RCS, The Giro and The Gulf

Thursday, 14 May 2015

This should be a piece detailing the finances of the Giro d’Italia but it turns out the event and its finances are mere footnotes buried with the accounts of RCS Mediagroup, an Italian media conglomerate. As great as the Giro is, it is no money-spinner.

Money can be made though and the Giro’s heritage is being exploited for new revenue opportunities in the Middle-East and perhaps beyond where a brand new short stage race can prove more lucrative than an established grand tour.

The Company: Rizzoli Corriere della Sera MediaGroup is the full name of the company more commonly known as RCS Media, pronounce it “Air-Chee-Essay” to sound like a local. It is quoted on the Milan stock exchange and valued at €631 million ($720 million). The largest shareholders are typical of the Italian corporate sector where companies and holding companies all own shares in each other, here Agnelli, Pirelli, Mediobanca are among the big investors. The income for 2014 was €1,279.4 million.

The activities: It is the market leader for print media in Italy and Spain with titles like Corriere della Serra and La Gazzetto Dello Sport in Italy and El Mundo and Marca in Spain, respectively accounting for the first two areas in the chart above and includes many more titles from daily newspapers to monthly magazines. The third, RCS Libri, is Italy’s second largest book publisher. RCS Pubblicità does pubblicità (“advertising”) – especially via its IGP Decaux venture with hoardings across Italy – and eventi, mainly sports events. It’s within this group that the RCS Sport sits, the entity that runs the Giro. RCS Sport has a portfolio of sports events:

  • Cycling: Giro d’Italia, Tirreno-Adriatico, Strade Bianche, Roma Maxima, Milan-Sanremo, Il Lombardia, Dubai Tour, Abu Dhabi Tour
  • Other sports: commercial advisor to Serie B football and Italian basket ball, Milan marathon, Color Run

The money: The table above shows the accounts of RCS Pubblicità for 2014, almost €300 million of income from advertising and promotional events, €48 million from sports events. This means that all of RCS’s bike races and other sports activities generate a combined income of €48 million. It looks low but that’s what the accounts say.

Foreign streets are paved with gold

2014 was a good year too for RCS Sport with the Belfast grande partenza raking in €3.1 million which goes a long way to explaining why the Giro opts for so many foreign starts these days. Interestingly the new Dubai Tour earned €4.5 million: a four day pre-season stage race in Dubai is 50% more lucrative than the high profile three day start of the Giro itself. No wonder RCS are so keen on the Dubai Tour and are launching the season-ending Abu Dhabi Tour in October to shakedown some more petrodollars. Now this is income and not profit, a lot of the money earned is spent inviting Diego Maradonna to the lavish opening ceremony, paying teams to race and flying out the media. Meanwhile domestic races like Il Lombardia and Tirreno-Adriatico turn over much less and don’t make much money.

Loss sharing: Again the dismal sums dampen talk of revenue sharing. Assume wrongly that €48 million comes from cycling and then assume a 25% operating margin and this implies €12 million in profit a year for RCS, assume RCS is so generous that it would pay half of this out to strangers and £6 million divided by 18 teams or €0.33 million per team. Use more realistic assumptions and the sum is far smaller, a welcome sum but irrelevant to stabilise team finances.

Conclusion
The Giro might be a giant race but it’s little more than a one-liner in the 377 pages of RCS Media’s accounts. Instead the company is all about print publishing and faces the same challenge as every other newspaper: how to make money from journalism in the internet age.

Cycling helped to make the group what it is today with the Giro and other cycling events helping to sell newspapers by the million in the past. Today a race is no longer a viable newspaper promo. If anything the Giro almost looks like a brand, something that can be used to make money abroad while the actual race itself isn’t a valuable asset. Careful exploitation of the Giro’s heritage along with RCS’s marketing flair means there’s money to be made from foreign starts and launching new races in the Gulf.

