Saudi Arabia's Sports Investment Strategy; Does It Include Cycling? Economic Benefits of the Giro; Salary Caps in Eurocentric Sports; Baseball's Playoff Format
Key Takeaways:
● Economic Benefits of the Giro?
● Is a Salary Cap Possible in Euro-Centric Sports?
● Saudi Arabia’s Sport Investment Strategy
● Would the Kingdom Invest in Cycling?
● Baseball’s Season-Ending Format
A report issued last week by the Italian bank Banca Ifis implausibly asserted that this year’s Giro generated €2.1 billion in “direct and indirect” revenue. Claiming to have conducted “the first scientific study that estimates the economic impact of the Giro d'Italia,” the report said that the event generated €620 million of immediate impact, with the remaining €1.5 billion generated “by ‘deferred’ economic benefits, i.e. the expenditure of those who, after attending – live or through the media – the event, return (within 12/18 months) to the territories of the Giro to enjoy other types of tourist experiences.” This seems highly speculative at best, and complete dart-throwing at worst, especially since the event only occurred seven months ago. With zero explanation of the analytical process behind the claim, the reports goes on to estimate that there are (a remarkably specific) 618,000 people who, “despite having attended the event live, do not feel ‘satisfied’ and plan a prompt return among the scenic wonders touched by the event.” These are the sorts of claims which stroke the egos of the event organizers and their sponsors, but for which there is a ludicrous lack of actual evidence or analysis. Unfortunately, cycling events – along with many other sporting and entertainment events – seem particularly prone to these sorts of wildly speculative boasts and totally unverifiable claims, in terms of both perceived economic value and crowd sizes. Cycling economics expert Daam Van Reeth tweeted that such studies “rather harm than help pro cycling, especially when they get exposure through major cycling websites.” And sports economist J.C. Bradbury added that “phony ‘economic impact studies’ are always picked up by lazy media outlets and run as news. Editors have got to wise up and stop running this garbage.”
The English Premier League has indicated possible interest in implementing some form of salary cap to stabilize the economics of the world’s most popular and lucrative soccer conference. The Huddle Up newsletter broke down the finances of each EPL team and how the wage bills for all-but the top clubs are becoming near back-breaking financial burdens. Similar to the trend we outlined for professional cycling a few weeks ago, the average EPL team is spending 70% of its annual revenue on its wages, with some smaller clubs spending up to 90%. Salary caps are typically an American phenomenon – resulting from years of congressional lobbying to create sports-friendly legislation that allows the leagues to control or sometimes artificially suppress players’ wages. Hence, even just the loose suggestion that EPL owners are considering a cap is notable. While the legal environment outside the U.S. might not allow for a hard cap, it will be interesting to see if a “soft” cap or luxury tax model – similar to baseball’s – gets any traction. If it does, it could be an interesting model for professional cycling, since the rapidly rising inequality between teams had even Jumbo-Visma CEO Richard Plugge – one of the biggest sporting benefactors of this inequality – floating the idea of a salary cap in recent interviews.
Potential Saudi Arabian investment in pro cycling – whether real or imagined – is a hot topic, and will remain so throughout the offseason and perhaps well into the future; the controversy will only be further stoked due to the revelations in a newly published Play the Game analysis. The first article demonstrated that the Kingdom is willing to invest practically limitless funds into sports enterprises and teams, in order to flex influential “soft political power,” strategically transform its oil-dependent economy, and achieve global leadership ambitions. The Saudi playbook aims to improve the country’s image by bombarding billions of sports fans with a carefully curated portrayal of their country – associating sporting goodwill with the logos of its national brands and initiatives such as NEOM city and the AlUla heritage and tourism venture. The author argues that this is not strictly sportswashing to distract from Saudi Arabia’s dour human rights record, but more like marketing saturation to attract investment and attention for its ambitious economic and cultural ambitions. It would appear that Saudi soft power aims are similar to those of Russia in hosting the Winter Olympics and World Cup prior to its invasions of the Crimea and Ukraine – to project images of opportunity and stability while simultaneously engaging in conflict and human rights abuses that would otherwise bear greater global scrutiny.
The second article places a magnifying glass over the royal family and its key business power brokers who are executing this so-called Vision 2030 sports investment strategy. The detailed investment objectives and often secretive actors radiate from the inner circle of Crown Prince Mohammed Bin Salman, and use their key positions as Saudi state officials, sponsors of sport, and governors of sporting bodies to blur the lines between the funding source, decision makers, and governance officers. In effect, this model allows Saudi power brokers to sidestep oversight in today’s sporting framework to fast-track sporting investments and decisions that benefit the Kingdom’s soft power goals without significant political impediments; in addition, they can contractually squelch post-deal dissent by embedding financial and legal consequences if athletes or business partners speak out against the Kingdom or its ruling family. The ultimate representation of Saudi Arabia’s power in sport was shockingly realized this week when FIFA announced that the country would be the sole bidder to host the 2034 World Cup, demonstrating mastery and manipulation of every major sports governance lever – including those embedded in the Olympic movement and FIFA which seek to guarantee human rights. In short, Saudi investment has changed international sport – in many cases to the delight of fans as their teams improve with renewed investment, or their sport adopts more exciting formats – but at a potentially higher long-term cost to integrity and transparency.
