– Report by Todd Ensminger –
Team Discovery Channel is co-owned by two sports marketing firms, San Francisco-based Tailwind Sports and Capital Sports & Entertainment, based in Armstrong’s hometown of Austin, Texas. Lance Armstrong also has a partial ownership interest in the team. Joining Discovery Communications of Silver Spring, Maryland are twenty-two secondary sponsors, many of whom are continuing their relationship from the previous Postal Service team. In addition to its lead sponsorship of the team, Discovery has a special promotional arrangement with Armstrong, similar to other team sponsors with whom he has individual endorsement agreements.
Discovery on the roads of the beautiful Ojai Valley, training in January.
The team’s owners stated that Discovery’s role as lead sponsor is to provide funding for the team’s operations, participate in major events, and promote the team’s brand. Although Discovery has no direct management responsibilities and no team ownership interest, Discovery is consulted on major team decisions, according to Brooke Alexander of Capital Sports & Entertainment.
What All This Gonna Cost?
The Postal Service signed Lance Armstrong to a base salary of $215,000 in 1997 while he was still recovering from cancer and after he was dropped by the French Cofidis-sponsored team. Discovery, on the other hand, inked its sponsorship deal at the peak of success for both Armstrong and the team, which had a team record 33 wins in 2004, including Armstrong’s 6th straight victory in the Tour de France.
Discovery declined to disclose financial terms of the deal with Armstrong or the team, although the team has a $15 million annual budget and pro cycling teams generally cost around $10 million per year to operate. In comparison, Credit Lyonnais pays over $5 million per year to be a primary Tour de France sponsor, including the centerpiece sponsor of the yellow jersey worn by the Tour’s leader throughout the race.
Paulo Savoldelli’s Giro win added a nice return in media exposure that has been worth millions in roi to the Discovery Channel’s sponsorship.
While Discovery also declined to discuss Lance Armstrong’s team salary, it was reported in Forbes Magazine that Armstrong earned $28 million in the past year in earnings and total endorsements. Armstrong’s earnings could increase depending on the outcome of a lawsuit brought by Armstrong and Tailwind Sports against SCA Promotions of Dallas, Texas.
Following Armstrong’s first two Tour de France victories, Tailwind paid SCA $420,000 to purchase an insurance contract to cover his future performance bonuses. As provided by the agreement, SCA paid Armstrong $1.5 million and $3 million following his Tour wins in 2002 and 2003, respectively. Following his fifth victory in 2004, however, SCA refused to pay Armstrong his $5 million performance bonus, citing its pending investigation of allegations that Armstrong used performance-enhancing drugs.
Be The Brand
Discovery’s pro cycling team sponsorship is representative of the increased integration of sport, business and television. Discovery spokesperson Michelle Russo says the company recognized Armstrong as an international cultural icon, and she said the sponsorship offered “a perfect opportunity” since the team represented the company’s values of perseverance, exploration, and excellence. The opportunity to enhance Discovery Channel’s brand recognition was also cited as a primary factor in Discovery’s sponsorship decision. According to Mark Shugoll, CEO of the marketing research firm Shugoll Research, “Lance has his own brand and certainly Discovery is attempting to piggyback that [brand]”.
Discovery’s multi-year sponsorship contract will continue after Armstrong retires, and it provides the media company with an opportunity to market its networks internationally. According to Discovery’s Russo, the international characteristic of both the team and the sport of cycling were major factors in the sponsorship decision as the company seeks to expand its global reach. Cycling is a sport that appeals to Europeans in particular, with a concentration of fans in France, Belgium and Spain.
Discovery’s presence in 160 countries is expected to benefit from the diversity of its team, with 15 of the team’s 28 cyclists coming from different countries. This international dynamic is evident in the team’s other corporate sponsors, a group that includes companies based in Belgium, Netherlands, France, and Italy. The team is also expected to benefit internationally from Discovery’s sponsorship, as Russo stated that the company is “uniquely positioned to use the power of [its] global media platforms to create a worldwide programming and marketing effort in support of Team Discovery Channel.”
Once his professional cycling career ends after this year’s Tour de France, and pursuant to a special arrangement with Discovery Communications, Armstrong will continue to collaborate with the company and be involved in programming on its networks. The arrangement provides Discovery with marketing and programming access to one of the world’s most recognizable athletes, and Lance gains access in the post-cycling phase of his career to a global entertainment company and a platform to promote the Lance Armstrong Foundation, the organization he founded in 1997 to support people living with cancer.
Lance knows the answer at the team presentation in January.
Armstrong’s achievements in the areas of cycling and cancer survivorship have already gained a role in the programming lineup. Discovery has internationally televised programs about Armstrong’s physiology, and there are plans for Armstrong to serve as an on-air host and to assist with developing health-related programming.
How Do You Measure Success?
Media exposure is the most common standard for measuring a sponsorship’s return on investment. As Lance and his teammates have remained key figures throughout the Tour de France this year, it has generated weeks of nearly continuous advertising for Discovery Channel. While Discovery seeks to replicate the success of the prior team sponsored by the Postal Service, measuring that success can be less precise than the bean-counters might like.
