a probably Tour de France win and a certain Lance Armstrong to the table. But the lack of a case study for the outgoing title sponsor may still take a little money off the table.

Meanwhile, Lance is planning to become a team owner himself for 2010, which could mean a split with Bruyneel. This might be Johan’s only shot with Lance on board to find a new title sponsor. So, the sooner Olympus sarl replaces Astana, the sooner the team will see the benefits of sponsorship activation and tracking in the short and long terms.

photos by EWFTT,  Missing Saddle, and Paul Coster – thanks!

Correction: Subsequent news reports indicate that the Kazakh federation owns the team’s ProTour license, although transferring it to Bruyneel is possible. Also, it seems that rider and staff salaries are paid directly by the Kazakhstan cycling federation.