Yesterday the UCI put out a short press release on the apparent financial health of the pro peloton. Two statements stood out
- the budget of the 40 top teams is €321 million, an increase of 36.5% over three years
- the average annual salary is €264,000, up from €190,000 three years ago
It sounds great, money is pouring into the sport and riders wages are going up. Only the more I think about it, the more these trends are not healthy.
First, a caveat. We don’t have much detail. The UCI quotes a report by Ernst & Young, a business services firm tasked with auditing the top pro teams. With that in mind, let’s look at the budgets. We have a statement that :
In 2009, the total budget for the 39 professional men`s teams was 235 million euros. In 2012, there are 40 professional teams (18 UCI ProTeams and 22 UCI Professional Continental Teams) with a total budget of 321 million euros, according to the Ernst & Young report on the economic situation of the professional peloton. This represents an increase of 36.5%.
Note we’re reporting the growth in team budgets to the right of the decimal place but note many teams are budgeting in US dollars as well as other currencies like the British Pound or Aussie dollar and in the last three years the US dollar alone has fluctuated greatly against the Euro. In other words it’s hard to compare like-for-like given the moving exchange rates.
If we assume the data are suitable then a 36.5% increase worries me. First there’s not been a proportional increase in racing, TV scheduling or other returns that sponsors look for. See the TV rights deal for the Tour de France, the latest one was I believe signed at the same rate as the last one several years ago. Put simply the price of a ticket into the sport has risen but there’s no evidence of any extra return: this looks like cost inflation for the teams. Does this matter? Well imagine if Wall Street banks put out a press release saying they’d not done much more business in the last few years but wages were up by over a third… the protests would begin immediately. On a less contentious comparison, consider if the German auto sector announced car production was flat but workers’ wages had risen by a third. Whilst it’s great for the staff, rising costs could signal problems ahead.
Back in cycling if you were a sponsor looking to back a team you would be worried because any budget agreed today could see you build a decent team in the first year… only to find costs rise and in three years’ time your squad is decidedly below average unless you decide to commit to upping the budget by 10% a year. Similarly if you’re a team manager landing a new sponsorship deal you have to sign riders today but this inflation means you could have to set aside a disproportionate chunk of the funding to for later years to cover the apparent wage inflation.
The good news here is perhaps that with doping scandals becoming more infrequent the risk premium on investing in pro cycling is falling. Once upon a time many a team would get dragged from scandal to scandal and many sponsors were terrified of the sport. This is still true, large corporates are sitting out for now but I’m told some big names watching with a view to joining if things stay safe and clean. Because your sponsorship is less likely to blow up with headlines linking your valuable brand to cheating liars and even criminal conspiracy, the naming rights and “real estate” on team clothing is now trading at more normal price.
We also get news on rider wages, here is the statement:
the average annual salary of a rider with a UCI ProTeam has risen from 190,000 euros in 2009 to 264,000 euros in 2012.
Again the foreign exchange question comes into play but even if we assume this, the word “average” is a loaded term. As you might remember there are different averages like “mean”, “mode” and “median”. Sport is a winner-takes-all domain where a few take home vast rewards whilst the large majority earn more modest wages.
To illustrate this, imagine three riders in a breakaway and one earns €30,000, the next €40,000 and the third €50,000. Thus the mean average wage of the escapees is €40,000. Then Ag2r’s Jean-Christophe Péraud jumps across to the move and suddenly the average wage is €117,000 because the Olympic mountain bike medallist earns €350,000 a year. Next Andy Schleck, on €2 million a a year, joins the five man move which now has an average wage of about €500,000… only three of the five riders are earning one tenth of this average. Indeed a quick take on twitter sees several riders expressing surprise at the average wage and the pay inflation too.
As such talk of “average” is not so helpful because the distribution of earnings is skewed by a few champions at the top. At the bottom let us note that the UCI minimum wage of €30,000 (€24,000 for a neo-pro) has not risen in recent years.
Finally, take the word “salary” with some caution too. Normally it means the gross annual income that is paid in regular monthly instalments. But cycling is not such regular work. There are image rights, there are performance bonuses, there’s prize money. Salary is not the same as a rider’s total income. And increasingly income is not the same as taxable pay because many teams are not paying their riders a salary, instead the rider is paid on a self-employed or “independent contractor” basis from which they rider has to deduct the payroll taxes so the income isn’t equal to salary. That said Ernst & Young reviews all the contracts so hopefully its calculations on rider wage levels adjust for this.
Before you rush out the door for a new training ride to help you turn pro, note cycling isn’t so well paid. In a back of the envelop calculation, the entire wage bill for the all riders on the UCI World Tour is inferior to a single sports team in other competitions, for example lower than the wages paid by soccer’s Liverpool FC or Bayern Munich, in baseball it is lower than spend for the Philadelphia Phillies.
We don’t have the full report and without source data it is hard to analyse team budgets and rider wages in full. But the UCI’s self-congratulatory tone might read well for some riders earning bumper wages but the increase isn’t evident for many riders. There’s no mention of women’s cycling either.
If the cost inflation continues then it could pose a substantial problem for teams and in turn the sport with a few squads funded by billionaires whilst others struggle to find sponsors on a commercial basis. Here we enter the “prune juice” economics of the English Premier League soccer where any new money that flows into the sport… flows straight back out the bottom to a handful of superstars and dealmakers without necessarily reinforcing the sport itself.