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Introduction
With 3.5bn viewers, the Tour de France is the only yearly event in the Top 5 of the most-watched sport events in the world 1). Last year’s Tour de France achieved a record number of domestic viewers with 42.5m viewers in France 2) and a record number of over 80 million people watched the UCI World Championships 2023 3). The viewer interest in cycling is at an all-time high with new stars such as Tadej Pogačar, Jonas Vingegaard, Remco Evenepoel, Wout van Aert, or Mathieu van der Poel providing incredible entertainment. But despite these record numbers, the financial situation of cycling teams is not really improving.
In this article we are going to assess why cycling teams have no value, make no profit, how we could fix this and whether we should.
Revenue streams and budget
To estimate the value and profits of a professional cycling team, it is important to look at their revenue streams. The yearly budget for a World-Tour team in 2023 was between €12m - €55m, with Ineos Grenadiers leading this metric 4)5). The main source of revenue for cycling teams have historically been sponsorships. Next to performance sponsors - who support the teams through bikes, equipment, or nutrition - the main sponsor of a team usually contributes around 70% of a team’s yearly income 6).
Diagram 1 illustrates the revenue streams for Team Sky in 2014 (and 2013), which consisted of roughly 63% (66%) from the title sponsor, 24% (27%) from performance sponsorship revenue and only 13% (7%) from prize money or other income. To put the prize money that teams can win into further perspective: Jumbo-Visma was awarded the highest amount in last year’s Tour de France with €664,280, whereas the teams in places 7 – 22 where only awarded between €12,180 and €99,080. With Jumbo-Visma’s budget estimated between €27m – €29m 4)5), winning the (by far) most important race of the year in spectacular fashion only generated around 2% of their yearly revenue. For last-placed Team DSM-Firmenich, the prize money was worth about as much as one bike for one rider 8). Each team brings around 55 bikes to the Tour de France 6). Other income for Cycling teams is mainly possible through merchandise or social media, but this number is still very low.
In comparison with other sports, the revenue streams in cycling are very limited. There are 3 main reasons for it. First, road Cycling takes place – as the name suggests – on the road. This makes it nearly impossible to generate revenues through ticket sales compared with sports that take place in stadiums 9). Secondly, transfers in the sport are strictly forbidden to include any payment. According to the UCI Regulation 2.15.120, “On the expiry of the term of the contract, the rider is free to leave the UCI WorldTeam and join another team. All transfer payment systems are prohibited.” 10) And finally, the most important revenue stream might be television broadcasting. Broadcasting for the Tour de France alone was around 55% of the total revenue for the TdF, which was estimated to be around $60m - $150m in 2021 6)11). The Giro d’Italia made a deal with Discovery+ in 2021 for non-exclusive broadcasting rights worth €10m 12) and the Vuelta made a similar deal worth €2.5m 13). Overall, this would be a very relevant addition to the team budgets. However, the revenues generated by the races (mainly broadcasting and other sponsorship delas) belong entirely to the organizers. For the biggest races, these are the Amaury Sport Organization (ASO) 14), RCS Sports 15) and Flanders Classics 16). This practice has been a controversial topic for some time 9) 17) 18), but to this day, it is still the way things are done.
Profits and Valuation
Now that we have seen the challenges involved with generating revenues for cycling teams, let’s focus on why they do not make profit. We already mentioned the first one. It is difficult to generate revenues due to the specifics of the professional road cycling sport. But there are two more. The team’s main target is to satisfy their sponsors (as they are their main revenue source). For the sponsor, the only thing that counts is media coverage and that means performing well in the races. If there is any money left at the end of the year, the sponsor might ask why the team didn’t invest all their money into the performance of the riders. And finally, the UCI simply prohibits World Tour Teams from making profits. UCI Regulation 2.15.090 clearly states that “The income deriving from the activities of the UCI WorldTeam must be allocated exclusively to its operations or to the development of cycling.” 10) The example of Team Sky for 2013 and 2014 illustrates this.
