The Journalist.

The Director.

The Rider.

Brisbane: Tuesday, December 7, 2010, Pegasus Sports was notified by its principal financial backer that financial support for the Pegasus Sports Professional Cycling project had been retracted.

And here’s a line from Anthony Tan’s story in VeloNews:

“Like a lot of teams … a part of our funding was private equity funding. And on Tuesday last week, I was advised there was some retraction in funding out of that space,” [team CEO Chris] White told VeloNews, discussing the decision made by the unnamed principal sponsor to withdraw their commitment to the team.

I’ve highlighted those terms for a reason. They are different ways of getting money to run a cycling team, and the lack of clarity around that difference is a major source of the confusion around what’s actually happening with the team.

Sponsorship is what cycling fans and journalists know and understand. A company like V Australia spends money to associate its brand with a cycling team. The team provides media exposure (which is bullshit but whatever), opportunities for corporate hospitality, etc. It’s advertising, and it’s fundamentally similar to buying a page in a magazine. And as an advertiser, you get to market to the magazine’s readers but you don’t own part of the business or a get a share of any profits. One issue (or racing season), it’s your ad (or logo) on the back cover (or the front of the jersey). The next time around, it could be some other brand in that position.

With private equity funding, an investor buys an ownership stake in the business entity behind the team, e.g. Pegasus Racing Pty Ltd. Then the team goes out and tries to turn a profit by generating more revenue from sponsors than it spends on salaries and operations. If it’s successful (presumably for years on end), the investor makes money. If the team is acquired by someone else for more than it was worth then the investor got in, the investor makes money. But here’s the thing – when has either of those things actually happened?

As far as I know, the best financial outcome that a professional cycling team has ever been achieved is to pay everyone a good salary, break even for a while, then fold with enough advance notice for your riders and staff to look for new teams. Roger Legeay, for example, had a good run with Credit Agricole and walked away with his head held high. But anyone who had put investment funding into the team would have lost money.

I definitely believe that sponsoring a cycling team can be a good business decision. But investing in one? I can’t imagine that anyone would take an equity position in a team unless they were in it more for the sport than for the financial return. So what’s the story with Pegasus? From White’s statements, my best guess is that they never had a major sponsor on board for their would-be ProTour squad. Instead, they found someone who agreed to fund the team until they could sign a sponsor. Then that investor decided to do something else with his money.

Aside: If you look around, it’s certainly not uncommon for professional sports teams to lose money. But if you own, say, a money-losing NBA team, it’s still possible for that asset to increase in value because of TV rights, a new stadium, and lots of other things that still don’t exist in cycling.

CC-licensed photo by ewwhite

During the stage to Aix-les-Bains, Laurent Jalabert and the ONCE team dropped out, followed by Banesto and Riso Scotti. Jean-Marie LeBlanc pleaded with the riders to continue. When they eventually finished the stage, the police tossed more hotels and more teams went home. Know one knew for sure if the Tour would even make it all the way to Paris, which it eventually did with about half the field remaining.

So, what were the riders actually protesting?

From the New York Times:

“They treated us like criminals, like animals,” said one of the Dutch team’s members, Jeroen Blijlevens. “They took Bart out of the shower, made us sign some papers and took us away,” he continued, referring to his roommate, Bart Voskamp. The riders were held more than four hours for the tests and released half an hour after midnight.

Blijlevens’ lament was the common theme. Bjarne Riis added, “The riders are not against the investigations, but they are against the way they are being treated. We have some dignity.” Of course, the subtext was clear.

There had been doping in cycling for as long as anyone could remember. The team-sanctioned programs “exposed” by the Festina Affair were so pervasive and so well organized that they couldn’t have existed without a lot of people looking the other way for a long time. Even TVM had gone on with business as usual for four months after French police had found “a huge quantity of illegal performance-enhancing drugs” in a team car.

And then the political winds changed, and guys couldn’t even have dinner after a 204km mountain stage before they were arrested and forced to provide blood, urine, and hair samples. The riders chafed at the hypocrisy, and that’s why they protested. At least, that’s how it seems to me.

