Sandwiches, hamburgers and pizza have worked well for entrepreneur Rick Schaden and his dad.
But the founders of Quiznos, Smashburger and Live Basil have their hands full trying to squeeze a profit from the Pro Cycling Challenge, the seven-day bike race across Colorado.
When 135 of the world’s top cyclists pedal across the state in August in the fourth year of the wildly popular race, Rick Schaden hopes to lose only $2 million on the race that costs $10 million to $11 million to host. That compares with more than $9 million in the first year, $6 million in the second and $3 million last year. That would be more than $20 million lost in four years.
That’s not a business model that would win investors. But it might be the only one that can establish stage bike racing in the U.S., where deep-pocketed angel owners, like Rick and Richard Schaden, seem to be the key to keeping professional bike racing alive.
“It’s not the kind of thing you sign up for saying, ‘Boy we are going to get rich doing this,’ ” Rick Schaden said. “It’s a privately funded community asset. My father and I look at it as giving back to the community.”
But the Pro Challenge isn’t a charity, said Schaden, a trim 50-year-old who worked his way through the University of Colorado as a welder before he and his father, an aviation lawyer, in 1991 acquired the then 18-store Quiznos sandwich chain.
He’s got big plans, hoping to revive pro cycling in the U.S. and build an Anschutz Entertainment Group-modeled sports-entertainment empire from the race that has taken Colorado by storm.
“I want this to be the U.S. Open of cycling. I want it to be the country’s global sports platform for cycling. It’s getting there,” he said. “This is not based on some huge payoff. It’s not like we are going to sell it, like an NBA team. The U.S. Open is worth a lot of money and tennis isn’t that big of a sport, but people watch the U.S. Open on TV that weekend. I think this can become that. It’s just a long-term play.”
Schaden intentionally left Colorado out of the race name — much to the chagrin of tourism boosters — because generating national interest is part of the long vision.
“To make it really work, you want it to be seen as the U.S.’s top race,” he said. “Because that’s how you are going to draw French riders and European riders and the guys from Central America and South America.”
Hamburgers and pizza are slow-pitch lobs for savvy entrepreneurs like Schaden, who with longtime business partner Tom Ryan, in seven years has cultivated a single gourmet burger joint in Glendale into the Smashburger chain, expected to hit 300 stores by the end of the year. The duo’s just-launched Live Basil pizzerias are following the same tack, offering upscale, wood-fired pies at a growing number of locations.
Cycling is a whole other beast.
Massively popular in Europe, the sport has yet to stir anything close to the emotion of football, baseball or basketball in the U.S.
Stage tours have failed in Georgia and Missouri. The much smaller 10-year-old Tour of Utah is supported by car dealer Larry H. Miller.
The Tour of California turns 9 this year, with title sponsor Amgen helping the eight-day event become one of the top stage races in the world. The owner, Denver billionaire Philip Anschutz, uses the race as a pillar in his sweeping AEG sports entertainment empire.
The Pro Challenge doesn’t have that big title sponsor or vast conglomerate behind it, but it does have patient, wealthy investors.
Even without a title sponsor — Schaden says that’s intentional — the race is on track to turn a profit in year five.
He notes the U.S. Opens of golf and tennis, the Kentucky Derby and the Masters don’t have title sponsors, and says there are dangers that come with relying on a single entity.
Not only does the race hang on the whims of a single company, the race becomes part of that sponsor’s brand, so when it becomes time to change title sponsors, new companies face the daunting task of re-branding.
A title sponsor also dilutes the value of the investment — typically in the mid six figures, race chief Shawn Hunter says — of midlevel sponsors. The Pro Challenge has 14, each in their own space. There’s a beer (Sierra Nevada), a bank (FirstBank), a soda (Coca-Cola), a restaurant chain (Smashburger), a carmaker (Nissan), a newspaper (The Denver Post), an insurance company (United Healthcare) and others.
Those midlevel sponsor investments will help the race reach break-even without a title sponsor, said Hunter, who joined the race from AEG in 2011.
But the title sponsor is where the profits begin.
Finding the right company — with a long-term vision and that fits the culture of Colorado — is not easy, Hunter concedes.
“It takes a deep commitment and it takes patience and certain vision and that’s what the Schadens have. That’s what Phil Anschutz has for the Tour of California,” he said. “The reason why there aren’t any more races like this is because, one, it’s not really meant for public-sector funding, and two, most people don’t have the combination of vision and patience to stick with it.”
The other way to make money in stage racing is through television. But first you pay to get the TV time. Hunter is negotiating now with NBC to increase last year’s 23 hours of live coverage.
But television also takes time and patience. For Schaden to see cash rolling in, it’s going to take the right title sponsor.
Michael Aisner, who ran the legendary California-to-Colorado Coors Classic from 1980 to 1988, knows how that heavy-hitting sponsor can carry your race.
Back then, he spent about $1.5 million a year to run the race, which never turned a profit but never lost money. Coors, which covered more than half the cost of the race, was the race’s “greatest asset and the greatest liability,” he said.
Losing Coors was a fatal blow to the race.
Stage racing is a complex challenge, Aisner said. Keeping secondary sponsors happy when a title sponsor arrives, paying steep fees to keep TV cameras rolling and top-tier athletes on board while sustaining a high fan base is a tightrope act that no one has perfected in the U.S., he said.
“Cycling is the world’s greatest sponsorship platform if used correctly, and I am firmly behind (Schaden) in his push to make this the biggest bike race in the world, but wow, what a huge challenge,” Aisner said. “There is a perfect model for a profitable stage race, but we haven’t seen it yet.”
Aisner said the ultimate title sponsorship deal would include a minimum five-year contract that would prevent premature termination. If the deal was for, say, $5 million, he said the sponsor would have to commit more than that in other “activation” investments, like side promotions, TV and other leveraging strategies that connect the sponsor with the race. That’s a big request, he said.
Schaden is fully aware of the challenges. He knows he needs to keep quality high to entice fans. Fans — especially those in costumes who sprint alongside gassed cyclists — energize racers, who in turn ramp up the competitiveness. Television loves a competitive race and then television revenues can eclipse expenses.
It’s a tenuous balancing act that takes time and money. Schaden said he’s down with spending both.
“I think this is going to be a worldwide growing sport, and I think planting your flag in the ground and sticking to it, I think 20 years from now you are really going to be glad you did,” he said. “In our business, we are used to long hauls.”