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QKRTNU May 14, 2015 at 5:42 pm

While very difficult to calculate, there is obviously value generated through the sale of additional papers/web views due to the presence of the coverage of the Giro and other sporting assets.

After all, the grand tours were started as a way to sell papers. I know, I know maybe an oversimplification but that has been sited over many years as the catalyst.

The Inner Ring May 14, 2015 at 8:11 pm

It helps for La Gazzetta but they don’t have the exclusivity they once had so the event is generating revenue for lots of others too. Gazzetta’s coverage is very good but not extensive, I enjoy reading it but don’t have to read it.

Larry T. May 14, 2015 at 6:33 pm

The newspaper selling issue is interesting – I can’t count how many times I’ve tried to by a copy of La Gazzetta dello Sport along the Giro route to find them sold-out. If you want to be 100% accurate, by the way it’s AIR-AY-CHEE-ESSAY. I have a tough time with them whoring out the history and passion of the Giro to stage non-events in the bleak desert to score bucket loads of petro dollars from corrupt, repressive oil regimes, but they don’t listen to the likes of me anyway – the social network mavens with the attention spans measured in seconds or minutes is who they seem to be after these days. Interestingly enough though, the Giro sponsors are still pretty much mainstream consumer products rather than hipster crap. Moms still buy most of the breakfast cookies, soft drinks, laundry detergent and ice cream treats after all.

channel_zero May 14, 2015 at 6:59 pm

Another great post!

This puts the valuation of cycling events very, very low. This from one of the UCI’s “big three” worldtour promoters. It seems like it is still a sport for billionaire hobbyists.

The Inner Ring May 14, 2015 at 8:10 pm

It is low but it seems it would not take much to boost things.

J Evans May 14, 2015 at 8:38 pm

RCS need to focus less on middle-eastern money-making (agree with Larry on that – nobody should be supporting these oppressive regimes) and more on preventing spectators from ruining the race that actually matters.
“Vegni… downplayed the idea of taking legal action against those who caused the crashes.”
That’s exactly the opposite of what he should be doing.

Nire May 14, 2015 at 9:40 pm

I was at the Giro last weekend and was surprised I couldn’t find a place to buy anything more than a stupid Giro-hat or some cheap pink tee-shirt. I was planning to buy some nice bike-stuff, maybe a Giro jersey or a focaccia for that matter. Same thing at Milano – Sanremo last year.
To me it seems no one was even trying to make a profit.

Tricky Dicky May 14, 2015 at 10:40 pm

Interesting. I compare that with the Tour Down Under, which I visited this year, which cops quite a bit of grief as a “slap and tickle” WorldTour event. There, Adelaide makes a huge thing of the race: there is a race village with lots of companies selling their wares – bike and clothing manufacturers, bike tour companies, bike insurance, even car companies like Subaru appealing to the ABC “MAMIL” consumer, the mechanics had booths set up so people can check out the bikes while they’re getting services, there are bars and cafes and a nice big screen where the race is shown, etc etc.

I know it is a “one base race” so things are easier, but surely some of the old world events could learn from this. Even if one just thinks of the “cycling tourist” I see coming out of Australia (lawyers, doctors, dentists and the like) – Larry would know more about this than me I guess – with their high disposable incomes who are looking for classic experiences in Europe following the races must surely be a large potential revenue stream for these race organisers if exploited (in a nice way) properly? Even adding on a gran fondo or something the day before would be an earner – look at the Ride London thingy. It’s amazing what the Rapha crowd will pay for the experience!

