Merger mania

Monday, 1 August 2011

Merger / takeover

Companies usually merge to strengthen their position with the idea that 1+1 = something greater than two, perhaps because they can assume a dominant position in their market. Think of Exxon and Mobil joining to make the biggest oil company in the world or Air France and KLM joining forces to match European rivals like Lufthansa.

Now in cycling we are seeing mergers between teams only this time it’s for quite different reasons. Rather than growth or dominance, this looks more like a story of survival. More like half a team plus a few more riders hopefully makes up a whole team.

Take today’s news that Quick Step is to merge with Omega Pharma. The current Omega Pharma-Lotto team is splitting with the Belgian lottery setting up its own squad and taking many of the current riders with it. Still keen to remain in the sport, Omega Pharma’s boss Marc Coucke is again linking up with Quick Step’s Patrick Lefevere. They’ve worked together before when Couke’s Davitamon brand was co-sponsor to the Quick Step team during its initial years from 2003 onwards… but split after differences.

Quick Step is a shadow of its former glory. Perhaps once the super team of cycling and certainly a major force in the classics, these days it’s visible in the races but sits 17th out of 18 in the UCI’s World Tour team rankings. Team frontman Tom Boonen has collected a handful of wins in Qatar and Oman in the last couple of years but in Europe he’s “only” won Gent-Wevelgem and a stage in Tirreno-Adriatico, although he’s come close in several classics. Meanwhile Sylvain Chavanel is currently the subject of a bidding war between several French teams, although he might still stay in Belgium. Should Boonen and Co. keep coming close then they risk losing out on top team status, unable to deliver the “sporting value” criteria of the licence.

Similarly the HTC-Highroad team has been looking at a merger with other teams. This time we have a team on the hunt for a sponsor, a cast of players in search of a role. But the common thread is a lack of new sponsors. Highroad has yet to find new backers and in the Omega-Lotto-Quickstep deal a sponsor is simply leaping from one squad to the next.

Mergers in cycling teams are hard. Teams are capped at 30 riders and even then there are rules insisting some of these have to be neo-pros. So you can’t take two squads each of, say, 20 riders and end up with a giant roster of 40. 1+1 can never equal 2.

Summary
This all feels defensive, teams and sponsors are working out ways to stay in the game and hence the announcements of new combinations of old parties. Remember that a team’s “assets” are very mobile, in that riders can come and go and UCI licences can expire or be withdrawn.

In reality many mergers are takeovers, with one side being the dominant partner. The thing to look for in the team mergers is which side has control, who has the money and how much choice each party has, whether this is a choice or a necessity.

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{ 13 comments }

Karl Lux August 1, 2011 at 6:20 pm

There is story of Leopard looking at the mergers too.

Jennifer August 1, 2011 at 7:44 pm

Has Lotto said what it would do if they don’t find another sponsor? Will they continue anyway and suck it up, financially, for this year? Or, are the riders banking on staying there SOL if they don’t find one? With all the problems HTC has finding sponsors, I wouldn’t think that was the direction most teams would want to go, unless they have to. Not that a merger doesn’t come with its own problems between sponsors, but still seems easier to negotiate than trying to find someone new.

Colin August 1, 2011 at 9:13 pm

Lotto are going on alone said their manager on belgian tv during tv. With belgian riders, focussing on developing riders as opposed to buying/ keeping gilbert. That is, their budget only allows this and since lotto is part government funded then is only way.

It is sad state of affairs when aso is making millions and yet teams are scrambling to find cash from sponsors. In current climate i imagine very difficult. The money should be spread more to teams and then they could build longer term and be more stable.

Larry T. August 1, 2011 at 10:45 pm

How long has it been that ASO has supposedly been raking in these millions? The first time I went over there the 7-Eleven boyz told us they paid $20 or $30K as an entry fee and for that they got hotel rooms, meals, the use of a team car and a few towels. The cars were Peugeot, the water was Perrier and the riders hung laundry out of their hotel room windows to dry! What about the other 98% of the races that probably make nothing or lose money each year? Does ASO need to prop them up too?
With the constant doping scandals who, other than someone directly connected with the bike biz would want to throw millions of dollars or euros into this tainted sport? I think we’re in for a return to pretty much industry-only sponsors for awhile until the doping mess is cleaned up. It’s already Leopard-TREK, how long before it’s Rabobank-GIANT or Saxo Bank-SPECIALIZED? It’s not that long ago that it was Bianchi vs Legnano vs Atala, etc. The races will still be exciting though the riders won’t be as financially well-off…but they’re the ones taking the dope so why shouldn’t they suffer the consequences?

