Cycling’s precarious business model untangled; and who wore what to the Met Gala (and why)

0:04Hello and welcome to the Leaders Worth Knowing podcast, the sports industry show from leaders where we talk about what's worth knowing in the business of sport this week. I'm Leaders Editorial Director James Emmett.

0:15David Cushnan:And I'm Content Director David Cushnan. On the show this week, the business of cycling under the microscope as Net Company commits to a 100 million euro team Ineos deal.

0:25James Emmett:UC3 on track for big Champions League increases as relevant football partners secures another media rights uplift.

0:32David Cushnan:And who wore it best? Sport at the Met Gala. This is leaders worth knowing. Yes, it is. Are we really going to do that at the end? What? Fashion. I think so, David. The fashion segment. David, all you've been talking about this morning is this dress and those frills and is Ceraline Blue something for you to wear? We definitely are going to do it. It's just an exciting night. It's very, very exciting. James, how are you? I'm really well, thank you, David. Good. And I listened, James, to... I'm fine as well, thanks for asking. I listened to your podcast conversation, which people will find just down the feed, with Tom Hill from, now let's get the name right, as we record, currently Ineos Grenadiers.

1:11David Cushnan:Yes. In a couple of days' time, it will become Net Company Ineos, and it may have, at some point in the not-too-distant future, another name. But Tom Hill, the Chief Commercial Officer at the team, once known as Team Sky, owned by Ineos, but now with a big, fat new co-title sponsorship deal. And as you said, James, enjoyable conversation. As you said right at the start of it, it's great to have somebody on who has literally, well, the ink has barely dried on the contract as this new big deal was announced. Pumped up on the adrenaline of having had the order form signed. You heard it. You heard it.

1:50I heard it, yeah. I wonder if he had been paid any of his commission at that point. And what is the commission that a chief commercial officer gets on a 100 million euro deal? I should have asked him that.

2:00David Cushnan:Questions you did not ask. I should have asked him that. Yes, really great to have Tom in literally hours after the launch of this massive new deal in cycling. So Ineos Grenadiers, Net Company Ineos, they are one of the most successful teams in cycling. You mentioned they are formerly Team Sky. I think officially they are the most successful Tour de France team, at least.

2:23James Emmett:They obviously went through a spell of winning the tour more or less every year with Bradley Wiggins and Chris Froome and Geraint Thomas. Fair to say the last few years are a little bit leaner. Yeah, lots of circumstances behind that. Dave Brailsford, the charismatic performance guru who led the team since its inception and for many years stepped away from the team under the broader INEOS umbrella to have a go at running Manchester United, to go into other kind of INEOS sporting projects was less into the cycling team. And that coincided with a period of time where the team did not have the definitive best Grand Tour rider.

3:05James Emmett:Since that point, this amazing era in cycling has progressed where we've had Tadej Pogacar have this ding-dong battle with Jonas Vingegaard at the top of road cycling or the Grand Tours anyway. Yes, and not so leaner times for the Ineos Grenadiers team.

3:25David Cushnan:But Dave Brailsford is back with a new mission, Mission 8, as Tom was talking about. And really interesting, actually, by the by, to hear Tom talk about the way that even in his role in the commercial part of the team, that mission, that labeling really corrals an organization. Totally. And I was thinking, I think I mentioned it in the conversation with Tom. It's a rare skill of Dave Brailsford's to have a very catchy title, a label for a mission, for a project, for a process.

4:00James Emmett:Obviously, famously, Marginal Gains was something that he was into. We know Dave quite well from his having done bits and pieces with us at Leaders over the years. He is a phenomenal performance speaker, and I do think his special skill is what I believe the Americans would call concretising, Dave. No, no, no. Yes. No, no, no, no. Yes. It's getting a concept and concretising it, crystallising it into form with a catchy label that people can immediately understand and choose to buy into or not. So he's back. They have got this brand new sponsor on board. Ineos, Sir Jim Ratcliffe's massive chemicals company, sort of signalled that they are stepping back from that lead position.

4:46James Emmett:Well, they are stepping back from that lead title position. And I think the intention is to step back entirely as a named sponsor to allow Tom Hill and his commercial team to hopefully bring another naming partner on board. That's going to put more money in the tank for the team to go out and attempt to buy the best athlete talent and hopefully get back to winning ways.

