Team owner-sponsorship-profit question

Tusher

This may sound dumb, but I've always wondered exactly how team managers make a profit.

Is it as simple as Bob Stapleton, Bjaerne Riis, JV and Bahati deciding to set up a team and call it, say, Toy Cycling.

Then they spend most of their time going round and asking companies if they would like to sponsor them. Say Mattel decides to sponsor one team, but uses Barbie (rather than their other brands) and gives Toy Cycling £10M. Then Thomas the Tank Engine comes along and agrees to be the secondary sponsor, and gives Toy Cycling £5M. Dora the Explorer is the third sponsor and gives £2M.

So the riders race for Team Barbie-Thomas and wear rather fetching pink and blue jerseys, with Dora the Explorer on the sleeves. Star riders will turn up at the sponsor's special events and pose beside a grinning Thomas, Annie and Clarabel, others will race in a specially adapted Barbie bike (no stabilizers) and the sponsors themselves will be invited to ride the pink team pedal cars and so on.

Is it Toy Cycling that gets the profit from the retail sales of the team jerseys (which sell like hot cakes to the affluent toddler market), or is it Mattel/Thomas/Dora?

To elaborate, especially with Riis's impending success/failure, where does the team owner makes his money? Because Toy Cycling would pay it's drivers, soigneurs, DS and so on out of the Toy Cycling bank account. Do the sponsors demand receipts for where their sponsorship money goes?

Or does Toy Cycling cream off 10% of the original £10M, £5M and £2M given to them in sponsor into a reserve account?

Or, who pays for JV's wardrobe and wine bill? If Riis Cycling can't find a sponsor, will Bjaerne be able to pay his electricity bill? How rich can team owners become?

iainf72

In it's simplest form, Pro cycling teams are providing a service to the sponsoring company by advertising their product. The teams management company will negotiate a price with the company and conditions and the company will pay that amount of money to the team.

The management need to use that to pay riders, run the logistics of the team and pay themselves.

A lot of the time it goes wrong and there isn't enough money and you get situations where guys like Riis need to inject their own cash to keep it going.

Tusher

Is that why most team owners are wealthy individuals who just happen to love cycling? What about Team Marshalls Pasta and Bahati at the other end of the scale?

donrhummy

The sponsors (like Saxo Bank for example) do not make any profit directly from the team. They're paying for the team to show their logo, use their name and spread their brand. It's similar to how sports teams (e.g. baseball teams) allow companies to buy the right to name their stadiums (and usually get places to put their logo and sell their products). So we get stadiums like Qualcomm Stadium for the San Diego Padres, or perhaps the best one of all: Enron Stadium in Houston.

But they don't own the stadium or the team.

Tusher

Yes, thanks donrhummy- I knew that, but I still wonder how much the teams actually make from the sponsors.
Apparently cycling is one of the cheapest forms of sponsorship available.

thel33ter

Tusher wrote:

Yes, thanks donrhummy- I knew that, but I still wonder how much the teams actually make from the sponsors.
Apparently cycling is one of the cheapest forms of sponsorship available.

Its cheap (relativley) becuase cycling is much less mainstream sport compared to football, F1 ect. less people will see and pay attention to the sponsors, so the advertising is worth less.

tarquin_foxglove

I don't know if this is directly applicable to cycling but the situation at a football club where I know the commercial director is sponsors get "extensive corporate services & entertainment".

So for £xm not only do you get say, front of shirt advertising, adverts round the pitch & behind the players head for TV interviews, but seats in the Directors Box, use of executive boxes, first call on tickets for big games, you'll get players & senior officials to your events, to use in your adverts etc.

With cycling I guess there is a commercial village at the start/finish & the main teams will have marquees & do entertainent for the sponsor there, maybe let the chief exec sit in the team car etc.

donrhummy

thel33ter wrote:

Tusher wrote:

Yes, thanks donrhummy- I knew that, but I still wonder how much the teams actually make from the sponsors.
Apparently cycling is one of the cheapest forms of sponsorship available.

Its cheap (relativley) becuase cycling is much less mainstream sport compared to football, F1 ect. less people will see and pay attention to the sponsors, so the advertising is worth less.