Where are we now?

12 years and one Puerto later, conventional wisdom would have us believe that Festina-like team doping programs are a thing of a past. Most people in the sport seem to think that when riders dope, they do so as individuals. And reports have indicated “an overall lowering of the performance level in the Tour compared to the last 2 decades.”

Let’s say it’s all true. It’s also true that riders today generally accept as a necessary inconvenience a level of constant surveillance and testing that would have been shocking in 1998. Does that mean they’ve have gained the “dignity” they sought back then? It’s hard to argue that they have, although a more accurate statement might be that they’ve come to feel differently about their rights and the sacrifices they’re willing to make.

Postscript

On July 29, 1998, I was getting my ass kicked by some of world’s best juniors at the Tour de l’Abitibi in Quebec. I spent that week riding for a composite team sponsored by the local cycling club in the host town of Amos. All the riders stayed at the high school, sleeping on mattresses on the floor, one team to a classroom. In the evening, we crowded around a television in the school’s student lounge to watch the nightly 30-minute Tour de France recap on ESPN. Some of the top riders must have recognized that a wrench had been thrown into their future career plans.

I had no idea what to think.

THAT ENTREPRENEURIAL SPIRIT

Let’s say you’re Alberto Contador. You’re 27 years old and you’ve already won the last four Grand Tours you’ve started. Your 2010 season is humming right along with GC wins at the Volta ao Algarve, Paris-Nice, and the Vuelta a Castilla y León. If everything goes according to plan, you might have another 3 or 4 years as the hands-down Best Rider In The World and another 3 or 4 after that when you’re still a threat to win every race you enter. Currently, you’ve got less than a year left with Astana. Then what?

Alberto’s best bet could be to build a new team around himself. Then he’s got all the financial upside, he can run the program the way he wants to, and he can control the risks to his liking. Actually, that’s probably a good approach for any major star in any team sport, except that in most sports it takes several years, a new stadium, and hundreds of millions of dollars to get in the game. And even then your expansion team will probably stink for at least a few years.

But among pro cycling’s many quirks are its low barriers to entry into the highest level of the sport. If you’ve got a PowerPoint presentation and connections, you can have a world-class team in the Tour de France in about a year. All you need is a title sponsor. Not that signing a multi-million dollar deal and starting a cycling team is a piece of cake, but it’s a lot easier than, say, starting an NBA franchise. Just look at the fast starts of new programs like Cervélo TestTeam, Team Sky, and – to a lesser extent – BMC Racing Team. When RadioShack separated from Astana, the addition of another team to the population was one of the least controversial aspects of the split.

So it would be pretty easy for Alberto to have his own team on the road next year and there have been rumors to that effect involving Formula 1 driver Fernando Alonso bringing Banco Santander as the sponsor. Also, it’s worth noting that Specialized’s personal contract with Contador was negotiated separately before the team deal with Astana was finalized.

But what are the benefits to Alberto of going it alone, compared to just signing the huge long-term contract that Astana reportedly offered? If you presume that Alberto’s image is the key selling point for most of the potential sponsors during the rest of this career – i.e. consumer brands, not Central Asian governments – there’s an economic efficiency to having his own team. Want to sponsor Alberto? Sponsor Team Alberto. Plus, eliminating the “middle man” role of the traditional team management gives the sponsor an assurance that the team’s main attraction won’t bolt unexpectedly a là Brad Wiggins. From an operational standpoint, there’s an appealing level of clarity in a team focused on a single rider. Everyone knows their job and is handpicked to do it.

The major financial upside of the star-centric team is the ability to negotiate personal endorsement deals concurrently with team sponsorships. The obvious case study is Lance Armstrong becoming the advertising face of The Shack while launching his own Team RadioShack. Meanwhile, other riders have to make do with whatever sponsors their team managers already have on board.

Of course, there aren’t very many riders with the star power to pull something like this together, let alone with willingness to accountable for actually running a team. Beyond Contador, the Schleck brothers reportedly have been mulling a similar venture and I could see it working for someone like Fabian Cancellara.