Larry T. May 15, 2015 at 7:57 am

I find it sort of refreshing that full-stop, crass commercialism hasn’t (yet anyway?) taken over La Corsa Rosa vs events like Le Beeg Shew in France. I’m biased as hell of course, but for many Italians life is less about maximizing profits/income than in more modern, “advanced” cultures. I was there back-in-the-day when Le Beeg Shew’s official car was Peugeot and the drink was Perrier, guys played accordions atop cars and you could buy a “mini-velo” from independent vendors along the course. I watched first-hand the thing morph into the crass, commercial, often soul-less euro-machine it is today. Tour operations like ours are forced to pay licensing fees if we want to market a vacation around Le Beeg Shew, which is why you see some (we just said the hell with it) offering tours to “that big race in France where the leader wears a yellow shirt” rather than any direct reference that would cause ASO’s legal-beagles to spring into action.
My Marxist leanings are revealed when I claim events like these in many ways belong to the people as the “stadiums” the games are played in belong to everyone and it’s just a matter of turning up at the roadside to enjoy the spectacle. While I wish the knuckleheads would keep their bikes, cameras, etc. out of the way of the racers, I’d rather see the Giro struggle along, even if they have to whore it out a bit to the petro-sheiks instead of becoming just an Italian-flavored Tour de France.
I’ll be at the finish in Fiuggi today to see for myself.

J Evans May 15, 2015 at 9:56 am

+1
Many seem to think that the aim for cycling should be to make it as popular – and therefore as profitable (their real raison d’etre) – as possible. Me, I think the aim should be to maintain it as a great sport. That goes for technology, keeping old races, making them ride similar bikes and so on.

Larz May 16, 2015 at 9:31 am

I absolutely agree that keeping a great sport is the most important part. And sometimes the focus on making money and expanding into new geographic markets is detrimental to the sport (f.ex. adding more and more races to the calendar)

But I do think the sport in general is suffering from poor financials. One important issue is the instability of cycling teams – often depending mainly on rich sponsors who may or may not have long term interest in the sport.

I think it is a paradox that cycling is so popular, yet such a poor sport.

Touriste-Routier May 15, 2015 at 1:54 pm

RCS Sport has re-added a Gran Fondo to the Giro in Italy this year. This has been in the works for several years, but stalled during the RCS Sport financial scandal. They are not the huge earners that the cycling public think they are.

There is a dedicated team within RCS Sort that works on merchandize. Giro Merchandize is available, though I am not sure how it is sold at the event: http://www.all4cycling.com/shop/giro-ditalia-c-927_623.html?language=en

Sam May 15, 2015 at 6:26 am

That’s interesting and not something I’d ever been aware of. Does it have anything to do with licensing rights to sell Giro merchandise or replica team wear? It seems like such a no-brainer, I assumed it fell in line with the rest of all of sports everything that markets the bejeesus out of anything they can put a price tag on.

AK May 14, 2015 at 11:52 pm

New World thinking Cycling is main stream sports around here, most of the viewers don’t actually ride so selling bikes to Giro public stuff is akin to selling football armour to Super Bowl spectators.
OK that’s a bit hyperbole but i guess you catch my drift.

Othersteve May 15, 2015 at 12:49 am

I would be curious to know if RCS has evaluated what the economics might look like if RCS were to live stream the Giro into the US directly, charging individuals $? to view on line. Rather then sell the rights to Bein Sports a US aggregator of non-traditional sports events.

The Inner Ring May 15, 2015 at 10:28 am

The audiences are very small. Even the Tour de France which attracts such a wider audience has an average live view of <300,000 a day on NBCSN. It's growing every year but these are low to start with.

Anonymous May 15, 2015 at 12:58 am

No pro or semi-pro level race in Australia makes money. Many cost taxpayers a fortune to run.

Add to that – CA’s finances are a debacle, primarily due to their ridiculous attempts to become cycling events organisation.

Cycling is still a sport that often needs to pay to have races broadcast. Contrast that to sports that negotiate TV rights worth billions of dollars.

It’s a complex problem – most races are subsidised events, and as such have low levels of sustainability and are a threatened species. A change of government, a lost sponsor, and boom.

Achieving sustainability requires media/entertainment friendly/appealing product, consistently available as a block. At present races are run/controlled by a variety of interests, coverage is bland and inconsistent, and is not all that TV friendly for the sports fan.

