California Accounting

Saturday, 6 November 2010

Writing about the financial health of something can be a tricky subject. Even a hint can cause a self-fulfilling event. For example on Friday morning there was a rumour of long queues of people standing outside branches of the Spanish bank BBVA.

But this wasn’t a bank run… it was a run sponsored by the bank. Instead of savers queuing up to remove their money from the bank, participants in fun run were waiting in a branch to get their free t-shirts for the BBVA “Solidarity Race“. Nevertheless the rumours spooked a few traders and the stock price took a dip.

So it’s with a bit of delicacy that I approach the news that the Tour of California is a loss-making event and significantly so with the shortfall reaching up to $2 million a year. So it’s worth stating first up that race organisers AEG – an entertainment group that runs the Grammys amongst other things – will see the race as a long term deal. Cycling events take time to embed themselves and the new slot on the calendar should help the race. Yes it clashes with the Giro and the Dauphiné but the summer slot will attract more riders.

But all the same a $1-2 million loss has to hurt a lot, it is a very significant amount for a week long vent. The surprising thing is the cost. AEG doesn’t ask stage finish towns for money, a practice seen in the Tour de France but not common in smaller races. Instead it’s estimated there’s a cash cost of $200,000 for a stage finish, which includes road closures, police and more. All this is against a budget in California of cutbacks, the state is described as “on the brink of insolvency“. So finding a route between willing towns is proving hard, AEG are having to subsidise a lot of the logistical costs.

The whole thing looks difficult. If the shortfall was smaller than you could imagine more patience but how long will AEG stick with the event? The race has to turn a profit otherwise its backers will drop it one day.

A lesson for all
It’s a useful reminder that whilst long-standing races are part of the landscape in some European countries, with roots into society, the economy and culture, most events do not share this tradition. A race like the Tour of California has the possibility to bed down as a substantial race on the calendar but at the same time it’s only a decision or two away from demise. Even big races within Europe like the Classica San Sebastian are struggling and threatened with collapse.

We already see ASO using its influence to ensure support for minor races. For example Paris-Nice isn’t wildly profitable but ASO gives it a big boost. In effect the Tour de France cross-subsidises a few of the weaker events. But only a few.

Talking of ASO…
Some have hinted ASO could buy the Tour of California. There’s a connection already, the French company has signed a media agreement relating to the production of TV images. But a financial deal over organisation and ownership is a much bigger step. Whilst ASO is normally busy within France, it has organised events like the Tour of Qatar.

Speculating this could be an interesting buy for ASO but I wouldn’t expect a deal soon. ASO’s owners Amaury are indeed thinking about a sale of ASO itself. Nevertheless, I’d love to see the Tour of California grow free from financial worries.

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