This summer’s Tour de France is the last in which the old crop of ProTour teams are guaranteed a spot. Starting next year, a new system will be in place. The more open it is, the more rider-owned teams I think we’ll see.

I also had a chance to interview one of the most influential, modernizing figures in pro cycling, Bjarne Riis.

And finally, there’s Joao Correia – the former associate publisher of Bicycling Magazine who’s now racing for Cervelo TestTeam.

Briefly… Team director Frankie Andreu quit. Contract disputes with industry sponsors. They didn’t actually sign Chris Horner. Operacion Puerto suspects barred from starting the Tour of California. That whole Mario Cipollini thing. Legal action on behalf of a clearly guilty Kayle Leogrande. Hiring Rudy Pevenage, then reportedly not paying him. Various flirtations with Floyd Landis that ended poorly for everyone. Accidentally registering as a Continental team instead of Professional Continental, which meant that they had too many riders. Running out of money and releasing riders as a cost-cutting measure. Getting sued by ex-riders. The list goes on and on.

After months of uncertainty over what kind of license Rock would hold for 2010 and in what country, the UCI finally announced last week that the team would not be granted a license at any UCI level. Mr. Ball seems to think that he’s been marginalized because of his aggressive personality and willingness to give second chances to past dopers. There’s likely some truth to his assertion, but I draw a couple additional conclusions.

The sponsor shouldn’t own the team. I wrote in more detail about this topic a while back, but the basic idea is that teams, riders, and staff have a stronger safety net when the sponsor is on the hook to fund the team for the duration of its contract. But in a case like Rock Racing, budget cuts at Rock & Republic meant layoffs of team staff and riders – even though UCI rules say that teams can only terminate riders’ contracts “in the event of serious misconduct on the part of the Rider or of the suspension of the Rider.” (see PDF) I have to imagine that was a major factor in the UCI’s decision to deny the team’s 2010 license application.

As always, know your audience. Rock Racing’s strategy aimed to capitalize on previously unmet demand for corporate memorobilia blending Hollywood trash-glam, Hot Topic angst, Michael Ball’s middle finger, and professional cycling. No one’s buying. Perhaps not surprisingly, people who follow bike racing typically don’t have much in common with people who wear $300 jeans with winged skulls embroidered on the butt. I’m not optimistic for Rock’s new bike line, either.

Ball should have learned from the mistakes of Sean Tucker and the United Pro Cycling Team. Instead, Rock Racing followed the doomed model of creating a brand for a cycling team before creating a cycling team.

In 2008, the Court of Arbitration for Sport upheld Webster’s right to join Wigan Athletic in the English Premier League before the final season of his contract with Scotland’s Heart of Midlothian. The resulting Article 17 of FIFA’s transfer regulations requires a financial penalty in all such cases and a 4-6 month suspension may be applied. The regulations also ban the new team from signing any other new players for a year.

Labor laws rightly prevent the FIFA system from giving a lot of power to the jilted team. Instead, the system functions by providing disincentives against the rogue athlete and his new team. As a result of the hefty financial and sporting penalties, “Webster rule” cases have been pretty rare. By comparison, the UCI’s disincentives are underwhelming. According to Cyclingnews:

International Cycling Union (UCI) regulations state that a rider cannot sign with a new team while they are under a valid contract unless they have the express permission of the UCI. The regulations also state that a team signing a rider who is already under contract can face a fine of up to 30,000 Swiss Francs, with the rider himself subject to a fine of between 300 and 2000 Swiss Francs.

Granted, the rider and his new team still have to negotiate a contract buyout. But even with that expense, the UCI system – or lack thereof – does almost nothing to protect teams like Skil-Shimano and Garmin. Apparently, Pat McQuaid is “looking at” this but he doesn’t sound so enthusiastic about it.

Check out the next issue of ROAD Magazine for my thoughts on what an effective rider transfer system would look like. On newsstands March 9.