AIRmail 11-28-22: The Crypto Collapse: Impact on Sports...
Plus, Cycling as Financially Stable as Ever?, NASCAR: More Lessons for Cycling?, Radio Silence on the Promotion/Relegation Process, Success and Failure in the Off-Season Transfer Market
Key Takeaways
The Crypto Collapse: Impact on Sports
Cycling as Financially Stable as Ever?
NASCAR: More Lessons for Cycling?
Radio Silence on the Promotion/Relegation Process
Success and Failure in the Off-Season Transfer Market
The ongoing devaluation of various cryptocurrencies has been a top financial story this year, and it may end up redefining the sports sponsorship landscape – again. Crypto companies spent an estimated $245 million on sports sponsorships in 2022, and over $200 million in 2021. “Crypto came out of nowhere and put some numbers on the board that take most brands years to spend," says Peter Laatz, IEG's global managing director. “They overpaid for everything.” Just a few years ago, FTX was the angel that swooped in to take $100+ million naming rights for a slew of professional and collegiate sporting arenas, simultaneously striking endorsement deals with top sports figures and teams to hawk its crypto trading platform. But in just a few short weeks in November, FTX collapsed, and now the entire cryptocurrency industry is facing a complete reset.
For many league sports, this will only be a hiccup, as prominent corporate sponsors find bargains to fill up the resulting gaps – but some sectors could be facing a crisis. For niche sports like cycling – especially during an unstable inflationary period – it could be tougher to land new commitments as (1) companies shift priorities back to core market targets in order to maintain revenue positions, and (2) companies with the discretionary capacity to back sports properties may choose to wait out the uncertainties altogether. Both of these factors will constrain sponsor interest, and the cracks are already showing. Doug Ryder’s South African Qhubeka WT team essentially collapsed after a crypto firm failed to come through; the ongoing turmoil surrounding the women’s Le Col team, Team B&B, and the generally stagnant general cycling sponsorship market could get worse before it gets better. But there are paths forward that could change the sport’s landscape.
As we have described in the past, NASCAR is similarly sponsor-dependent, but it can weather a sponsorship crisis by negotiating and selling as a cohesive business unit. Cycling – which lands its sponsorships as single teams and events – lacks any structure to similarly recover and redirect as a unified business. The sport’s stakeholders should continue to seek ways to sell sponsorships in a similar context, which could increase valuations and make it easier to build a competitive team landscape and fund more professional events. Arguably, that opportunity may be easier to achieve in women’s cycling first. In the meanwhile – and with teams and events all going after the same sponsorship targets in a counterproductive, self-cannibalizing context – some sponsors will see the opportunities and advantages in cycling, but these won’t likely be the big ones that fans, and the sports stakeholders were hoping to find.
A brief video piece on GCN this week argued that financial conditions in pro cycling are as strong as ever, and that today the average “age” of a WorldTour team is almost twenty years. It is certainly true that some teams – like AG2R or FDJ – have been around, in their current form, for many years. The same is true of other teams – for example, Patrick Lefevere’s Quickstep squad – even though its sponsors and public-facing team name has changed frequently. However, GCN’s optimistic take is heavily dependent upon how one defines the continuity or life of a team. For example, GCN suggests that Jumbo-Visma has been in existence for forty years; even though one might be able to trace the team license back a few decades, it’s difficult to make the case that Richard Plugge’s current team has anything to do with, or is even a remote descendant of, the infamous Rabobank teams of the 1990s. Similar concerns would include today’s UAE team (can it really be called a descendant of the old Lampre team), or Astana (with its historical lineage to ONCE). We’d suggest that if an entirely new owner and management team acquires or takes over a preexisting license, this in effect constitutes the creation of a new team; i.e., that the prior holder of the license was unable to compete, lost interest in the sport, could not find sponsors, or was unable to create financial stability – and hence exited the sport. On this basis, quite a few current teams would have considerably shorter histories. In fact, we would further argue that the fact that even long-running and established teams like Lefevere’s – or Jonathan Vaughters’ EF team – have to continuously struggle to find new sponsors, illustrates the economic challenges rather than the stability of the sport. Nonetheless, GCN does underline the fact that there certainly are at least several teams at the WT level that have been stable and in existence for many years.