5:10David Cushnan:Yeah, or develop it, as he said, in-house as much as possible. Lots of really interesting bits in this conversation, which I would like to dig into with you. And I think the first is this concept of co-title sponsorship. This is something that is seen across the peloton, certainly at that UCI World Tour level. And I think Tom said that he thinks there are currently around about seven teams who are looking for a co-title partner. And it got me thinking about churn in cycling sponsorship and also what that means and how that challenges the idea of team identities that are solid and stable and consistent and help with the overall storytelling and I guess give an access point for newer viewers or more casual viewers of the sport because it's a complicated sport in many ways and certainly if you look at some of the team names in fact pretty much all of the team names with one or two exceptions in the UCI World Tour this year the teams that have licenses at that top level.

6:15David Cushnan:It's a real jumble of organizations and companies and sponsors. A jumbo. Jumbo being formally one of them. But I think this idea of co-title sponsorship is really interesting. And one of the things that Tom said, as he talked about the sort of next project for him, was now that Net Company's in, in that first position, is looking for a secondary co-title sponsor to effectively come in and replace Ineos in the team name. My assumption is that that sponsor will have the same rights as the first named title sponsor, but we'll be paying just a little bit less because they're in second position in the name.

6:54David Cushnan:But there's a real challenge there, I think, for the sport, which is a result of some of the funding challenges that Tom talked about.

7:02James Emmett:I love cycling for lots of reasons. And honestly, partly what I love about it is the complicated nature and intrinsically challenged nature of the business model. You're right. Historically and now cycling teams operate on this co-title sponsorship model where the team is effectively named after the two principal partners. That is a huge brand asset. And Tom in his conversation talks about the budget needed to operate a team at the top world tour level of cycling. He said, you know, top level teams are around about 40 to 50 million euros a year, and they have to do a lot on that money. If you think net company has come in at a reported 100 million euro over five years, so 20 million euros a year, you'd assume that the second naming sponsor would maybe come in at, let's say, 15.

7:59James Emmett:So you've got 35 million euros there, and you want to be topping up by another 15 million euros with all of your supplier endemic, smaller sponsors and there's a good portfolio of positions available in a cycling team. The problem, as you articulated, is that the names of the teams change every year. These deals come and go. It was almost impossible for a team to build up any brand equity in and of itself because they have to change the name every year. There is no other sustainable revenue stream that a cycling team can rely on it is all in on sponsorship. So of course they have to sell the name.

8:40James Emmett:Now, Ineos is in a position where it's effectively had a benefactor owner in Sir Jim Ratcliffe's Ineos for a number of years now. But the only real brand equity in cycling for the casual fans, even for sort of hardcore fans of the sport, is when an individual rider has success on a particular team, there's brand equity kind of locked into the idea that, oh, Chris Froome delivered multiple, you know, five Tour de France wins for Team Sky. So there's a moment in time where Team Sky has brand equity value because it's indelibly associated with a rider being very successful.

9:18David Cushnan:And also in that case, Team Sky sort of sprung out of the tremendous British cycling success.

9:25James Emmett:There's a backstory to the Association of Sky in cycling. And I'm sure there are instances of this across the peloton. I would maybe point to one team in particular, or maybe two teams, just purely through longevity of their sponsorship associations, they probably got a bit of brand equity. That's Movistar and also the Astana team, sort of funded by Kazakhstan sovereign wealth. It's really tricky when you've got no brand equity. How do you build sustainable business models? You're selling the name every year. Yeah. It's really, really challenging. And yeah, I mean, we went into that in the conversation with Tom.

10:05David Cushnan:Yeah, absolutely. I think you have a couple of other teams who are probably would back themselves to have some built-in brand equity that is being applied to professional cycling team in those national branding projects, Bahrain. Victorious. Bahrain Victorious. and the UAE team. What is interesting is against this very, I think the word you both used in the conversation was precarious business model. You do have, if you look down the list, there's a number of really well-known, established, high-level brands from all sorts of sectors who do believe in cycling. They probably believe in the fact as well that it's probably cheaper to be a co-title sponsor than a full 100 % title sponsor.

