Merchant Advance Blog

Blog Article: Wheeling and Dealing : The Tour de France as a High-Stakes Business Contest

 

With all due respect to soccer and tennis fans around the world, the world’s greatest sporting challenge starts this weekend. It’s in France. It involves people on bikes. In truth, your friendly neighbourhood blogger is somewhat crazy for cycling, and above all the Tour de France. As Merchant Advance Capital has discovered, the Tour and its teams may have a fair bit to teach us about the way business models can face challenges, evolve and perform to the best of their abilities.

Le Tour (oh, that titanic mononym!) is the culmination of everything that professional cycling is truly about: the ultimate form of utterly dedicated co-operation between teams of athletes and their support staff that involves careful planning and attention to every last decision -– quite literally down to the millimeter, the tenth of a gram, the tenth of a second, every day for three solid weeks.

The first Tour was organized by news editor Henri Desgrange in 1903 in the hopes of securing publicity for the L’Auto daily paper and creating a platform for his views on the topical and controversial Dreyfus Affair which rocked France at the turn of the century. What began as a politically charged publicity stunt definitely worked out in the long run: the great race marked its centennial edition in 2013, and its popularity and prestige shows few signs of wearing thin worldwide.

Much like any business success story, the Tour has been characterized by savvy marketing, the ability to evolve and adapt to changing tastes, to overcome public relations challenges, and stay focused on the pursuit of excellence. All of this, of course, also requires the might of significant working capital: top teams may boast a budget of 30 million Euros annually, though financials range widely among the various teams competing for prime Pro Tour status. The market is extraordinarily cut-throat; budgets are almost exclusively provided by title sponsors whose support hinges precariously on a team’s performance.

During the Tour, each rider’s sponsor-emblazoned jersey, the bike they ride and even its chosen brand of components effectively become rolling billboards for hours at a time, posted with priority on every sports TV channel in Europe (and, increasingly for the first time since the height of Lance Armstrong’s dominance, North America.) The value of a prime placement is potentially staggering for the corporations involved, many of whom need only invest a relatively small percentage of their overall marketing budgets in support of cycling teams. For example, British Sky Broadcasting Group, the title sponsor of Team Sky, spends upwards of 1 billion GBP on all marketing efforts annually. According to publicly available records from 2011, somewhere between 6 and 10 million GBP of this vast sum was enough to support the efforts of Team Sky for a whole year. The return on such an investment should a sponsor’s rider climb to the top of the podium would be enormous.

Despite this, there is no organized League of professional cycling, and profits are not, in any significant part, shared between a given race’s organizers and the teams that do the riding. The technological and physiological advances that drive the sport forward are largely the products of an eat-or-be-eaten model of competition that has more in common with a startup bubble than a traditional sports organization. Imagine, if you will, that the Toronto Maple Leafs simply folded up shop and ceased to exist after another disappointing season in the NHL, tossed aside by their underwhelmed financial backers: this is the reality for even the top cycling teams in the world.

Most recently, the peloton has seen a solid, youthful Dutch-led squad sponsored by consumer electronics manufacturer Belkin (and, for a decade before that, by European financial institution Rabobank) dissolve, searching frantically for a new banner-carrier.

Cycling teams need to know how to adapt and move with the currents of their industry in order to overcome challenges and stay alive. In the post-Armstrong era, teams such as Belkin and Australia’s up-and-coming Orica-GreenEdge have opened themselves up to rigorous scientific and media scrutiny as a testament to the drug-free policies adopted by their riders. A similar trend toward accountability and operational transparency is becoming more and more prevalent in the business world – any business, small or large, can benefit from showing customers the work being done that justifies their investment, and the regulatory procedures that have been put in place to ensure confidence and stability over time.

Teams are just as aware as most modern businesses of the value of social media and connection with their customer (or fan) base to create engagement. In the aforementioned case of Belkin’s dissolution, the team made waves in the sporting press by turning almost immediately to crowdfunding – an investment model pioneered by small, internet-savvy businesses and sole proprietors seeking to leverage the power of micro-transactional investment and viral communicability to generate surprising amounts of financial support. Belkin recovered from a shaky public relations situation and held its fanbase together by allowing those so inclined to donate a minimum of 10 Euros through an online portal. As a business strategy in times of crisis this may appear desperate, but as a marketing effort underscoring the dedication of those who stand behind the organization, it appears to have worked brilliantly.

Aside from the performance of its featured athletes, the responsibility for a Tour team’s success is shouldered largely by groups of dedicated support staff and logistics personnel each performing tasks in a way that optimizes the efficiency of the team as a whole. In this way, a team is no different from a traditional business – integration of tasks and workflow across all employees makes just as much of a difference to success as the selection of the right set of wheels for the riders might. Seeing the operation of the “machine around the machine” working firsthand is one of the subtler pleasures of watching the Tour unfold: the greater context that surrounds the race is one of great logistical and operational acumen, unblinking focus on performance, and flexibility under pressure.

It may require those of us in North America to get out of bed at an indecent hour, but it if you have never watched a stage of the Tour de France it may be worth your while – witnessing the efforts of remarkable individuals as well as the teams they work in, the thrill of triumph against tall odds and the execution of daring strategies may inspire the businessperson in all of us to think about how we can better strive toward great achievements. Allez!

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