NB: The UCI ProTour Reserve Fund and the UCI  ProTour operating statement detailed in the notes to the UCI Financial Statements relate to two entirely separate things and should not be confused one with the other. The UCI ProTour operating statement details the total income and expenditure relating to the ProTour (now WorldTour), not the ProTour Reserve Fund. 

The amounts disbursed from the ProTour Reserve Fund to GCP being the topic du jour, chaque qour, some comment on them is necessary. Between 2009 and 2011 a total of €758,000 has been disbursed to GCP. Nowhere in UCI’s Financial Statements is this described as a loan. There is no provision within the relevant regulations requiring that funds disubursed from the ProTour Reserve Fund be repaid to the ProTour Reserve Fund.

Why and how the ProTour Reserve Fund can legitimately be used to fund GCP is best explained by reference to the UCI Cycling Regulations, Part 2 Road Races, Chapter XV UCI WorldTour, clauses 2.15.243 through 2.15.253 (pages 129-130). To save you the time and effort of seeking this out for yourself, the relevant sections are set out below (as taken from version 01.07.11 of the Regulations):

This special feature has been brought to you with the assistance of a lot of Nurofen.

Daft analogy time. (Even I hate this analogy, but I’ll use it anway.) We began this examination of the UCI’s financial statements by saying that the UCI had taken a long, hard look at itself in the mirror and found the reflection to be far from flattering. The UCI was fat and flabby and in serious need of some body sculpting. The UCI also needed to consider its cholesterol levels.

Imagine if you can – and please, just run with me on this one, it’s a dumb analogy, I know, but it works – the UCI’s prime artery and all the cholesterol clinging to its walls. Let’s pretend you can measure the width of an artery in Swiss francs (look, I’ve already admitted this is dumb, get over it and run with the idea). At the end of 2007 the UCI’s artery was 12.8 million Swiss francs wide (in the real world, that was the value of the UCI’s accumulated reserves at the end of 2007).

Over the course of 2008, with more cholesterol clinging to the walls of the UCI’s blood vessels, the artery only measured 8.7 million Swiss francs in width (in the real world, that was the value of the UCI’s accumulated reserves at the end of 2008). If the UCI had continued adding cholesterol at its 2008 rate the artery would have been fully blocked in two years. The UCI was a basket case. The doctors ordered the patient to change its diet or die.

The UCI’s changed diet meant that less cholesterol was added to its artery walls in 2009. But the artery still shrank some more. At the end of 2009, it was only 7.6 million Swiss francs wide (again, in the real world, that was the value of the UCI’s accumulated reserves at the end of 2009). If the UCI continued to add cholesterol at the 2009 rate, the artery would be fully blocked in six years. An improvement over the previous year, but still leaving the UCI as a bit of a basket case.

In 2010, the UCI seems to have finally put some control on its diet. No new cholestrol was added to its artery walls. In fact, a small amount of cholesterol was scraped away, the artery measuring 7.8 million Swiss francs in width at the end of 2010 (yes, you’ve got it by now, that was the value of the UCI’s accumulated reserves at the end of 2010).

Does this mean that the UCI has a clean bill of health? Hardly. We’ve already seen how the effects of fluctuating currencies can catch the UCI unawares. So even though the UCI made a small surplus last year, the patient still needs to be monitored. All that’s happened is that its condition appears to have stabilised. It would be very easy to slip back into bad habits. Like being caught unawares by fluctuating exchange rates. Or the cost of taking major anti-doping cases to the CAS.

The general trend, then, has been favourable over the last two years. The rest of 2011 could still be quite ropey, though. For starters, there’s the cost of the interminable case of Alberto Contador, which is exacerbated somewhat by WADA taking their appeal independent of the UCI’s appeal. Thankfully, though, the rest of the peloton has been sufficiently careful to protect the UCI from unexcepted financial outlays this year. Though clearly not as careful as they should be, not if Pat McQuaid’s recent warning to the peloton about the dangers of micro-dosing is anything to go by.

* * * * *

Dumb and all as the cholesterol analogy is, it beats talking about burn rates and the like and it does capture how close the UCI is to running out of money. But really, can you seriously imagine the UCI running out of reserves? Here you have to recall that the UCI is not really a business. It’s actually little more than a club. A bloody big club yes, but still a club.

What happens when clubs run out of money? They organise a raffle and all the members buy tickets and pester their friends and family into buying tickets. How many tickets do you think Igor Makarov and his oil-rich Russian friends would buy were the prize the presidency of the UCI? Or would maybe Hein Verbruggen’s SportAccord be willing to pop for a couple of books of tickets were the prize the CADF? And how many tickets do you think ASO or Lagardère Unlimited would be willing to purchase were the prize the UCI’s new race promotion arm, Global Cycling Promotions?

Some of you are no doubt shaking your head and thinking I’m just talking up some bogeymen here. There may even be some truth to that. Accountants are, after all, just story-tellers and maybe some of the story I’m telling here is just a scare before bedtime.

But the UCI has already organised a number of raffles in recent memory. In one of them the prize was a slot in the Olympic track cycling programme. The Japanese keirin promoters were the lucky winners of that. And, if some are to be believed, another prize was the magicking away of a non-negative doping control at the Tour de Suisse some years back. The truth is, I don’t need to try very hard to scare you: reality is frightening enough as it is.