Within this broader context, it is interesting that multiple voices in the cycling media have recently raised questions and concerns about Saudi Arabia’s potential financial involvement in pro cycling. While broad ethical questions and debates about top-level sports leagues and teams taking investment from a sovereign state are fair and should be encouraged, it is important to stress, as we did last week, that outside of a fairly mild suggestion made by anonymous sources in a single recent news article, there have been no credible links with the rumored “breakaway” league. Underscoring this assessment, a recent story which linked the Saudi sovereign wealth fund, PIF, to potential major investments in two other, far larger sports – cricket and tennis, didn’t even mention pro cycling. This, in addition to the aforementioned FIFA 2034 World Cup announcement, would make it seem that any link between PIF and a possible new cycling league is a highly unlikely blip on Saudi radar.
With respect to lingering rumors about a potential breakaway cycling league, It is interesting to ask how and why any parties – presumably from inside the group of six teams cooperating to form One Cycling – would want to leak a story about Saudi involvement? Even if there had been a whisper of truth to the possibility, why would such a leak have come from within the group before the project even gets off the ground – providing the opportunity for groups like ASO or the remaining WorldTour teams time to undermine it? On one hand, it could have been a shrewd way for the group to soft-sell the somewhat radical idea with the sport’s fans and stakeholders. Finally, and perhaps most likely, the whole thing may simply be a juicy rumor being relentlessly recirculated and overanalyzed during an otherwise slow period in the cycling media.
As attention swirls around the Jumbo-Visma due to their incredible 2023 season and recent GC contender melodramas, the story that few around the team are talking about is the fact that the team’s 22-year-old German rider, Michel Hessmann, has had his anti-doping violation upheld after the B sample counter-analysis. Things don’t look particularly good for Hessman, with the German NADA press officer, Eva Bunthoff, saying the two samples show "sufficient evidence of a violation of anti-doping rules,” and Hessmann now awaits a suspension from the UCI, which – due to a change to the WADA code – could be four years, and potential public prosecution in Germany. Many questions have arisen even though Hessman’s case could soon come to a close. First, which diuretic was Hessman taking, and what reason has he provided for its presence in the samples? Diuretics have been effectively used as masking agents to hide the presence of more serious PEDs, but of greater concern is that WADA, the International Testing Agency, and other national anti-doping organizations have shown a recent inconsistency in naming the exact substance or medication in doping case decisions. This could simply be a doping case adjudication strategy to put athletes on the defensive, but potentially blinds external public health agencies to shifts in drug diversion and PED abuse that deserve greater attention.
The turnaround in Major League Baseball viewership since the introduction of new rules to speed up the game and make it more competitive may have backfired in some unintended ways. The updated four-round playoff format heightened the uncertainty of competition with exciting mismatches between teams in the multi-game series. Similarly, the pitch clock that debuted this season reduced average game times and made the game more watchable, in turn significantly increasing fan attendance and broadcast viewership across all of the league’s markets. In one sense, baseball and other sports have ditched some of the anchors of tradition to embrace rules changes that align with now-entrenched consumer entertainment preferences – which trend toward immediacy, constant action with fewer breaks, and higher scoring contests. However, MLB’s regular-season viewership gains were erased when so-called small market teams progressed to the World Series (Rangers and Diamondbacks), while teams with much larger broadcast markets (Dodgers) and branding recognition (Yankees) fell. And that downtrend held solid as the 2023 Series was the least watched in recent history.
Sports business analysts are increasingly realizing that a baseball fan’s engagement has a steep drop-off once their preferred team is eliminated from competition, and broadcast ratings now indicate that baseball fans have too many other choices (basketball, football, and multiple soccer leagues) to stay interested in a World Series if it doesn’t feature a team of interest to them. In fact, Monday Night Football’s ratings handily beat game 3 of the Series. Like baseball’s innovations, we have advocated similarly transformative changes to pro cycling’s competitive format and calendar, but cycling’s risk is inverted in that we are too dependent on a single race vs. baseball’s fan engagement/broadcast market conundrum. Just as baseball’s viewership dropped off during the playoffs, the Tour de France is essentially cycling’s “World Series” – and we see a parallel but even steeper drop-off in our viewership after July. Pro cycling can realize viewership and revenue opportunity gains across the entirety of the sport by making changes – sweeping or incremental. These efforts must build up cycling’s sporting narrative while creating hooks that can acquire new fans and engage and sustain the emotions of all our fans with exciting content until the season is done.