An incentive to share?

At the time of this issue’s deadline, the organizers of the three Grand Tours had withdrawn those events, along with eight other races that they own, from the UCI ProTour.

In their statements to the press, the promoters voiced complaints about the athletic side of the UCI’s initiative – that requiring the invitation of all ProTour teams to all ProTour events regardless of the teams’ recent performances was unethical, that ProTour rankings points were distributed unevenly among the races, and that the system was particularly unfair to non-ProTour teams that didn’t get a cut of the action even if they won a ProTour race.

So they’re trying to tell us that this dispute has nothing to do with the UCI’s attempt to pool the revenue from the ProTour’s television rights, of which the Grand Tours would provide the lion’s share, and redistribute that revenue more evenly among a larger number of events and teams? Whatever. It’s always about the money.

Another thing that’s about money is, of course, economics. But maybe even more central to economics than the idea of money is the idea of incentives, or more specifically, the idea that a rational being will act or react positively to the right incentives. In the well-publicized book Freakonomics: A Rogue Economist Explores the Hidden Side of Everything (William Morrow, 2005), Steven D. Levitt defines incentives as “how people get what they want, or need, especially when other people want or need the same thing.”

But in the formation of the ProTour, it seems that this concept got lost in the shuffle. In fact, both the UCI and the Grand Tours want the same thing: to sell the Grand Tours’ television rights. (Check the July 2005 issue of ROAD or www.joshkadis.com for my column about this topic specifically).

But the guaranteed participation of the twenty teams considered by the UCI to be the world’s best, which was the incentive offered by the ProTour to the Grand Tours, was insufficient for the race organizers to entrust the UCI with arguably their most valuable asset. In fact, their statements indicate that they saw the UCI’s intended incentive as a hindrance.

Despite the UCI’s fundamentally sound economic argument in favor of the ProTour (again, check the July ’05 column), they clearly failed to offer the right incentive to get what they wanted. Unfortunately, what they wanted also happened to be the right thing for cycling.

Revenue sharing is an established concept in sports. The NFL’s equal distribution of television rights revenue among all its franchises, from New York to Green Bay, ensures that every team in the league has a chance to be competitive and is generally regarded as a key factor to football’s ascendance to the top rung of the American sports ladder.

But revenue sharing was a pipe dream of the NFL’s small-market teams until the highly respected owner of the New York Giants, the late Wellington Mara, threw his weight behind the concept in the early 1960’s. Then, the desire of other owners to follow Mara’s lead provided the incentive needed in order for revenue sharing’s supporters to get what they wanted.

Major League Baseball, on the other hand, shares revenue from only a portion of its broadcast rights. So in 2001, the Yankees generated $52 million from their unshared local broadcast rights while the Montreal Expos (now the Washington Nationals) only got $536,000 for theirs. On the free agent market in the following off-season, the Yankees signed Jason Giambi to a seven-year $120 million deal, while the Expos landed Randy Knorr with an offer of $350,000 for one year. Since the Expos began play in 1969, they have made the playoffs only once, while the Yankees made it sixteen times in the same period.

In any case, American team sports are a world away from European pro cycling – athletically. But business is business and, from that perspective, it’s less of an apples-and-oranges situation than one might think. After all, the Tour of California signed its deals with Amgen, ESPN, and others because it’s run by talented and experienced sports marketers, even if they’re not dyed-in-the-wool “bike racing people”.

Getting back to the ProTour, the ball is in the UCI’s court because they want what the Grand Tours have. But since – according to Levitt – “the typical economist believes the world has not yet invented a problem that he cannot fix if given a free hand to design the proper incentive scheme,” the UCI shouldn’t give up, although they may want to consult a typical economist.