March 9 (Bloomberg) -- Lance Armstrong’s former team is among eight elite squads that agreed to race in a series that cycling’s top official has called a breakaway league, two people with direct knowledge of the situation said.
Sports marketing company Gifted Group Ltd. is seeking approval from the sport’s ruling body to start its new World Series Cycling in 2014, according to the people, who were granted anonymity because the project isn’t public. The 10-race championship would co-exist with the Tour de France and eight other high-profile races, the people said.
Almost half of the top 18 squads including the one funded by Radioshack Corp., have signed up for the new series, and those participating will get 64 percent of the equity, the people said. Simon Chadwick, a professor of sports business strategy at the U.K.’s Coventry University, said the teams are trying to change a model that denies them a share of race revenue. Those funds now go to organizers like Amaury Sport Organisation, a family business that has controlled the Tour de France since World War II.
“This is potentially a real change in the balance of power in cycling,” Chadwick said in a telephone interview. “The teams are being driven by the marketplace instead of history.”
The World Series Cycling group approached Hein Verbruggen, former president of the International Cycling Union, or UCI, late last month as it seeks reconciliation with the sport’s ruling body, one of the people said. UCI spokesman Enrico Carpani confirmed there had been contact between the parties. He declined to comment further. UCI President Pat McQuaid didn’t return a phone message seeking comment yesterday.
In a Jan. 25 interview, McQuaid said he’d obtained information about the project and sees it as a “breakaway league” that would threaten long-standing events like the 79-year-old Tour of Switzerland and Spain’s San Sebastian Classic. The UCI recently started its own company, Global Cycling Promotion SA, to promote races outside Europe and introduced the Tour of Beijing in October.
The new series won’t clash with the Tour de France, Giro d’Italia and Vuelta a Espana, the biggest stage races, or six so-called one-day classics, the people said. It would have four-day races in the U.S., Europe and Asia, and possibly in South America and Australia. The business model, unusual in European sports, is based on the team franchise plan used in the National Basketball Association, National Football League and other U.S. sports, Chadwick said.
Jonathan Vaughters, the manager of the Boulder, Colorado-based Garmin squad who heads the teams association, told reporters at the Tour de France in July that teams are too vulnerable to sponsors pulling out. Elite squads typically have budgets of about $10 million, and two have folded in the last six months after mobile phone maker HTC Corp. and shoemaker Geox SpA withdrew sponsorship.
The Radioshack-backed team, where Armstrong, the seven-time Tour de France champion, raced in 2010 is among those that have agreed to terms, the people said. A French squad, Francaise des Jeux, backed by a gaming company, is among those that haven’t signed up, the people said. RadioShack team manager Johan Bruyneel and Francaise des Jeux team manager Marc Madiot declined to comment.
The series would be managed by Gifted Group chairman Jonathan Price and Thomas Kurth, a former executive of European soccer’s ruling body, UEFA, according to a 12-page pitch to potential investors by the U.K. unit of Rothschild bank last year. They have since met their target of raising 20 million euros ($27 million) from investors, the people said. The backers would own 26 percent of the equity and Gifted Group would hold 10 percent.
Price’s former company ran Manchester United’s sponsorship and hospitality. Kurth has worked as an executive for UEFA and G14, a now-defunct group that represented elite clubs. Price declined to comment. Kurth couldn’t be reached for comment.
Gifted Group’s series has projected earnings before interest, taxes, depreciation and amortization of 39 million euros on sales of 140 million euros in 2017, the pitch says. McQuaid said it would struggle to make money because cycling isn’t as television-friendly as soccer and production costs are higher. He said it wouldn’t manage without the UCI’s advanced anti-doping program.
The backers are seeking to turn the series into a global brand that competes with soccer’s Champions League and Formula One auto racing, according to the people. It will be a “difficult sell” in some countries outside cycling’s European heartland, Chadwick said.
“Cycling has no history, no established market and no big stars in new and emerging markets,” Chadwick said. “The acid test is how good they are at packaging this and selling it.”
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