The Office of the Inspector General conducted an audit of the Postal Service’s sports sponsorship activities, including its role as a pro cycling team sponsor, which became the most expensive sponsorship for the Postal Service during the course of its tenure. The Report states that the Postal Service began its pro cycling team sponsorship with international goals: to increase global revenues and to enhance its brand image. In response to the audit report, Anita Bizzotto, then Chief Marketing Officer for the Postal Service, claimed that the sports sponsorships enhanced its brand, contributed to revenue growth, and increased customer loyalty. The Postal Service also claimed that the media value of its title sponsorship in pro cycling was more than three times its cost during a two-year period.
In the first three years of its last sponsorship agreement, however, international airmail revenues for the Postal Service decreased by 1% and revenues from international economy mail declined by 20%. Additionally, and primarily due to poor revenue tracking by the Postal Service, the Inspector General was able to verify only $698,000 of the $18 million claimed by the Postal Service as revenue generated during the first four years of its cycling team sponsorship.
Lance led the Discovery Channel team straight to the top with his 7th Tour victory.
According to Gerry McKiernan, Manager of Media Relations at the Postal Service, the decision to discontinue its pro cycling team sponsorship after eight years was based on a redirected focus from international products to its domestic business. Reflecting this change, one month before Discovery announced its title sponsorship deal with the cycling team, the Postal Service began to sponsor NASCAR Busch Series’ driver David Green of Brewco Motorsports.
Pro cycling sponsorship has been recovering since the team sponsored by Festina was expelled from the 1998 Tour de France due to doping violations, and there is now greater competition for companies’ sponsorship dollars, according to researcher Mark Shugoll. Broadway shows are now affiliated with corporate sponsors, and stadium naming rights have been an expanding niche in sports sponsorships in recent years. FedEx, for instance, pays $7.6 million per year for the naming and logo rights to the Washington Redskins’ home stadium as part of a 27-year agreement with the team.
The high cost of team sponsorships has also contributed to sponsorship troubles for certain teams in professional cycling. The Danish team sponsored by CSC and managed by 1996 Tour de France winner Bjarne Riis is one of the most talented pro teams on the tour, with Italian Ivan Basso as its lead rider who subsequently finished in second place behind Armstrong in this year’s Tour. Despite its cycling talent, Team CSC struggled to locate a co-sponsor this past off-season, particularly since co-sponsorship of the cycling team is three times more than the cost to be the lead sponsor for Denmark’s national soccer team. Although the cost is high, CSC spokeswoman Theresa McDermit stated that “compared with other global sports sponsorships, professional cycling is a very good value for the money. It is, of course, one of the few sports where the teams name themselves after their sponsors.”
There is greater risk with team sponsorship compared to traditional sports advertising or event sponsorship, according to Shugoll, because the success of the corporate investment is more dependent on the image of the athletes than success in the sport. Despite the risk, sport sponsorships generally provide a stronger tie with fans and viewers than traditional advertising, and Discovery’s cycling sponsorship offers the rare opportunity where athlete and sponsor are so closely linked.
Discovery’s sponsorship occurs at the same time as professional cycling implements the new concept of the ProTour. Established by the Professional Cycling Council and the Union Cycliste Internationale (UCI), the top cycling teams who qualified for a UCI ProTour license are now required to participate in all 27 primary races in the world, including the Tour de France, Giro d’Italia, and the Vuelta a Espana.
One of the UCI’s stated objectives for the new arrangement is to benefit sponsors and other investors by guaranteeing the presence of the top teams in cycling’s major events. The ProTour is similar in concept to NASCAR’s Nextel Cup Series, and its points standings are categorized by individual, team and nationality. Prior to the start of the Tour de France, Armstrong was in 49th place in the individual points standings, although his racing each year is focused on preparing himself to peak for the Tour de France.
While other American cyclists have been overshadowed by Armstrong, the U.S. cyclists who hope to fill the void following his retirement are a talented group, as evidenced by the two Americans in the top ten of the current Tour de France standings besides Armstrong, Phonak’s Floyd Landis and Levi Leipheimer of Gerolsteiner. Both Landis and Leipheimer are former Armstrong teammates who left the Postal Service team to be top riders for their current respective teams.
The prevalence of American cyclists on other teams is not expected to hinder Discovery Communications’ sponsorship goals since its global focus indicates it is less inclined to have an American as its lead rider. In fact, Yaroslav Popovych from the Ukraine is expected to replace Armstrong as team leader soon after his retirement.
With their first Tour de France victory under their belt, success for Discovery Communications as team sponsor will also be measured by the growth in its viewership and the strength of its brand image long after the Tour de France ends.
Sources: (1) Michelle Russo, Discovery Communications, Corporate Communications Department (2) Theres McDermit, CSC, Corporate Communications & Marketing, 3) Gerry McKiernan, Postal Service, Manager of Media Relations, (4) Brooke Alexander, Capital Sports & Entertainment, (5) Mark Shugoll, Shugoll Research.