AT HOME WITH JONATHAN VAUGHTERS: PART 1

November 27, 2014

Peloton Magazine

Since retiring from his successful racing career more than a decade ago, Jonathan Vaughters has been one of the most innovative (and successful) team managers in professional cycling. After starting out with a developmental team in 2003, he later instituted a strict anti-doping policy at Slipstream Sports with an internal blood-testing program that far exceeded the then requirements of the Union Cycliste Internationale.

Then, with New York-based financial management executive Doug Ellis, Vaughters incrementally grew the modest organization based in Boulder, Colorado, into Garmin-Sharp, one of the UCI WorldTour’s most successful teams—a team that will be known as Cannondale-Garmin in 2015 following a recent merger with the former Italian-based squad.

Vaughters, known for his controversial opinions, particularly on social media, has been somewhat muted since he ended his tenure as president of the AIGCP (International Association of Professional Cycling Teams) in March 2013 and completed a master’s in business administration at the University of Denver’s Daniels College of Business. I went to visit Vaughters on a recent autumnal morning in Denver’s leafy Congress Park neighborhood. An Audi sporting the Garmin logo sat outside the near-century-old Craftsman-style house where he lives with wife Ashley—a sommelier and wine consultant—and son Charlie.

Now 41, Vaughters is constantly looking for new challenges. After the MBA, his latest passion is learning to fly. And he loves talking—ever since speaking his first words at age six months! I rang the doorbell at the scheduled time of 10:30 a.m., but even before we began this interview he had to take a business phone call upstairs. I had time to sit down in an antique Morris chair, stroke a friendly cat and admire the Arts-and-Crafts-furnished living room with its variety of chiming timepieces, including an impressive grandfather clock. It was striking 11 by the time Vaughters reappeared and sank into a cushioned settee opposite the brick fireplace.

We chatted about the clocks, flying school and his historic house—which just happens to be on the same street as Len Pettyjohn’s when the former Coors Light cycling team owner and college professor lived in Denver in the mid-1980s. Vaughters, with his current full beard and tortoiseshell-framed glasses, has a similar professorial air about him and, like Pettyjohn, an intellectual viewpoint toward his chosen sport. To kick off this first part of our interview, I asked Vaughters to compare his team organization today with the one he began a decade ago.

What’s the difference between now and when you started the team?

Since we first started recruiting in 2007 for a bigger version of Slipstream Sports, the budgets have doubled. It doesn’t mean that it’s been completely, evenly distributed. But you’ve got teams like BMC and Sky, Katusha, Astana that are running just shy of 40 million U.S. dollars. I don’t even know whether that number has been reported but that is the reality. That did not exist in 2007. Even the biggest teams were functioning on half of that. So that’s a big, big difference.

Now you read about athletes being paid 4 or 5 million euros a year, and that wasn’t the case [seven years ago]. So what that’s done for a commercially oriented team like ours—meaning we don’t have a benefactor like BMC’s Andy Rihs or Tinkoff-Saxo’s Oleg Tinkov—we have to produce set results. Not race results, but publicity results—metrics for sponsors that are looking for a specific return on their investment. At this point in time in cycling, or in any other sport, you’re not going to sell a $40 million sponsorship. That market does not exist.

People will say, what about sponsors of certain European football teams, but as a whole, $40 million sponsorships are not sold, are not seen as of value to a company. Conversely, a $10 million sponsorship is–maybe even $15 million. And you can very much prove the metrics of that, that it’s going to be of value to the company that does that. What that does is, there’s been a bifurcation in the WorldTour, in that teams are having to prove a set return on investment and the sponsor is only going to support you to a point. Then you have to be competitive with a team that has a Tinkov or a Rihs that doesn’t have those commercial objectives. And that’s double the money coming in that you can get in the open marketplace. If you want to be competitive with those teams then it further erodes your value, making it less likely for your sponsor to stick around. It’s a tricky game of providing value to your sponsor, but then still being competitive.

That whole dynamic didn’t exist in 2007, so right now, for teams that are truly trying to make a sponsor happy or have a sponsor that’s doing it for commercial reasons, it’s a very, very hard game, where you have to be perfectly clairvoyant in strategy and execution, and so forth—because at the end of the day, with a $40 million budget, your margin for error is much larger. Those teams can hire seven or eight expensive athletes, and one of them is going to have a good season, whereas on our team we have the ability to hire only one or two expensive athletes. And as was evident early in this year, with Dan Martin on the ground, all of a sudden it’s like we’re scrambling for anything. Because I have to place my bet on saying “this is my guy,” and if he crashes, breaks his collarbone and is out for three months or whatever, it’s much harder to get things off the ground.

Over the years, you’ve merged with other teams, first Cervélo and now Cannondale. Is that because you needed to get more sponsorship dollars?

Yes. At the end of the day, what Cannondale realized and what we realized was that on our own we can’t come up with a budget that is competitive with the best in the world. Our 2008 budget, when Christian (Vande Velde) was fourth in the Tour, was maybe $11 million–so one-quarter of what a top team is now. With $11 million today I don’t think you even make it into the WorldTour. You can do the ProContinental thing, of course, and maybe get a wild card to get in the Tour de France, that’s a possibility, but unfortunately our sponsorship contracts require us to have guaranteed entry into the Tour de France and not just a wild card. So with Cannondale, if we bring our resources together, then it gets us a little bit closer to being competitive with the oligarch-driven teams.

