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Will Team Sky struggle to find a new owner?

Peter Stuart
13 Dec 2018

Team Sky is a unique pro team, and finding a new sponsor and owner may be uniquely difficult

The news of Sky ending its sponsorship of Team Sky has already shaken the world of cycling, but while sponsors come and go from many teams, for Team Sky the next year may prove particularly complicated.

Team Sky is unique in WorldTour cycling in that the team is owned by its title sponsor, not just funded by it. Tour Racing Ltd, which is the trading name of Team Sky, is a subsidiary of Sky Plc. As such the team is likely to be seeking both a new sponsor and a new owner.

That may seem technical, but it’s a vital distinction between Team Sky and other teams. Let’s explain why.

The team and the sponsor

In a normal situation, a company that owns a cycling team will seek out sponsors to support a team throughout a season, and hopefully beyond. For instance, Slipstream Sports owns the team that once went by the name Garmin-Sharp and now has new sponsors in EF Education First and Cannondale, leading to the curious team name 'EF Education First-Drapac presented by Cannondale'.

Slipstream will also seek out smaller sponsors for product placement in the team – wheel, groupset, helmet and clothing brands that will usually provide kit and pay sponsorship money.

If at the end of the season, the main sponsor pulls out then the team’s owning company will either find a new sponsor or go bust. That nearly happened with Slipstream Sports.

Team Sky, alternatively, is funded directly by its owner, Sky Plc. The directors of Team Sky’s company, called Tour Racing Ltd, are largely employees of Sky and several are directors of other subsidiaries of Sky Plc.

Sky has implied that it is leaving cycling as a sport altogether, so the company is unlikely to want to continue owning Tour Racing Ltd and find new sponsors. So it’s no surprise Team Sky has claimed they are looking for a new owner, not just a new primary sponsor. 

The key issue with Team Sky’s current situation is that they need someone to buy the company, and somebody to sponsor the team. They may find one entity to do both, but there are some matters to consider for the would-be purchaser.

‘No equity in pro cycling’

As a company, Team Sky has no significant assets but considerable outgoings. Unlike buying Rapha or Evans Cycles, for example, the purchaser won’t be getting warehouses, supply chains and logistics systems. 

Indeed, even the value of Team Sky’s intellectual property is a little questionable, as it will be forced to change branding immediately to match a new sponsor. Staff, riders, infrastructure and the WorldTour licence will all be alluring, but they carry with them considerable costs, and the possibility that riders could be poached by another better-paying team.

With that in mind, in isolation the company itself may not hugely valuable, and it’s conceivable that Tour Racing Ltd will be sold for a nominal fee, possibly £1. For whoever buys it, the real challenge will be in finding sponsorship. 

For instance, if the current management were to buy the company from Sky they would need to quickly find a sponsor to cover the team’s liabilities – most obviously the cost of rider’s contracts, which may be challenging.

While the buyer will win a name on the world's most successful team it will have limitations, specifically that the purchaser will need to take up on all ongoing contracts without the ability to pick and choose. In Team Sky’s case that could prove an issue as the team has recently signed extensive contracts with Egan Bernal and Geraint Thomas.

Team Sky has claimed it ‘expects the rider contracts to be honoured by a new owner’.

Given that any sponsor with £35m could likely build the best team in cycling from their own bespoke tastes from scratch, these restrictions may prove a little frustrating. 

From an accounting point of view, the lack of ‘goodwill’ or intangible assets may mean that creating a new shell company becomes the most appealing prospect.

That company could then purchase Team Sky’s current assets and set up a TUPE (Transfer of Undertakings) of rider and staff contracts to the new team. However, this could open the team up to being fragmented slightly.

Team Sky has incredible pedigree, but the riders could be lured elsewhere

Breaking up

A break up of the team is certainly a possibility that’s been acknowledged. Chris Froome stated on an instagram post, ‘We plan to be together in 2020 if at all possible and we will all be doing everything we can to make that happen.’

Keeping a team together is certainly a possibility, as we saw when BMC Racing Team merged with CCC Sprandi this year. The company that owned BMC Racing, Continuum Sports, kept its riders and staff in place while bringing in CCC as new title sponsor.

That said, it was broadly known that team owner Jim Ochowicz struggled to find a new sponsor throughout the season, and that was without the added complexity of selling ownership of the team itself.

At the other end of the spectrum, it would be easy to compare Team Sky with the final few years of Tailwind Sports, once known as Team US Postal Service Pro Cycling. When US Postal exited the team, at the same time as Lance Armstrong’s first retirement, Tailwind found a fantastic headline sponsor in Discovery Channel. 

Only two years later, Discovery exited the team and instead of hunting for a new sponsor, Tailwind Sports ceased operations. However, the team still existed in a sense, as a huge number of the riders transferred to Team Astana, as well as DS Johan Bruyneel. 

Indeed, Astana acquired much of Discovery’s best riders and operating structure without needing to spend a penny on purchasing Tailwind Sports.

Perhaps the most serious question for Team Sky will be whether a corporation on a scale of Sky Plc, capable of funding the team appropriately, will be eager to enter the world of cycling given the current climate.

Dr Freeman

The final thorn in Team Sky’s side in the oncoming season will be the lingering controversy of the Jiffy bag scandal that has shaken the team since 2016.

While UKAD has announced it has closed its investigation, the GMC has continued to investigate the conduct of former Team Sky physician Dr Richard Freeman.

In February Dr Freeman will need to speak in front of the General Medical Council to explain the delivery of testosterone patches to the British Cycling headquarters in Manchester, one of tangential discoveries from the Jiffy bag investigation.

While Freeman may be in a position to explain the testosterone error without any controversy, it will add to the noise around the issue. The Select Committee on Doping in Sport by the DCMS concluded that Team Sky had ‘crossed an ethical line’, and Dr Freeman’s further testimony will once again bring this issue of ethics in sports medicine at Team Sky into question.

One lesson from pro cycling history is that often large sponsors are left with bitter tastes. Lance Armstrong’s case with US Postal, or Festina’s troubles in 1998 may spring to mind.

Will another sponsor capable of settling Team Sky’s enormous budget be willing to risk the possibility of negative publicity that is so entwined in the world of cycling?

Certainly we hope so. Despite the controversies, Team Sky has been the great leviathan of British Cycling, and helped drive a renaissance in the sport.

There's no doubting that the coming season may be a tough one for the team, but the future of Team Sky could yet be an exciting one.