@joshhilby August 1, 2011 at 11:05 pm

Mergers are also difficult from a standpoint of culture as well.

Quickstep/Omega-Pharma Lotto…not so much.

But the strain of different cultures has become apparent this year within the Garmin-Cervelo team.

The reality is, just like in the business world, a merger that looks great on paper financially and performance-wise doesn’t necessarily tell the whole story of what the merged company’s success will be. Culture and successful merging of cultures is more important than most people imagine, and sometime the most important thing. Especially on a professional sports team where esprit d’ corps and nationalistic management styles can play such a pivotal role in success.

And to Larry T’s point, doping is something that teams need to address in their basic architecture for sponsors. Garmin-Chipotle did this by bringing in both a code of ethics as well as third party doping testing and verification programs. While not cheap, the insurance that these programs provide in sponsors minds are invaluable. Hopefully more teams will start moving in this direction. Especially if any future merged team has one side that has a less than spotless record on the anti-doping front. The ‘halo’ effect of instituting programs such as this can be a hugely valuable brand asset.

C Grade Cyclist August 2, 2011 at 3:00 am

I guess with the ‘global financial tightening’, something like this was inevitable. In some ways,I’ve always thught there were too many ‘ProTour level’ teams trying to attract sponsorship – you always have new teams coming through (eg. GreenEdge, & last year Radioshack, Leopard-Trek, etc), whilst others struggled to nail down sponsorship.

Oneof the things that worries me the most are teams like HTC-HighRoad, that also run a women’s team. Women’s cycling is in even worse shape when it comes to sponsors, so their riders are in deep doo-doo if HTC folds..

Just on that – I’ve always thought that teams that run a women’s team should get bonus points when it comes to deciding who gets a ProTour licence each year…..

Lenny Bernstein August 2, 2011 at 10:34 am

“in the Omega-Lotto-Quickstep deal a sponsor is simply leaping from one squad to the next.”

It will actually be called Omega-Pharma-Quickstep. Lotto is of course splitting from Omega Pharma.

Nick August 2, 2011 at 1:22 pm

“but they’re the ones taking the dope so why shouldn’t they suffer the consequences?”

So the team and the sport as a whole should suffer due to the actions of what is seemingly a decreasing proportion of riders.

Notwithstanding the fact that it’s the most sanitised and tested sport in the world.

Sorry, I struggle to accept your line of reasoning there Larry.

ColoradoGoat August 2, 2011 at 9:38 pm

Sadly – this is only going to get worse. It may end up as a sport full of teams funded by semi-autocratic government leaders and royal/tribal elites looking for expensive toys. The money just is not there in the West anymore (this same problem is somewhat related to the increasing use of races in non-cycling hotbeds (Tour of Beijing, Quatar and Oman).

It will also mean that the chasm between the winners and losers in cycling is going to get much, much worse.

Shawn August 3, 2011 at 12:42 am

OK, my question is who holds the ProTour license Omega-Pharma or Lotto?

James August 3, 2011 at 1:01 am

@joshhilby has a very valid point regarding corporate cultures in mergers. I work in an airport and the merger with Delta and Northwest a couple of years ago is an example of merger cultures that didn’t mesh at all. Those people, at least at my airport, hate each other. The ex-Northwest folks eat lunch separately from their new co-workers. It’s rather amusing to watch sometimes but I’m sure it’s frustrating for their customers. Pilots at US Air and America West who merged several years ago are still fighting contracts! Thor Hushovd’s whining at Garmin-Cervelo sounds familiar! Good luck at Omega-Quick Step.

Nick August 3, 2011 at 4:09 am

ColoradoGoat – not the first sport to have this happen to. English Premier League prime example of foreign investors.

However where would sport be without these philanthropists? The assumption is because they’re foreign that they have no passion for the sport?

Fact is sporting teams have been the plaything for the rich for almost as long as porfessional sports has existed. I actually don’t see how the climate now is really any different, just that those handing over the money are more cautious in their approach…

LeonG August 3, 2011 at 3:10 pm

Elro, Mapei, Castorama, Saeco, Once, _est_ _ a, St Raphael-Geminiani etc., etc. There have been many over the years. When I look at photos of cycling events past & present its one of the first things I look for. I have preserved the black Caisse D’Epargne maillot with the red and white squirrel logo & rarely used it. It is one of my favourites. With so many sponsors now commentators may have to use acronyms, mnemonics or other short forms if names become too complex ….imagine……”here comes the Pharma-Lotto-Omega-Quickstep-AXA-Wall/Mart-Trek-Speedo team fourth at the first time check….”

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