July 18 (Bloomberg) -- Bicycle makers Dorel Industries Inc. and Trek Bicycle Corp. are investing in Tour de France teams as doping scandals scare off companies outside sports.
Dorel took a 35 percent stake in a squad that since January bore the name of its Cannondale brand. Trek, which ended its sponsorship of Lance Armstrong when the U.S. Anti-Doping Agency showed he cheated in winning cycling’s biggest race a record seven times, said June 26 it will take over the RadioShack team in 2014. They’re following BMC Trading AG, whose rider Cadel Evans won the 2011 Tour de France.
The bikemakers are trying to get machines such as Cannondale’s $13,310 Supersix Evo Black Inc. to stand out from those made by 16 other competitors who sponsor teams, according to Ulrich Lacher, a director at Cologne-based sports marketing researcher Repucom. At the same time, they are getting into a position to influence squad decisions including hiring riders to suit their marketing requirements, Lacher said.
“The bikemakers have realized there is an opportunity,” Lacher said. “Many other companies are reluctant to get involved in cycling.”
The Tour de France runs through July 21. Cannondale’s team hogged the television coverage on July 5 when its riders spent almost five hours at the front of the main pack in leading Peter Sagan to the stage win. The race provides about 80 percent of exposure for sponsors, according to a May 1 report by Repucom.
Rabobank Rides Off
Rabobank Groep, the biggest Dutch mortgage lender, ended 17 years of cycling sponsorship on Oct. 19, saying it wasn’t convinced the sport could become “clean and fair.” A week earlier, USADA said Armstrong’s former teammate Levi Leipheimer doped while on the Rabobank squad in 2003. Deutsche Telekom AG quit the sport in 2007, a year after Boston-based insurer Liberty Mutual Group Inc.
Demand for bikes is growing with image-conscious customers in China and Japan willing to spend 25,000 euros ($32,800) on the BMC Impec Lamborghini, according to Andy Rihs, who co-owns both BMC Trading and the BMC team. Dura Ace bike components, which cost as much as $1,854 a set, helped Shimano Inc. increase sales of bike components by 12 percent to 198.2 billion yen ($1.99 billion) in 2012, according to a Feb. 13 earnings report.
Bike makers have more than a century of history in elite cycling. Founded in 1885 in Milan, F.I.V. Fabbrica Italiana Velocipedi Edoardo Bianchi SpA started using races as a testing ground for its products in 1896, and in 1911, Carlo Galetti won the Giro d’Italia while riding for Bianchi, according to the company’s U.S. website.
Typically, manufacturers have furnished teams with equipment and about $5 million in sponsorship per year in return for exposure at races, Rihs said. With a plethora of suppliers including Giant Manufacturing Co., it’s more effective to control your own team, Rihs added.
“If you’re just a supplier you are a replaceable commodity, you might win one year and be out the next,” Rihs said. “We’re different: we have strong, strong branding.”
BMC has the most exposure of any bike maker in cycling, according to Repucom’s report, which put Cannondale and Trek at seventh and 11th respectively of 19 brands.
The Cannondale team’s previous owner, Liquigas SpA, ceded ownership to a former executive of the Italian natural-gas supplier, Paolo Zani, who now has a 55 percent stake. Roberto Amadio, the team manager who owns the other 10 percent, said Montreal-based Dorel wants to make the squad “as international as possible,” reducing the ratio of Italians, VeloNews website reported Dec. 7. The 2013 roster includes riders from Australia, Argentina, Canada, Colombia, Germany and Japan.
Two Cannondale executives on the board of Brixia Sport SpA, which controls the team, must be consulted when a rider paid more than 300,000 euros is hired or fired, company filings show. Dorel spokesman Michael DeLeon declined to answer e-mailed questions about its involvement in team affairs or reason for buying the team.
Waterloo, Wisconsin-based Trek, which is acquiring the Radioshack-Leopard team from real-estate developer Flavio Becca, will partly base hiring on marketing requirements, and “would love to have a Chinese rider,” Eric Bjorling, a Trek spokesman, said by phone.
The cost of running a team, which can top $30 million, is prohibitive for some, Rihs said. Cervelo Cycles Inc. stopped running a squad after 2010, and has reverted to being a supplier. Making bikes is less profitable than some industries because of discounted end-of-season prices and a “complex” supply chain dominated by Shimano, according to Rihs.
‘Better Make Cash’
He declined to disclose the net income of BMC, which he said he jokingly calls “Better Make Cash” and has annual sales of 160 million euros. Trek has sales of about $900 million, Bjorling said, without disclosing net income. Sales and profit of Cannondale, one of Dorel’s four bike brands, aren’t made public.
Rihs in January sold part of his stake in hearing-aid maker Sonova Holding AG, which he co-founded. The money to fund the team comes from BMC Trading and “out of my own pocket,” Rihs said.
“The costs are going up independent” of the fallout from doping scandals, Rihs said. “But I wouldn’t be doing it if I didn’t think it was worth it. I didn’t start a team for fun.”
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