Diagram 2: Team Sky Statement of Comprehensive Income 2013-14 7)
This finally brings us to the valuation of a cycling team. The main way to assess the value of a sports team is the income approach. This approach uses future revenues, EBTIDA and net cash flows as basis for the valuation 19) 20). As we can see, there is barely any EBITDA, and no net cash flows in the future of cycling teams. And while there are some revenues, these rely mostly on sponsors, which cannot be turned into value for the owner of the team. Most assets of a cycling team (bikes, cars, other equipment) are either rented or made available by the sponsor. Therefore, there are almost no assets with real value for the owner. The only things that might be considered as actual assets are the rider’s contracts and the World Tour license. But as we mentioned, there are no transfer fees for riders that are currently under contract with your team and the prize money they might be able to win during their remaining contract is very limited. Measuring the value of a UCI license is difficult as they rarely change hands. But since there is no profit to be made with a UCI license, one can argue that the value of this asset is also close to €0.
How to fix this
Let’s have a brief look on why this current situation is a problem for the cycling sport. The key issue lies in the team’s dependence on sponsors. If a key sponsor leaves, even top teams can be on the verge of bankruptcy and struggling to pay riders and employees wages. This happened for example in 2017 to Quick-Step, one of the absolute top teams, which was finally able to get a second main sponsor to secure its future 21). Jumbo-Visma’s main sponsor Jumbo left the team even after they had one of the most spectacular seasons ever, winning all three Grand Tours with three different riders in 2023. Fortunately, they were able to increase Visma’s and Lease-a-Bike’s involvement, who were sub-sponsors before, resulting in the new team name Visma Lease-a-Bike and securing the budget for the next seasons 22). This leads to a constant struggle for survival (and tons of name changes) which is not beneficial for the cycling sport.
Now let’s finally get to the issue of increasing cycling team’s profits and reduce reliance on sponsors. Of course, this would mean that the UCI had to surrender its stance on cycling teams not being allowed to make profits. Let’s assume for now, that the UCI would do that and see in the last section whether they should do it.
There are two ways to increase profits. Lower costs or increase revenue. It might be possible to reduce costs, but since costs are directly related to the support of a team’s riders and their performance, it is probably not the most efficient way to tackle the issue. Therefore, let’s have a look at some possibilities to increase and diversify revenue streams.
Diagram 3: Revenue streams by sport 23)
The revenue streams of some of the most popular sports clearly show that (except for soccer), they rely on sponsorship for only around 10% - 15% of their revenues. We have already discussed the issues with ticket sales (here called gate receipts) in the cycling industry. This leaves us primarily with TV Broadcasting and Merchandising.
The debate on whether the ASO and RSC should share some of their broadcasting revenue with the teams has been around for quite some time. As discussed, the race organizers currently keep all of it. Is this fair? As Patrick Lefevre (Owner of the Soudal-Quickstep team) pointed out in 2020: “We have the actors, we pay them, and without the actors, there’s no movie.” 18) Sharing broadcasting revenues with teams is very common in other sports like Football 24), American Football 25), Ice Hockey 26) or Basketball 27). The project One Cycling is the effort of 10 World Tour Teams and Flanders Classic to reform the way broadcasting and revenue sharing currently work. Among other things (e.g. more coherent race calendar or budget caps for increased fairness), their main focus is to create a new organization that encompasses all stakeholders - meaning the UCI, Race Organizers and cycling Teams - to find ways to create new revenue streams and share revenue streams between Organizers and Teams. There also seem to be some interested investors behind them 28). Other sources say however, that the amount of real external interest beyond the media hype is relatively slim 29).
One key obstacle to this initiative is the ASO. Since they own many of the biggest races in the World Tour Calendar, the teams and the UCI are simply dependent on the ASO. Without this organization on board, there can almost never be a change in the cycling sport. At least not without changing cycling as we know it today. Currently, the ASO seems to be against the plans of One Cycling 29). According to the General Manager of the Tour de France, Christian Prudhomme, the ASO never saw One Cycling as a business competitor nor a reasonable reform vehicle 30). To be fair, the ASO is a private company and, in contrast to the NHL, NFL, NBA or soccer leagues, not an organization that only exists to promote the sport and support the teams. Their primary goal is the same as that of many other businesses. Generating profits. And if initiatives like One Cycling fail to show the ASO a monetary incentive to cooperate, it will be difficult to come to a mutual agreement. Still, coming up with projections on how such a reform could increase the overall cycling sport might be a way to persuade the ASO in some time.
