The Finances of Team Sky

Cycling teams are businesses. The holder of a UCI Pro Team licence can be an individual but most often the team is a corporate entity, a company created to handle the income from sponsors and pay out expenses like rider wages.

This is the case with Team Sky and, like all companies, it publishes its annual report and accounts. Here is a look at the finances of Team Sky, from the exact budget down to the tiny details and it’s more than just dull accounts, it tells us plenty about the team and the sport. Including why the team has only three employees.

In the case of Team Sky, the business behind the squad is called Tour Racing Limited. This is 60% owned by BSkyB, the British broadcasting arm of Newscorp, 25% is owned by Sky Italia and the remaining 15% belongs to Newscorp. When this shareholder pact was put into place the idea was to fund the team for five years with an initial commitment of £40 million.

Its budget for 2011, the most recent number was £16,680,000. Here is the audited income statement from 2011:

As ever, the detail matters. Of the £16.6 million budget, the notes attached to the accounts explain £10.5m came from Sky’s sponsorship, listed as “title sponsor revenue”.

Another £3.1 million comes from “performance sponsorship revenue” which I believe to be the co-sponsors, such as IG Markets and others. A further £3 million comes from “race fees and other income”. Each of these three items makes up the £16.6 million budget. Note it doesn’t make a profit. It’s not supposed to, instead the money going in from the sponsors should be enough to cover all of the expenses

Perhaps the most interesting part of the accounts are the notes on expenditure. Here we get the line by line breakdown:

Like any team wages take up the biggest share of money and by some way. Note the 25% jump from 2010 to 2011.

It’s interesting for me to note the spend on bike and performance equipment. Normally teams are paid to ride particular bikes but Sky are spending £1.4 million on this. There’s no more detail on what this includes. Vehicle running costs means fuel, at least this is the largest expense and needed to fill the team bus and all the vehicles. The spend on PR and marketing is huge as well and goes on the PR staff, the website, the social media and inviting VIP guests.

How many employees does Team Sky have?

An all conquering team with a large roster of riders supported by managers, helpers, mechanics, medics and more. You’d imagine the team employs many people. You’d be wrong.

Yes, read that again as the average number of full-time staff is three (3). Instead it’s the line below that gives it away, “other salary costs included in the staff and rider costs are related to contractors”. This means almost everyone working for the team does so as a “contractor”, selling their services to the team. This practice is common on many “anglo-saxon” teams as it puts the burden of paying payroll taxes on the rider or staff member, therefore allowing the team budget to stretch further.

Rider transfers

Team Sky’s top rider Bradley Wiggins was bought out of his contract with the Garmin team. These transfers are rare in cycling but the squad also bought Ben Swift from Katusha too. But note the spend in 2011:

It seems the squad paid £650,000 in additional transfer payments. Was this related to Wiggins or Swift, a follow-up payment… or was it linked to the recruitment of another rider?

Does money buy results?

Yes and no. Look at BMC which is reputed to the biggest budget team and the results haven’t followed, Rabobank also spend a lot but are on a transitional year after a silent management clear out and Katusha, well they’re Katusha. For me the big difference is the focus on process. BMC have some great riders but do you know who coaches Philippe Gilbert? I don’t and it’s odd that such a prime asset isn’t surrounded with a battery of coaching staff. Not to single out BMC, the whole sport has many top riders who train by feel. In the meantime Sky are spending money on a sporting form of research and development. I know other teams would like to mimic this but they struggle to get enough money for this, it’s hard enough to get the riders. Sky’ pioneering will forge a path that others are going to copy but note Sky aren’t necessarily first here, several teams have been looking at similar ideas.

Value for money

If the numbers are beginning to wash over your head, take a breather because the next one is quite something.

According to the latest annual report and accounts BSkyB spent a total of £1.2 billion on marketing in 2011 (p31, PDF). As shown above, BSkyB’s contribution to Team Sky was the 60% of the £10.5 million, or about £6 million, This means the cycling team represents 0.5% of the marketing spend. Talk about value for money.

This isn’t new, it just gives us a number to think about. Cycling has long offered big value to a sponsor but if the rewards are big, so are the dangers. A big company is terrified of reputational risk, just ask Luxembourg’s Enovos and the fear scandal is still keeping many big sponsors away. Look at the likes of Skoda and Nestle who spend millions on the sport by sponsoring races but they won’t back a team. In fact very few teams attract multinational corporate sponsors.

Summary

Most teams file report and accounts but I’m grateful to a British reader for sending through the 2011 report and accounts of Tour Racing Limited, the corporate entity behind Team Sky as it’s rare to see the paperwork.

Sky aren’t the biggest budget team, it’s said they rank fourth or fifth but I think they’re top-three yet it’s always hard to make direct comparisons. First because the annual budget is one thing but the set-up costs of a team are another, for example do you include all the team cars and buses in one year or do you spread the cost over time? Sky also benefit from the facilities provided in Britain, like coaching staff, rather than having to hire everyone outright. Either way Sky’s wage bill is greater than the entire budget of several other teams but we should note Wiggins is probably the most valuable rider of the year with his wins.

Sky use the contractor method to recruit staff. The UCI rules allow this and it saves the team from paying payroll taxes on employee wages as they are instead billed money for “services” provided by the riders and even the mechanics. But the rider has to set aside money to cover this and the UCI rules include some protections for this. But it gives the team a big head start over others, for example French teams must pay hefty payroll taxes so one million Euro spent in Britain buys you a lot more riders and talent than it does in France.

Finally regardless of the exact amount, it’s money very well spent, a tiny share of the company’s budget has brought in huge amounts of publicity and goodwill in Britain and beyond.