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How Oracle’s Larry Ellison Rerigged America’s Cup for Success, May 15th, 2012

By Tripp Mickle, Staff Writer
Published May 14, 2012, Page 3

After winning the America’s Cup in 2010, software billionaire Larry Ellison decided to bring the competition to his home city of San Francisco and, in the process, reshape professional sailing.

It was a right he won after his Oracle Racing team bested the previous America’s Cup winner, Swiss billionaire Ernesto Bertarelli’s Alinghi team, in waters off the coast of Spain. But rather than establish rules that assured he’d win again, Ellison and his Oracle Racing skipper, Russell Coutts, spent the last three years evaluating criticisms of professional sailing and altering the America’s Cup rules in an effort to create a less expensive and more commercially viable property.

They created a uniform boat that competitors can race at high speeds on compact courses close to the shore, and they developed a series of lead-in races that would appeal to sponsors and broadcasters by giving them more events to promote and program. Just how successful those initiatives are won’t be clear until late September 2013 when the 34th America’s Cup concludes in San Francisco, but organizers’ hopes are high.

“Our belief is that if we can pull this off, not only will we achieve more sponsorship revenues, we’ll have achieved an increase in television rights and television popularity,” said America’s Cup interim CEO Stephen Barclay. “If you add those two things together, we will stand a very good chance of putting the teams on sound economic footing, and once that happens the rest flows. You can have a commissioner, franchises if you want. The opportunity opens up.”

Though the America’s Cup is less familiar to Americans than other major global sports properties like Formula One and the UEFA Champions League, it is considered alongside FIFA’s World Cup and the Olympics to be one of the world’s largest sporting events. But the last America’s Cup was a bad experience for competitors and sponsors alike.

Oracle spent two years battling Alinghi in court over rules that Ellison alleged were unfair. Costs to compete in the event soared and competitors from Italy, New Zealand and South Africa dropped their teams. Sponsors pulled out of the event, including Allianz, Banco Santander, UBS AG and Nestlé.

The result was a damaged property that needed reform.

In 2010, Ellison started that process by creating an organization to manage the event. Unlike soccer’s World Cup, which is organized by FIFA, and the Olympics, which are organized by the International Olympic Committee, America’s Cup doesn’t have an organizing body. Each winner typically sets up its own event organizer to review and select potential host cities, sell broadcast rights and negotiate sponsorships.

Ellison’s Oracle Racing created the America’s Cup Event Authority to sell and promote the event, and America’s Cup Race Management to oversee the competition. The organizations are independent, and the hope is that the winner of the 34th America’s Cup hires them to run the next competition, which Barclay said would give the sailing championship the type of organizational stability it lacked.

The first thing the America’s Cup Event Authority tried to address was the sport’s long-standing struggles on TV. America’s Cup historically was a problem for broadcasters because weather and wind dictated when races were held. As a result, broadcasters blocked off time and then often found themselves dealing with lengthy delays as competitors waited for the perfect conditions.

“For broadcasters, they might say, ‘Why would we want this?’” Coutts said. “More of the same wasn’t going to work.”

Ellison’s Oracle Racing team went to work developing a new boat that could address those issues. The resulting AC72 catamaran that will be raced in the 2013 America’s Cup has a winged sail that makes it possible to sail the boat in a variety of weather conditions. The boat is capable of hitting speeds of 50 mph and is more maneuverable, which creates more fast-paced action with more passes during races.

The boats also allow the racing to be held just off the shoreline and in view of spectators — a significant change from past races that were held nearly 20 miles from shore and visible only to a select few who could afford hospitality on yachts set up for spectating.

America’s Cup organizers spent the better part of the last year finalizing their plan to host the race in San Francisco.

Initially, they were going to spend $55 million to repair two of the city’s piers — Piers 30 and 32 — and use those for operations and spectators. They would own the piers and be able to lease them after the race. But the estimated repair costs swelled to more than $100 million last year, and organizers negotiated a different agreement that will see the city pay $8.5 million in improvements to the piers and continue to own them.

The change earlier this year led the America’s Cup Event Authority to lay off a quarter of its staff, 28 employees. Many of those people were tied to the abandoned plan to redevelop and then lease the piers, Barclay said.

“The number of spectators, spectator boats, the race course is all the same, but the $100 million spend on pier refurbishment evaporated, so we took the opportunity to let go people focused on that and bring on people focused on other things,” said Barclay, who added that the staff of 90 employees will swell to 200 in 2013.

The deal with the city wasn’t finalized until last month, and there was some concern in the market that the event might be postponed or relocated. Now that the deal is official, Barclay said the organization is in position to spend the next year selling sponsorships.

America’s Cup already has sponsorship deals with Louis Vuitton, Puma, Garmin, PricewaterhouseCoopers, Starwood Hotels, and Moët and Chandon. It is looking for sponsors in categories such as financial services, beer, automotive, beverage and telecommunications.

It has hired 21 Marketing, which is led by Rob Prazmark; Premier Partnerships, which is led by Randy Bernstein; and BRC Group, which is led by Brad Rothenberg, to assist with sales.

In the past, sponsors complained that they didn’t receive enough exposure or assets from America’s Cup, which was an event held once every four years. So America’s Cup organizers spent the last year and a half trying to solve that by creating a series of lead-in races called the America’s Cup World Series.

Races have been held over the last year in Cascais, Portugal; Plymouth, England; San Diego; and Naples, Italy. It will hold additional races this year in Venice, Italy; Newport, R.I.; and San Francisco, and organizers are working to add a race to the 2012-13 calendar in New York.

America’s Cup organizers and its sales agencies are offering potential sponsors global packages that include the America’s Cup and all World Series races, or domestic packages that include America’s Cup and World Series races in the U.S.

Current sponsorship packages range in value from $3 million to $10 million and can be customized to include everything from television spots and on-screen graphics to hospitality and signage.

Beyond sponsorships, America’s Cup organizers are focused on infrastructure development in San Francisco. Current plans call for a temporary, 10,000-seat stadium and spectator village near the finish line of the race. There’s a plan to host 40 live concerts after races, and they expect 7 million to 15 million spectators to turn out for the events between July and September of 2013.

Barclay and Coutts hope many of them, and the viewers on TV, become fans of sailing. That, after all, was what the last year and half was all about.

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