Mergers and acquiescence

Wednesday, 31 August 2011

Radioshack Leopard

As I’ve written already, mergers are all the rage. All sorts of team combination are being talked about. Currently there don’t seem to be any rules regarding team mergers. Should we stand back and let teams deal unhindered or is it worth ruling on this?

This is subject where the answers are in short supply but let’s think through some of the issues at stake. Perhaps the most common meaning of the word “mergers” relates to the corporate use, whereby two companies are combined. It’s here that things are interesting because there are clear rules and laws to ensure corporate mergers and takeovers are handled smoothly. They’re probably not perfect but if two companies want to talk about a combo, then this is usually done in strict secrecy. Should the news leak then all parties involved usually have to give full details or at least some kind of holding statement. Sometimes the shares of the companies involved can be suspended.

One of the fundamental reasons behind these laws is to prevent false dealings. An investor buying or selling shares is supposed to do so in good faith that all fundamental news relating to the business is public. If a company denies being in merger talks and an investor buys or sells, only to find the company soon announces the merger then they might have grounds to sue.

What’s this got to do with bike racing?
If sport has several ethical issues to confront, this isn’t top of the list. But we can still think about it. If two teams are in merger talks then will their riders, and above all their management, be influenced by this? For example could maybe Radioshack and Leopard-Trek help each other out in a race, knowing they’re might be together next year?

And what about the riders? As I’ve said before, teams are capped at 30 riders. The transfer market is in full swing right now and if team managers are cooking up deals that mean putting together two teams with, say, already 20 riders each then several riders could be out of a job. It’s only fair the riders are notified as soon as possible, perhaps that they are notified as soon as team managers hold talks.

Summary
These are only quick thoughts but the corporate world has many laws to govern these situations, often to protect investors, employees and even competitors. I can’t help wonder if some protection, only a little, might help in the world of pro cycling too. The sport itself might worry about collusion during a race although this goes on all the time.

Above all, the prospect of teams deciding on plans at such late notice – the 2012 season is four months away – means riders in teams should be informed at the earliest opportunity. Perhaps a ban on team mergers after 1 July would be a start?

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{ 15 comments }

benDE August 31, 2011 at 9:54 pm

Once again you are answering my questions before I can even form them. An additional theme you might be able to shed light on: Are the salaries of protour teams publicly available through the UCI? In that case, budgets? If so, is there anybody that you know that tabulates these figures yearly to give an outisider like me a picture of the financial health of the sport? It would be a very important resource.

Playvelo August 31, 2011 at 9:59 pm

I can’t see how you could prevent team mergers after a certain date. For example what if you had a scenario where a teams sponsorship & investment amount was contingent on it being a part of the World Tour. To be in the World Tour you need a certain number of ranking points. That doesn’t get decided until after the rider transfer period.

Personally I think the biggest problem for the sport is solving the revenue issue. In the last few years we have seen the demise of Cervelo, HTC, Gerolsteiner, Discovery, Credit Agricole, etc. How many other sports see so many failures? Maybe a start is setting up revenue sharing of TV contracts like the Tour de France. If they solve the revenue issue then the transfer issues become a non-issue.

Ken August 31, 2011 at 11:38 pm

Cycling is one of the last team sports operating in basically a free market. Most other pro sports have leagues where entry is quite restrictive and new talent is subject to a draft. Too many leagues — the NBA and Major League Baseball both come to mind — have weak legacy teams dragging everybody down.

The open market of pro cycling seems to be compelling weaker teams to merge into healthier and more competitive entities. Also, the need to keep nervous sponsors on board and avoid the taint of a drug scandal now provides a huge incentive for teams to actively encourage clean riding.