It almost needs a Kerry Packer style shakeup. Except I’m not sure the latent value exists in the way it did for cricket (which has the biggest population following of any sport in the world).

Carton May 15, 2015 at 2:25 am

“biggest population following of any sport in the world”? Really? I would’ve thought it was football by a country mile. http://en.wikipedia.org/wiki/Sport#Popularity

Anyway if even RCS’s revenues are that low, I think cycling is still going to trudge along no matter how its reorganized. Since, as you said, there’s not much latent value to be had, the pie needs to be grown somehow, and I’m guessing a long-term effort at growth and development is needed more than an “shakeup”. Patience does not seem to be the answers the big players in cycling are looking for, though.

Tom May 15, 2015 at 2:31 am

“…Now this is income and not profit …”
In the USA, at least, “income”, or more specifically “net income”, is synonymous with “profit”.
“Revenue” is the total money taken in, from which business “expenses” are deducted to yield the “net income”.
Again, that is USA accounting terms, dont know how it differes in UK, Aus, etc.

The Inner Ring May 15, 2015 at 10:30 am

Good point if it helps references above to “income” are the Euro version and mean sales/revenue as opposed to net income or profit.

Tovarishch May 15, 2015 at 7:38 am

There is definitely something wrong with the business model when you consider that Premier League Rugby in England managed to sell their TV rights for a multi-million pound fee when it only attracts, at maximum, 200,000 viewers over a weekend.

GF22 May 15, 2015 at 1:41 pm

The problem though is that although Rugby did sell their TV rights for millions, the vast majority of clubs are still not making profits and are supported by millionaire backers a la Tinkov.

By selling the TV rights to pay per view broadcasters, you are diminishing one of the most valuable currencies the sport has, ie its audience. The problem for cycling is the media coverage and, by implication, the audience provides is its biggest exploitable asset. Whilst selling their rights to PPV broadcasters (the only ones who may, and only may, be prepared to pay millions for them) would provide a short term growth in income, the long term effect would be to devalue the sponsorship/branding opportunities the global audience provides. Would Belfast have paid the 3m euros or so if The Giro was only shown on pay per view channels across the world?

For what it’s worth, for me, the way to unlock more value is to exploit more of the commercial opportunities through collaboratively working with the teams, the sponsors and the media to identify new revenue streams from “new” brand associations – the GPS or rider data example is a great example of a “new” potential stream to add into the revenue pipeline. I think the true value these sorts of events will only be unlocked if all the stakeholders in the sport work collaboratively so they all pull in the same direction. I can’t see how much more value can be added by the stakeholders individually working to their own agendas

gabriele May 16, 2015 at 8:57 pm

Errata corrige: Diego Maradona, I suppose. Corriere della Sera. La Gazzetta dello Sport.

The Tour apparently has a turnover around 100m, I assume. And it’s the biggest thing around. So it would be quite incredible if the Giro had much more than a 30% of that.

To confirm what other readers (Larry among them) say above, RCS Media Group acknowledges that the Giro is involved in revenues not directly included in its RCS Sport company numbers: for example, last year they reported a 11.6m net increase in “Other publishing revenue” from “higher revenue related to Giro d’Italia” (press release with 2014 results).

gabriele May 16, 2015 at 9:04 pm

“…a four day pre-season stage race in Dubai is 50% more lucrative than the high profile three day start of the Giro itself”.
Sounds like a bubble. Well, you can ride a bubble while it’s growing and flying high, the important thing is that you have a safety chute for when it blows – as they usually do. Hope the financial crisis has taught a couple of things, even if looking at Spain, sadly enough, you wouldn’t say that.
Some things last centuries, others don’t, and it’s not about their revenue variation in the last couple of terms.

regsf May 17, 2015 at 3:04 pm

In Italy there’s two sets of financial accounting books. The public books, and the books where they hide the profits.

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