Thursday, May 14, 2009


Money Laundry

Or Laundry Money, Whichever

The 2008 Tour de France exclusion. The Armstrong comeback. The non-payment issues. The Kazaks abandoning ship. May 31 deadlines. Think Alberto Contador is starting to wish he’d signed somewhere else yet?

Anyway, the team currently known as Astana seems all set to change sponsors, promising to debut some modified “our current sponsors are going down the crapper” kit over the next several days of the Giro d’Italia. The new clothes are said to retain the current sponsors, but give a teaser as to who the new sponsors will be. Like most, I’m speculating that the new sponsor package – which is an amazing feat in itself in this economy and at this point in the season – is a heavily Armstrong-linked affair, and will have something to do with the Livestrong cancer non-profit.

Some people are crying that the Livestrong team scenario isn’t possible, because a non-profit entity can’t own a for-profit bike team. I believe they’re overcomplicating the issue. Or maybe they’re undercomplicating it. I haven’t decided yet. So with no training or experience in the relevant laws and accounting regulations, I’ll obviously wade right into the issue...

There are any number of ways I can see getting around this roadblock, or maybe I’m just proposing that the roadblock doesn’t really exist. First, ownership and sponsorship are two different things – they’re just more combined under Astana than they usually are due to the Kazak national ties. Same deal with Katusha, but these sorts of state-sponsored, pseudo-Soviet arrangements aren’t really the norm. For instance, Riis Cycling owns the team known as Saxo Bank, but Saxo Bank is the sponsor, not Riis. Likewise, a company called Tailwind Sports owned the U.S. Postal and Discovery Channel teams, not the semi-public mail service or the TV channel. Just as in those arrangements, there’s really no reasonable scenario in which Livestrong itself would actually “buy the team,” which is how a lot of people seem to be imagining this deal going down. So Livestrong wouldn't actually “own” anything.

Sponsorship, on the other hand, is really just advertising by another name, and non-profits certainly advertise all the time, though they usually call it "fundraising" instead. In fact, I’ve built a small fort in my living room out of Salvation Army mailers, lashed together with Easter Seals return address labels and roofed with Children’s Hospital glossy postcards. So, Bruyneel, Armstrong, or damn near anyone else could buy out Astana’s ProTour license, contracts, and infrastructure (the “team”), and Livestrong could sign on as a sponsor.

If Livestrong just shelled out the regular “title sponsor” rate, though, it could result in a pretty ugly balance sheet for a charity, considerably lessening the ratio of dollars per charitable contribution that go directly to the root charitable purpose. That would lower the charity’s efficiency rating, which could spell disaster for donations, especially in a bad economy. So a traditional title sponsor arrangement still doesn’t seem likely, even if it is legal.

Another option is that someone, including Armstrong and/or Bruyneel, could buy the team/license, and that entity, someone else, or a group of people (people like Thom Wiesel) could sign on as the “title sponsor,” but not in the traditional sense. We usually think of a title sponsor as a company that pays to advertise its services on the team’s stuff, but really if you have a few million dollars they’ll put damn near whatever you want on there. If the Service Course gave some team (I’m thinking something in a nice second division Belgian squad) enough money, I could decide that I want them to ride around all year with one of my kid's doodles on their backs instead of my logo. And they’d like it. So this theoretical sponsor group could decide that they just happen to want the Livestrong logo on the jerseys, maybe in addition to their own logos, and Livestrong could agree to let the team use their logo for that purpose. Sort of an in-kind donation of space, if you will. Remember those little yellow bands on the Discovery Channel jerseys? Think bigger.

A third scenario is that Livestrong serves as sort of a “collecting sponsor.” The charity would have some representation on the jersey, likely in the form of its signature black and yellow color scheme and some logo placement, but it would pay little or nothing for it. Instead, it would serve as a cause umbrella to sign up sponsors like Glaxo-SmithKline, Amgen, Merck (yes, Merck, not Merckx), or other cancer treatment-related companies, like for-profit health systems or equipment manufacturers. Essentially the same thing as Team Type 1 does for diabetes.

Finally, there’s one scenario that people don’t seem to be considering – a cycling team doesn't necessarily need to be a for-profit venture, and if the Livestrong Foundation really felt the perverse, inexplicable desire to actually own a cycling team, I suppose they could go that route. Non-profit doesn’t mean volunteer, and it doesn’t even necessarily mean charity. It just means that you somehow “serve the public benefit,” and that you don’t make a profit. For instance, National Geographic is a non-profit, but over the years they’ve certainly made plenty of cash selling magazines and Jacques Cousteau TV shows and slapping that yellow square logo on damn near anything. But at the end of the year, there’s nary an extra cent to be found - they just happen to have, from what I’ve read, extremely nice lunchrooms and generous benefit packages. Make no mistake, under a non-profit scenario, Bruyneel, Contador, Leipheimer, Horner, et al would still very much be getting paid, it’s just that at the end of the year, the company that owns the team would have to have appropriately spent or reinvested all its money. That shouldn’t be too hard with a good accountant. And call me crazy, but I think that Armstrong’s foundation probably has a good enough reputation and good enough lawyers to make the case to the feds that the team should qualify as a non-profit .

Of course, I could be wrong about all of that. Maybe the new sponsor is Lego, who knows? What I’m saying is don’t write off the Livestrong thing based on one line out of the reams of rules regarding non-profits. And never underestimate the number of gaping loopholes in the tax code.

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I wonder how ONCE used to do it. Weren't they a non-profit society for the blind?

I think ONCE was/is a Spanish national lottery where the proceeds to go help the blind, so I suspect they got around any conflicts by being some sort of pseudo-government entity. Kind of like how Lotto was fine under France's "no gambling" rule, but Unibet wasn't. Or maybe it's just that none of that stuff matters under Spanish laws.

i like your blog. nice style.

sending appreciation all the way from germany.


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