WRONG. It's cheap because of two reasons:

1. it's the one sport that you cannot charge tickets to go see

So they make ZERO money from selleing tickets to the event, as well as food, parking, etc. (I'm talking about the teams here)

2. There are no true regional teams

This hurts their ability to build fanatical fans for the team. Fans that will buy anything and everything with the team's name on it. Teams in other sports make millions selling jerseys, blankets, hats, credit cards, etc all branded with the team logo. (Not to mention a lot have their own TV channels now)

iainf72

Cycling isn't really a "team" sport in the usual sense. It's an individual sport practised in teams. This means we can get situations where you like a certain rider but find the team they're on odious.

mrushton

For the firms it can be a good deal in that they get a lot of airtime if their rider/team are on TV in a break or get a win. So for the AG2R guys who are away for 160km say 5 hours, that's 5 hrs on TV for AG2r which compared to buying a 30 second commercial is prob. a lot better value.
When Fassa Bortolo (Italian Cement Company) took to sponsoring a team they saw their share of the European market (not just the Italian) rise to 20%. Likewise Vitalico Seguros saw their market share rise and then withdrew the funding after a few years to move the money into something else having achieved their brand increase. Guys like Vaughters have talked about what a good team can achieve in terms of advertising for their sponsors esp. when on a winning run - hence the value of Mark Cavendish or a Quick Step team

http://www.bikebiz.com/interviews/173/I ... ponsorship

rick_chasey

I heard that a couple years ago, a study was done that found that 99% of Belgians had heard of Quick-Step.

Before they started sponsoring the team, Quick-step had less than 20%.

Question is, how much longer will Quick-Step keep sponsoring? They're already paying less than they used to.

mrushton

Rick Chasey wrote:

I heard that a couple years ago, a study was done that found that 99% of Belgians had heard of Quick-Step.

Before they started sponsoring the team, Quick-step had less than 20%.

Question is, how much longer will Quick-Step keep sponsoring? They're already paying less than they used to.

But that could because they are getting their deal cheaper (buyers market). Same brand awareness, less cost,better value for sponsor

Kléber

Laurent Fignon and Cyrille Guimard were the first to form a company and sell the naming rights of the team to the highest bidder, in their case Super U. Previous to that, riders were employed by the sponsor, eg for Renault or Molteni.

One thing worth noting is that if cycling offers plenty of value, that's because it's also toxic. Companies are ruthless with their brand image, they spend a lot trying to create the right image and obssessing over fonts, logoes and more. It's fine backing a cycling team when things go right but a doping scandal can cause massive damage.

Companies that worry about their image are more likely to back tennis or golf than cycling. That's why few teams in the sport have big name backers. Saxo is a small Danish brokerage, Astana is a weirdo Eurasian state-sponsored outfit and Quick Step does laminated flooring. We don't see the bigger corporate names involved.

iainf72

Kléber wrote:

We don't see the bigger corporate names involved.

That's why I thought it was exciting Cuddly Bob was trying to get Google to step up. A proper huge global name.

It can be toxic, but then, look at what Andy Rihs said about Phonak. Despite all the scandal, the team delivered exactly what was required from a marketing perspective.

Kléber

Yes, HTC is the only team with really big name backers. I suspect this is partly because Cuddly Bob knows his way around the boardrooms and talks the right language.

mrushton

Some teams are peculiar to themselves. Astana is a Kazahkstan backed team. Balears was a team sponsored by the Balearic Islands Govt. and there is a piece on 'The InnerRing' today about the Vendee region taking over BBox. Biggest sponsors recently are probably Columbia (clothing company) and RadioShack.

Kléber

mrushton wrote:

Some teams are peculiar to themselves. Astana is a Kazahkstan backed team. Balears was a team sponsored by the Balearic Islands Govt. and there is a piece on 'The InnerRing' today about the Vendee region taking over BBox. Biggest sponsors recently are probably Columbia (clothing company) and RadioShack.

Radioshack is a small company, it's "only" worth £1.5 billion. Much smaller than HTC, Newscorp/Sky, Garmin, Rabobank and Caisse d'Epargne. But the biggest sponsor in the sport must be one of Katusha's backers, the Russian giant Gazprom.

Orleandrew

Anyone know where I can get a Toy Cycling jersey?

Mike400

Do the sponsers get any revenue from the sale of merchandise, saying as their logo / branding is on it?

And re the toxicity of the sport, would that be why Team Sky made such a big deal in the media about how "clean" they are?