cthulhu September 1, 2011 at 12:49 am

I’m not sure if the TV revenue issue would solve the problem. Look at the English Premier League, the teams earn millions of Pounds thanks to them but somehow some, even successful ones, cannot run a healthy team. They often still need some wealthy business/man backing them to be kept alive.
Also there is the problem of backfiring meaning if some companies cannot gain enough money through some races others might die. I’m really skeptical about, just because it seemingly has worked for football and because it pays most US sports, doesn’t necessarily mean it works for cycling, because as mentioned cycling is profoundly different.
At to take a look back at football, their sponsors on their shirts change quite regularly as well, only they seem to have less trouble finding replacement. And that is the question that is to be asked.
Admittedly, cycling is a bit harder to sell advertising space, since one only has the riders and bikes and team vehicles and no stadiums or fixed training grounds in which one could put up additional advertising, but still they must be doing something right which cycling is doing wrong.
First of all it comes down to the popularity of the sport. In some countries the sport is still as popular as ever in others it has lost a lot of it thanks to doping or bad handling of doping cases. Because cycling isn’t the only sport with doping problems or cases but somehow has suffered a lot more from them than other sports. Why that? Another question to be asked.
Next thing is, if there is somebody willing to take the money into the sport, there is nearly no planning security as we have seen. There are millions of (non-transparent) bureaucratic obstacles to overcome, supposedly for the benefits of the riders and staff, and in the end one doesn’t know if one passed them until it’s (nearly) too late. Look again at football, everybody knows before the season in which league they are going to play and in which additional tournaments and competitions they are participating. Sure, one cannot adopt this system onto cycling but it would be definitely better for teams, riders and sponsors if one knew before the season starts in which races one will participate. If contracts with clear rules would be made in advance. The sponsors have to reach their audience or else they will see a sponsoring as useless.
Third point, cycling seems to be gaining popularity but not professional cycling and this is not only thanks to doping. The teams but I guess the sponsors too are not using the full potential of a sponsorship. Sticking your name onto a shirt and winning races alone seems not to suffice anymore. New marketing strategies might have to be explored.
Last point, amateur and hobby athletes. If somebody is performing the sport himself he is more likely to also be interested in professional sports. And if the national cycling unions are not helping to promote the sports for “average joe” but sometimes even seem to hinder the amateur scene this is not helping. If there is an audience then sponsors are willing to invest, even if their products are no where related with cycling.

Jonathan Vaughters' Sideburns September 1, 2011 at 2:17 am

Imagine Andy on the Bruyneel doping program. That is a scary thought for Contador!

ChrisO September 1, 2011 at 8:44 am

Don’t the teams have until October to register and then be allocated licences and their respective places in the Pro / Continental tours ?

If that’s the case then the UCI is making it inevitable that riders are signed up once they are free in August, followed by team activity while those who need it secure funds and sponsorship.

Perhaps what they need is a standard clause (enforced by the UCI) which protects riders in the event that a team they have signed up for is merged or ceases to function and the riders are released (or your team leader un-retires). The riders would get paid out at least for some mandatory period on their contracts – just like a redundancy term in employment contracts/law. The teams have to deposit funds with the UCI – it could come out of that.

TotheBillyoh September 1, 2011 at 10:30 am

The value of sponsorships can fairly easily be calculated and monitored. Most marketers follow hard and fast rules. Eyeballs equals dollars. Distortions in sponsorship market prices usually only occur for a few reasons.

Emotion plays a part. Jayco’s target market are older Australian couples, hardly a core demographic in the fan base for cycling. Similarly was not Predictor a pregnancy test? Again hardly an audience found frequently watching cycling. Here businessmen are using their marketing budgets to indulge their own interests (or maybe less obvious marketing aims).

Then there is socialism. Astana pro cycling shows what can happen on the public dime. Similarly the Australian state and federal governments heavily subsidise cycling (and other pro sports). (And good on them I say, I am all for socialism.)

These distortions can create a business environment where costs/rewards become unhinged from reality. The free marketeers would have us believe that eventually the market will resolve itself and a sustainable level will be found. I call bullshit.

What we are seeing is just the fluctuations caused by irrational players in the market. When the money is available the trough is overflowing. With recession all funding sources wither. Logical and ilogical alike.

The Inner Ring September 1, 2011 at 10:35 am

benDE / Playvelo / Ken / cthulhu: yes, it all comes down to sponsors. I’ve covered the surprising lack of sponsors several times. I think this will change if the sport can keep scandal away but it’ll need several years of scandal-free sport to tempt big corporates. Hard, no?

ChrisO: there’s a rule a bit like that to ensure riders get paid. But being without a ride is a big penalty, if riders don’t have time to find another team.