With the start of the 2023 WorldTour cycling calendar now only 50 days away, it seems surprising that we still haven’t heard the final outcome of the intensively-covered 2020-2022 promotion/relegation competition. On the basis of total accumulated UCI points, it has been assumed that Lotto-Soudal and Israel-Premier Tech will be going down to the second division while Alpecin-Fenix and Arkea will be promoted to the WorldTour. However, these sporting measurements cover only one of the UCI’s five criteria system (the other criteria are ethical, administrative, financial, and organizational). In essence, nothing is official until the UCI releases its list of the WorldTour teams – based on its opaque decision-making process. The fans, and more importantly, the teams, don’t even know when the decision will be made since the UCI’s own materials simply say a decision will be made sometime in the “first half of December.” While the date and final decision will most likely be relatively inconsequential due to the sporting results, the on-going lack of clarity around the process underlines how the UCI is failing both to create an investor-friendly environment or an easily-understandable system to stoke general fan interest.
Another thing to note as the 2023 season nears is the activity in the transfer market that has seen some teams rise and others fall. Jumbo-Visma and UAE Team Emirates have significantly strengthened their already dominant squads while others, like Ineos and Intermarché, have struggled to bring on new talent or experienced a significant outflow of talent and potential. These off-season trends suggest that we could continue to see the sport’s top two or three GC teams dominate the major stage races while most other teams will continue to fall further behind. One surprising trend over the past few months has been the lack of competitive significance around the retirement of major stars like Vincenzo Nibali, Alejandro Valverde, Philippe Gilbert, Richie Porte, Tom Dumoulin, and Niki Terpstra – who dominated the sport just a few seasons ago, but who, outside of Valverde, didn’t really contribute much this year. In fact, only two of the riders listed above finished in the top 100 riders for 2022 (Valverde 10th and Nibali 92nd). This once again illustrates the challenges facing team management in the modern era – where new stars shine at a very young age, but where riders only dominate for a much shorter timeframe than was the case just a few seasons ago. In theory, this means teams who make roster decisions in a more businesslike or unsentimental manner, like Jumbo and QuickStep, will continue to thrive, while teams like Ineos, who have tended to rely on a long-term star-based strategy, will find it more and more difficult to rely on the same rider year after year.
The action is starting to heat up in Cyclocross, with cross-discipline superstars Tom Pidcock and Mathieu van der Poel both getting their first wins of the season over the past weekend. These wins from part-time cyclocross riders is both a blessing and a curse for the sport; while the sight of some of the world’s best bike riders draws attention to what is mainly a regional discipline, it also highlights the current lack of depth in the sport. It means that as long as riders like Pidcock, Van der Poel, and Van Aert are able to parachute in and instantly win CX races, they can effectively announce the beginning and end, of the “real” CX season. Furthermore, the prestige of any event lacking their presence is instantly diminished. Major CX promoters and sponsors will almost certainly welcome the presence and dominance of these major stars in the short term, but, in the long term, the discipline will suffer if new stars aren’t minted, and a parody of competition evolves.
Gravel’s growing popularity globally was highlighted by the announcement of the new Gravel Earth worldwide series of events, promoted by Girona-based Klassmark. Combing mostly existing races in Iceland, Sweden, Switzerland, Kenya, France, and Spain, the series highlights the growing professionalization of gravel. Another indicator of gravel’s exploding growth is the fact that SBT GRVL has gone to a lottery system for registration, due to the popularity of the event. With over 3,000 participants in the 2022 race, SBT has become arguably one of the world’s most popular competitive cycling events. Expect to see more top-tier gravel races move to this kind of registration – comparable to signing up for other oversubscribed events like the New York City Marathon.