On the downside, by merging teams, you’re losing staff, losing riders, who could be out on the street….

Yes, that’s a really unfortunate part of it. But the way I have to think of it is that if we hadn’t merged there was a huge risk of not getting a WorldTour license, unraveling the whole operation for lack of funds. And that is opposed to putting a certain number of people out of work on the Cannondale side and a certain number of people on the Slipstream side. We would be putting 100 people out of work on our side and 100 people on their side. So the question is: Do you want to put 200 people out of work, or 50 to 60 people out of work? It’s not an appetizing decision either way, but it’s just basically choosing the best of two evils.

The AG2R team recently said that it gained an almost 100 million euros publicity return for its 10 million euros [$13 million] investment. Is that accurate?

Yeah, that’s generally speaking. With our naming rights sponsorships we show a 10-to-1 return pretty consistently . Understand, it’s not a direct sales return, it’s ad-value equivalency, meaning if you’re gonna buy a full-page ad in the New York Times or whatever, this is what it costs. And if you would like to generate that same amount of name recognition or branding publicity through cycling, this is what it costs–and comparing those two. It’s basically showing that as opposed to buying book-rate ads in the New York Times or 30-second ad spots on NBC Sports (or whatever it is), that you’re getting a 10-times-more-effective rate by sponsoring a cycling team.

When you’ve got a situation like Astana has experienced, with two of its WorldTour guys [Maxim and Valentin Iglinskiy] testing positive for EPO, in a normal team that would spell the end of the team, right?

Yes, that’s a big difference, and a concerning difference with a sponsor that’s looking to have a certain image in public, and their shareholders want to be perceived in a certain way, and so forth [because] they have a basic responsibility to their brand and their shareholders…. That sounds a little over-business-y, but responsibility to your brand and shareholders is a big thing. You need to block off a very straight line to keep all of those business interests in place.

Take a team like ours. If we had two people doping, and whether it comes out or not, you know, it is the end of the organization because there really is no way around it. The sponsors contractually don’t have to stand by that. I don’t think they would. The way our organization is set up, we’ve always said this is the way we’re doing things, and we’ve stuck by that from the beginning. We’ve never had a positive test in the organization, in a decade, nor a hint of anyone doping inside the team–ever. And that’s what our sponsors have been promised. They haven’t been promised 50 race wins a year. They’ve been promised, this is the way we’re gonna do it. We might win some races, who knows? And if we don’t live up to our promise the organization is done.

Conversely, when I see a lot of these teams that have sponsors that may or not put importance on this, that may or may not have a certain brand image to defend or not defend, I think the potential for the athletes to think, “My team cares more about winning than my team cares about doping and anti-doping.” And even though I don’t suspect that Astana has an internal doping program that they’re giving these guys, but I do see an environment where, was it absolutely clear to the two Iglinskiy brothers, that first the expectation was play fair, second the expectation is, if we win races we win races, because I’m betting that in some of the organizations that don’t have responsibilities to shareholders, that that message is a little bit more muddled.

You have just earned an MBA, and that meant you haven’t been as closely connected with your team for the past year. So, looking at the sport from afar, what lessons have you learned?

When you go through an MBA program, the two things that are abundantly clear about cycling are that (1) it’s very different from the rest of other professional sports out there, and (2) it’s very, very different from the business world as a whole, in that it’s not an effective business model. Basically, professional cycling in general is this continual startup that keeps blundering along and getting funded by new angel investors along the way, but there’s actually no stability, no continuity.

What you’re after as an MBA in an entrepreneurial sense, if you’re building your own business, is you’re after getting past the start-up cycle, getting to a sustainable growth cycle, and then moving forward. In cycling, the way it’s currently set up, it basically is impossible to get to get to that point where it’s sustainable and stable. The second point is the way pro cycling teams are managed, and the way that they’re perceived they’re managed to the outside; it’s not good management practice, as it would be taught at an academic level.

Taking two steps back, I’ve tried to build the Slipstream organization [in a different way]—and most people in cycling would think this is absolutely crazy because they want to keep this nugget of information that always keeps them in a job, in a position of power. And so what I’ve done, because this is flat-out good business practice and one of the biggest things on the MBA program, is to develop an organization that functions perfectly well without me. At the end of the day, I’m developing the strategy and direction of the overall organization. I obviously have a lot of input into our staff selection, rider selection and so forth, but I’m not inserting myself into any one aspect of the organization—whether that’s sponsorship sales, e-commerce, race tactics, bus logistics—so that I’m not absolutely necessary to the equation.

And that’s what a CEO should do. That’s how you manage a good business. But I don’t see that occurring in cycling, simply because your general managers or your top guys—unless they’re like an Oleg Tinkov, whose an owner, and that’s a whole different thing—feel like they need to have a very precise control on a lot things, on rider signings or race tactics or whatever else. The reason they need to have that is, they want to build up this image that they’re the genius and their organization can’t work without this incredible genius at the fore. The biggest thing I learned in the MBA program is that you can’t build a good organization that way; there is no one singular genius or decision maker…. If you build an organization that has a great decision-making process, that has a number of intelligent people, then you’re gonna come out a lot better.