TotheBillyoh: I wouldn’t be so sure about target audiences. In France, Belgium, Italy and Spain the largest segment of the audience are the retired and the stay at homes, aka seniors and housewives. See http://inrng.com/2011/01/call-yourself-a-fan/

TotheBillyoh September 1, 2011 at 12:04 pm

Inrng: Many thanks for the educative link – shows me (an ex-marketer) the dangers of extrapolation from incomplete information. (I am aware that here in Australia many women watch the TDF for the lycra-clad bottoms, but few buy a Fizik saddle commonly advertised thereupon. An opportunity for weightloss co’s?)

The Inner Ring September 1, 2011 at 12:15 pm

TotheBillyoh: that’s the audience in Europe but in “new” cycling countries like Australia, UK and US, the demographic is different with more professionals involved, a very key target for advertisers.

El Gato de la Cala September 1, 2011 at 1:28 pm

I think that it is time, once and for all, to explain young cycling talents with the dream of becoming professionals and established pro riders who hasn’t yet figured out, that professional cycling is NOT about cycling – it is about branding & money. It is about becoming five for one in terms of exposure. It is about buying access to this exposure, (ab)using it and run off over night, as history has shown.

First week at the TDF might have been carnage, as often stated in the Medias, but the amount of blood seems only a few drops compared to what is being planed in the boardrooms and in the dim corridors at the present. Ex.: An unscrupulous Benelux banker (Merry Christmas Mr. Scrooge) and a sneaky fucker throughout cheat (Who is ever goanna believe you again Mr. Brynepo) slaughtering a nearly newborn baby is not the images you might want to se.

My Pease of advice to the young guns is: take the money and keep silent or get a proper education. Professionally cycling is turned into a circus of mutants all way through!

Erick September 1, 2011 at 5:34 pm

The logic in comparing M&A (mergers and acquisitions) between cycling teams and corporations is flawed, at least for the following reasons:

a) There is a big distinction between publicly held corporations (shares floated partially or totally on an exchange) vs. privately held corporations. The rules that you mention would only apply to publicly held corporations to avoid “insider trading”, that is, the access to privileged information that is not publicly and broadly available to obtain an economic advantage. Cycling teams, are, as far as I know/am aware of, privately held institutions.

b) M&A activity in the corporate world is intended to increase the size of the revenues/earnings/geographical sites/human resources of two (or more) entities into a single more efficient one, where, in thery, economies of scale would decrease operating cost and increase revenues/earnings. Corporations are NOT restricted by size of employees, as cycling teams are, but rather (and then, only sometimes) by regulators that try to avoid monopolic/oligopolic practices in the market. From what I understand, M&A in cycling teams is to avoid the implosion/closing of one or two teams for the following year(s).

c) While it is true that employees should know as quickly as possible of M&A activity in their respective teams to allow them to try to find another team, it is only fair to ask what is worse, to risk the closing of two teams (and having more people, i.e., riders, mechanics, support staff, running late scrambling for a place on a new team) or the fact that at least a relatively large percentage (at least 50%) of those individuals will be able to continue working for next year.

This is certainly not an issue that has a single aspect to it – or an easy solution, but certainly an important aspect of the social part of cycling.

The Inner Ring September 1, 2011 at 5:42 pm

Erick: for sure, it’s just a different way to look at things, a prism instead of a mirror. But if teams are private companies, the races are public. Can people watch races or bet on outcomes if there is hidden collusion?

Higgins September 1, 2011 at 6:09 pm

The issue of collusion due to a possible merger seems a rare and unlikely threat to the integrity of the races compared to, say, the constant horse-trading that goes on between riders anyway, and has done for as long as grand tours have been happening..or the risk of doping which despite positive signs still hasn’t been eradicated, and probably never will be. All big sports have scandals and intrigue, few sponsored sports can claim that genuine ability and endeavour are the final arbiters of success. Actually , reading accounts of previous tours like the 1986 TDF makes me wonder whether all the cloak and dagger stuff isn’t what people love seeing and reading about. In the meantime, we are in a world recession and there isn’t as much money about, final. You could have a team managed by the archangel Gabriel and featuring mother Theresa as GC contender, I’m still not sure you could guarantee next years sponsorship …

Erick September 1, 2011 at 9:15 pm

TIR – just because in the market there are collusions, cartels and even oligopolies, doesn’t prevent the general public from investing (betting) their hard earned money (or someone else’s) in big tech/big oil/big pharma/big financial companies. As for racing, betting is daily bread and butter – there once was a team that was sponsored/supported by a betting website – Unibet.com – not so long ago. Good food for thought, though….

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