10:48David Cushnan:But if you look at Lidl, Red Bull, fairly recently, I think bought into one of the teams as part of a sort of three sponsor setup. You've got Decathlon, you've got EF Education, you've got Groupama. There's a lot of heavyweight brands who are backing cycling. They get the value proposition. And I think what Tom was really good at was talking about this business model that where sponsorship is, you know, has to over-index and has to be there and right because it is sponsorship that funds the operations of these teams. This is not a sport where there's any ticket revenue. This is not a sport where certainly with the biggest race of all the Tour de France, any sorts of TV, media rights revenues are distributed back to the teams.

11:37David Cushnan:There are some real tensions in the business model. I feel like we talk about tensions with so many different sports in so many different ways. But I think you have with, take the Tour de France, for example, the race of the season, one of the three Grand Tours. Tom was saying 50 to 75 % of annual team brand visibility for partners is generated at the Tour de France. You have to be there. You have to be part of it. You have to be in it. Ideally, you have to be competing for it. But you don't get too much as a team from it, apart from the glory of either winning the race or perhaps winning a stage or multiple stages.

12:15David Cushnan:Certainly not getting access to any of the TV money that ASO collects. And I think ASO's position within cycling is really fascinating. And clearly there are some moves behind the scenes amongst the teams to try and work together, to unify, to see what can be done collectively, to try and shift the scales a little bit.

12:39James Emmett:Yeah. So the precarious business model that we were both talking about hinges on ASO's role in cycling. ASO, Amari Sport Organisation, really a media and publishing company, Paris-based, that founded the Tour de France as a way to sell newspapers, you know, 100 odd years ago. They own absolutely all rights associated with the Tour de France. The Tour de France is, as Tom articulated, the most important event in world cycling. The way that it's structured, ASO monetized them, you know, all the traditional sports revenue streams apart from ticketing. so media rights, sponsorship, licensing, etc.

13:25James Emmett:Hosting fees and they keep all of that revenue for themselves and they distribute it to the teams only via paltry sums of prize money knowing full well that the teams need to be in the Tour de France and there have been historically so many attempts to address this imbalance in how cycling works partly through other attempts by other promoters to build events to potentially rival the tour so that teams aren't so reliant on it. And partly through structural reworkings, there have been big flashpoints between the UCI, the world governing body of cycling and ASO over the years. I remember when Pat McQuaid was running the UCI and also it was an era of big doping in sport.

14:14James Emmett:There was a scandal every two weeks at the same time as the teams sort of really suffering from this imbalance in the structure of the sport. There's talk of breakaways. This thing goes around every few years, this idea that the teams might band together to form some kind of breakaway. They're very careful not to call it a breakaway, which is effectively some way of laying claim to potential media rights, another revenue stream beyond their sponsorship.

14:42David Cushnan:And they've done this in a couple of ways in the fairly recent past. So Vellon was an organization or is an organization which has managed to group together a number of the top teams with a view to enhancing content and digital broadcasting, I suppose, of the big races, really putting data at the forefront and trying to present the sport in compelling new and different ways. And that is, you know, one, as you say, key element in terms of trying to carve out, in this case, it seems like sort of additional rights to be able to package up, to commercialise, to promote the sport, to ultimately, you know, hopefully increase revenues.

15:27David Cushnan:There's also this one cycling initiative, this project, which bubbled up, seemed to emerge around about this time last year. Quite a lot of secret sauce about it, quite secretive in nature. There seemed to be a suggestion at some stage that there was some Saudi backing lurking away. seems to have been led by Richard Ploog, the manager, the top man who looks after the Dutch Visma Lisa bike team, which have actually done some really interesting things in terms of getting around the constant sponsor name changes by trying to build their own effectively sort of fashion sportswear teamwear lines. They're creating that, manufacturing that themselves as a new potential revenue stream.

16:09David Cushnan:And they really seem to have seized on, interestingly, in cycling the colour yellow as their sort of team brand that they're going to own. The One Cycling Project designed the general idea around it to try and grow the pie, grow the cake, try and pull some of these rights, try and bring in some of the other race organisers with this belief, this guiding light that professional cycling is in some way undervalued and with an acknowledgement that that business model that we talked about is precarious. Tom referenced One Cycling as this sort of ideas group that comes together and talks about the future structure of the calendar, perhaps, and the way that cycling is presented to audiences.