Should it ever come to a broadcasting revenue split between organizers and teams, it would also be crucial to improve the current broadcasting system. For a great overview of how to improve cycling broadcasting in order to make it more interesting to consumers, please refer to this article: https://velo.outsideonline.com/news/analysis-why-cycling-needs-to-improve-its-tv-product/
Merchandising could be an important supporting revenue stream. Currently, if you search for “cycling world tour teams merchandising”, only the fifth result is the online shop of a World Tour Cycling Team (Visma Lease-a-Bike) and only 5 out of the first 25 search results are such shops overall. It is not looking good for the current state of merchandising in cycling. It is also virtually impossible to find any data on the revenue that teams can generate from it. But in my opinion, with the current rise in interest in the cycling sports, merchandising should be a promising opportunity for the future. Many cycling fans ride bikes themselves and wearing your favourite team’s kit seems to be at least as reasonable in cycling as it is in football or basketball. In the end, this opportunity will depend mainly on the price-point of the kits and the interest of the cycling community in the product.
Finally, let’s take another look at sponsorships. The current dependence on sponsors puts the sponsors in a strong negotiation position. Repucom, a sports intelligence firm, estimated that the average World-Tour team generated $88.4m in media exposure to their sponsors during the 2012 season 6). Adjusting for the budgets at the time, we can expect the “multiple” that the sponsors generated to be around 5-7 times their investment. If cycling teams had more revenue streams, it might be fair to assume that they would have a better negotiating position and might increase their revenues from sponsors in this fashion.
In summary, we identified 3 key ways to increase revenues and profits for World Tour Cycling teams:
Broadcasting revenue sharing between organizers and teams (as well as improving broadcasting quality)
Merchandising
Better negotiating position with sponsors
It might be also fair to assume that a growth of overall revenues would lead to a further professionalization of the cycling industry leading to further growth in the future.
Should we fix it?
At this point, I hope to have made the points for a reform in the cycling industry clear. Let’s now look at why it might not be a good idea and whether cycling even needs fixing?
Just a few weeks ago, the Global Cycling Network published numbers showing that the financial stability of cycling teams is at an all-time high with the average Tour de France team having been in existence for 21.32 years. Compared to 1985, it is really going well. "If One Cycling think they’re coming along to help stabilise the top of men’s professional Cycling, they’re about 20 years too late" 31)
Diagram 4: Average Years in Existence of Tour de France teams 31)
On another note, if the UCI decides to allow World Tour Teams to make a profit, it might also have other consequences. It would certainly lead to a further commercialization of the sport. This in turn would mean more money in the industry as teams might suddenly be interesting to investors. But it could also mean cost-cutting, higher broadcasting fees for the fans and a general focus away from the sport side of the industry. Discussing the pros and cons of the commercialisation of sports is an entire topic in itself. If you are interested in this discussion, I highly recommend checking out the following two sources, that go in depth on the topic: https://www.bartleby.com/essay/Advantages-And-Disadvantages-Of-Commercialisation-Of-Sports-FCL556M3U https://www.ukessays.com/essays/media/effect-of-commercialization-on-sporting-events-media-essay.php
A third important aspect could be the topic of unfairness between the teams. The proposed recommendations could lead to a further divide between the few top teams and the rest. Some teams already have to compete with other teams that have 2-5 times their budget 4)5). And when all that money is spent just on the operations of the cycling team, it clearly translates to the performance on the street. Diagram 5 illustrates this point:
Diagram 5: Achieved Tour de France price money vs. estimated team budget 6)
If teams have more ways to generate revenues, it will typically be the most successful teams being able to generate even more revenue and becoming even more dominant. This is part of the reason that the NBA, NHL and NFL all have a revenue sharing structure that benefits smaller teams in order to keep them competitive 25) 26) 27). And in the end, only a sport with several teams competing for the victory remains interesting in the long term.
Conclusion
So where does this leave us? Cycling is one of very few popular sports that almost exclusively rely on sponsorship revenues and that definitely puts teams in a difficult position. But it is also difficult to monetize cycling in other ways. Merchandising is definitely an important step in this regard and so is making the broadcasting experience more interesting to reach a broader audience. It will be interesting to see how the debate around sharing broadcasting revenues will develop. For now, it doesn’t seem like One Cycling will bring the reforms they hope to achieve.
Overall, there are arguments to be made for as well as against the commercialization of the cycling sport. We should still be thankful for the sponsors and race organizers who allow us to enjoy cycling at this high level. But that does not mean it is not worth exploring other ways to generate more money for the teams.
Sources
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https://pages.stern.nyu.edu/~adamodar/pdfiles/country/MITSportsPresentation.pdf
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