Do you see much in the way of sponsership for say Cat 1 riders?

zippypablo

I remember reading a while ago that some big companies aren't interested in cycling as it's too cheap! One company was reluctant to get involved as it wanted to spend more.

mrushton

That probably means it's not 'sexy' enough to take their clients and themselves to. F1, Wimbledon, Golf all involve posh eating,poss.foreign junket and nice venues/hospitality boxes/tents, whereas cycling poss. means outside in bad weather.

paulcuthbert

Tusher wrote:

So the riders race for Team Barbie-Thomas and wear rather fetching pink and blue jerseys

That sounds really close to a Lampre jersey...

And btw, "Team Barbie-Thomas" is not as cool as "Team Ken-Tank"

knedlicky

iainf72 wrote:

Cycling isn't really a "team" sport in the usual sense. It's an individual sport practised in teams. This means we can get situations where you like a certain rider but find the team they're on odious.

You don't follow football?

zippypablo

surely football is the other way round? You like some teams but find some of their players odious.

Pross

Mike400 wrote:

Do the sponsers get any revenue from the sale of merchandise, saying as their logo / branding is on it?

And re the toxicity of the sport, would that be why Team Sky made such a big deal in the media about how "clean" they are?

Do you see much in the way of sponsership for say Cat 1 riders?

I doubt the sponsors get anything from the sale of tops with their logos, that's just another advantage to them in marketing terms. If anything they should pay an additional amount of money based on how many tops get sold. There's not much sponsorship around for individual 1st cat or elite riders, most would ride for a sponsored team and I believe most British based pros are on a very minimal salary but get their equipment and costs sorted out. Many local clubs will also have some minor sponsorship too.

On the original post, I assume it works liek any other business - the owners sell advertising space / naming rights for a fixed sum, the company uses that money to pay it's overheads (riders and staff wages, travelling costs, extravagant buses etc.) and anything left is company profit some of which is kept in the coffers and some paid in bonuses to the directors / shareholders.

Gingerflash

Build a team good enough to attract sponsors.
Sell advertising space on jerseys etc.
Use the proceeds of the sale of the advertising space to finance your team however you see fit.
What's left over belongs to the team management company (Eg Riis Cycling, Tailwind Sports etc).

Pay your riders and staff too little and you won't attract the quality people. The value of your ad space, and next year's income, goes down.

Get it right and you have a team that's attractive to sponsors, they pay a bit more than market rate; and attractive to riders, who might ride for a little less than the market rate. Management does very well.

knedlicky

mrushton wrote:

Biggest sponsors recently are probably Columbia (clothing company) and RadioShack.

Kléber wrote:

Yes, HTC is the only team with really big name backers.

Not Sky? Or BBox?

I never knew Columbia had to do with clothing until I read this post and have no idea about HTC - so much for their use of cycling for advertising. Especially as I already knew (albeit sometimes only vaguely, e.g. Footon) what at least one of all the other team main sponsors are about.

Kléber

knedlicky wrote:

Not Sky? Or BBox?

Bbox only sell products in France. Sky is a brand only existent in the UK, Germany and Italy. It's part of Newscorp (Fox TV, Wall Street Journal etc) but a component brand, not the big company.

eh

I thought the kit was a generally a flat rate the maker paid (e.g. Nike) to the team/club and then Nike make money on each jersey etc. and hope to make an overall profit. Pretty sure thats how its done in other sports anyway.

I'm not sure cycling is a toxic as people believe, most sports have had iffy scandles over the years, just think of the problems Renault got into last year in F1.

knedlicky

Kléber wrote:

knedlicky wrote:

Not Sky? Or BBox?

Bbox only sell products in France.

BBox might only sell its telecom products in France but it's part of a huge consortium, with interests in all different fields, especially construction and real estate (including outside France) and also including French TV (TF1) and Eurosport.
The owner is one of the richest men in France, and apparently is actually interested in cycling (though in other respects supposedly not the nicest person to know). He probably chose BBox as his vehicle to support cycling, as it makes more sense advertising to sell products to the French public than having Bouygues Construction as sponsor when that part of the consortium depends on public authorities for its business.

inseine

I'm sure SKY are bigger than HTC.
Rabobank has to be huge compared to most of the others, despite the current climat.