16:47David Cushnan:It is worth noting that the UCI, the governing body of World Cycling, last June rejected the sort of proposal initiative, talked about it as incompatible with its current rules framework, lacking sporting coherence. Still, it exists though, and it seems to be maybe a lobbying group, a group that is sort of pushing and nudging for change. But the ASO monster is still very much at the centre of everything. And I think I mentioned it to Tom in the conversation. I do think there is another way for the future of cycling in which if ASO was more ambitious, they could think of themselves.

17:28James Emmett:And it absolutely has to be on ASO. You can't do anything without the full participation of the Tour de France in cycling. But if ASO was more ambitious, and at the moment they obviously run the tour, they run a few marathons, they run various other events, they do the Paris-Dakar Rally, or the Dakar Rally, whatever it is called now, and they do kind of white label the organization of some other races on the cycling world tour calendar. But if they took a much more ambitious global long-term view, they would be an ideal recipient of funding from Saudi or private equity to more or less position themselves as not the biggest race on the calendar, but effectively the global promoter like Formula One.

18:20James Emmett:You know, they would license races around the world. They would make sure the teams were, you know, all the teams that they licensed to race in their own event were properly funded, sustainable, built their own brand equity. With ASO's full, ambitious, long-term participation in a project, you could grow the cycling pie significantly, I think. But without them, it is almost impossible to come up with another way. I would suggest. One thing that I would say to sort of balance this precarious business model, there is the fact that cycling sponsorship or cycling sponsorship activation, I believe, is unique in sport.

19:05James Emmett:I honestly think, and yes, it's very Eurocentric. Lots of the companies involved that you will have listed there are focused on European territories as their major markets. Of course, cycling is mainly a European sport. But first of all, the straight up numbers, the media value that you would be getting from being a naming sponsor of a cycling team, plenty of value there. But the individual activation opportunities across 250 odd days of racing that they do throughout a year in all sorts of different territories, where you would be able to treat your guests as a hospitality offering to one-of-a-kind type experiences where you're essentially inserted into the fabric of a really complicated, visceral sport through being in a team car, for example, in the middle of the peloton, being actively involved in interacting with athletes as they do their thing.

20:06James Emmett:There is no other sport like it, I would suggest.

20:08David Cushnan:Absolutely. The other thing it's worth talking about, as you mentioned, ASO and its ambition and perhaps the opportunity to further internationalise, we have seen with, particularly with the three major tours each year, this trend over the last, what, 10 plus years of hosting the, usually the first three stages of these races in different markets. And I think the Tour de France and I think therefore professional cycling is going to here in the UK come into a bit more of the limelight over the next year or so because in 2027 the Grand Depart will take place in the UK. This year the Tour de France begins in Barcelona in July I think 2028 they're looking at Luxembourg so they move around the Giro starts this weekend in Bulgaria I think they're spending three days in Bulgaria.

21:01David Cushnan:And what do they call the start of that one Dave? The Partenza. The Grande Partenza. Grande Partenza, yes. And I don't know where the Vuelta is due to start this year, but I think they've been here, there and everywhere in previous years. For the moment, it seems as though that's the limit of the ambition when it comes to further internationalising. But it was noticeable that Tom was talking about the tour of California, which I don't think exists anymore and the opportunities that there might be in China and parts of Asia and different markets around the world to create new big races. Now, of course, they will lack, obviously, the history, the traditions of some of the other races.

21:44David Cushnan:But from a commercial perspective, there's opportunity there. There's definitely land to grab.

21:49James Emmett:Yes. Anyway, it was an enjoyable conversation with Tom. We're worth saying that Net Company is a Danish tech and AI company.

21:55David Cushnan:They sound fascinating. Running airports. I'd like to hear more about that. Running Heathrow. They've got a big contract with Heathrow, which is sort of the big... The big airport. I think it's an airport. It's sort of near Hallensley. One of the big airports. Also worth shouting out Sport5, who were brought on as part of Tom Hill's process when he joined