The answer then to my question as to whether there was ever a real danger of the UCI running out of reserves is that, while there is always a theoretical danger, it’s actually a very unlikely scenario. The real danger is in what would have to be raffled were the UCI caught unawares by a financial catastrophe and need to raise funds in a hurry.

* * * * *

Though the UCI is just a glorified club, it would like to think of itself as a major player on the global sporting stage. Look at how Pat McQuaid set his sights on making the UCI the recognised Olympic body for skateboarders. Whatever it takes to extend the UCI’s powerbase, McQuaid will do it. But just how major is the UCI really? We’ve already looked at different aspects of its income statement and will be coming back to other items buried within that as this series progresses. Let’s now look at the UCI’s balance sheet and see what story it tells us.

I have slightly altered the layout of the balance sheet, as compared with the version shown in the UCI’s accounts. If you’ve looked at the UCI’s accounts, my reason for doing this will be obvious to you. If you haven’t, don’t sweat it.

Of the numbers themselves, what is there to say? Detailed and all as the picture appears to be to be, there’s actually very little in it. The UCI’s is actually quite a simple balance sheet.

Some of you may be looking at the 5.2 million Swiss francs in the bank and the other 5.5 million held in securities. Scroll down a few lines though and consider the 12.1 million figure for income in advance. As we established earlier in this series, the UCI can receive money one, two, or more years in advance, from sponsors, race organisers or teams.

Most of the assets need to be considered in association with their matched liabilities. While a total assets figure of 37.1 million Swiss francs looks wonderful if considered in isolation, once you consider the matched liabilities of 29.4 million it’s not nearly as impressive as it at first seems.

Large amounts of the UCI’s balance sheet don’t actually belong to the UCI. Take the Assigned Assets of 8.8 million Swiss francs. Scroll down a few lines and you will see the liabilities matching these. While the assets sit on the UCI’s books, technically they don’t belong to the UCI. The money is, so to speak, ony resting in the UCI’s accounts. The guarantees figure, for instance, is the money lodged by teams to pay salaries in case they go bust. That’s a necessary precautionary measure, as riders from teams like Mercury, Team Coast or the Linda McCartney Pro Cycling Team will tell you. But that’s all it is: a precautionary measure.

One of those allocated funds though is worth considering in more detail: the ProTour reserve. When it comes to this, there’s some major obfuscation going on in the UCI’s accounts, with this being the only section denominated in Euros. You’d almost think there was something being hidden here. Like the €445,000 of Global Cycling Promotion’s costs picked up – via the ProTour reserve – by the UCI in 2010 and the €177,000 picked up in 2009. Or the €30,000 subvention given to the GP Ouest France-Plouay to ease the cost of being on the World Tour calendar (increased prize fund, inceased CADF contribution, increased calander fee and increased licence fee – what the right hand giveth, the left hand taketh).

The most interesting number is the one we’ve already looked at using the rather silly blocked-artery analogy: the UCI’s total reserves (or, looked at from the other side of the balance sheet, it’s total net assets). For a global sporting behemoth, 7.8 million Swiss francs is not a very big bottom line. At the year-end exchange rate, that was only €6.2 million ($8.3 million). You could win more on the Lottery most weeks. And certain members of the UCI’s management and other committees are worth more than the UCI is.

The question though needs to be asked as to whether the UCI should have a large accumulated reserve. Should we be demanding a bottom line of massive proprtions or should we just be happy with what’s on offer? The answer to that is another question: what is the UCI there to do and how much money does it really need to do it?

This is a question I have no intention of attempting to answer, claiming it’s beyond the scope of the revenue-sharing issues I want to look at in the rest of this series. But, as we progress, and you see the large amounts of cash the UCI is taking from teams and race organisers, it’s a question you might want to ask others to answer. Or even try and formulate an answer of your own to.

Next: Revenue sharing as it exists today.

Previous: Where do you hide a tree?

The UCI, being cycling’s governing body, have a role to play in the revenue-sharing debate. It is not simply a question of revenue sharing between the race organisers and the teams. The next few parts of this series will consider the role the UCI currently plays.

Let’s begin by looking at the financial health and well-being of the UCI. With the 2010 accounts having recently been slipped into the public domain, let’s start there. Below is the summarised version of the UCI income and expenditure statement, with comparative figures for the two preceding financial years.

A note on currencies: The UCI is Swiss-based. Their accounts are denominated in Swiss francs (CHF). An obscure currency. Unless you happen to live inSwitzerland. Or make use of its banking services. For the most part, I’m not going to convert the figures into meaningful values. The reason will be made clear in due course. Most of you are probably already well aware of it, Bloomberg having been prompted to highlight the problem some months back.

The revenue line we’ll come back to later. All I’ll say is that it’s not all it seems to be. Let’s skip over the direct costs too, for the moment. There are stories to be told among them, but another day. Of the indirect costs, the figure of immediate interest is the UCI’s wage cost.

Over the last few years, the UCI has begun to get its act together, financially speaking. It took a long, hard look at itself in the mirror. The reflection was not pretty. The UCI was fat and flabby. So a little bit of body sculpting has been going on recently. A lot of the change has been shuffling the deck, moving things around and putting a different shape on the organisation. Some serious savings, though, have been pay in the area of payroll:

Knocking 2.6 million Swiss francs off the payroll costs is no mean feat.  How, you must wonder, was it done? Let’s look at a headcount:

While the bonfire of the blazers looks interesting (the number of commissaires falling from 610 in 2008 to 541 in 2010) don’t let that distract you. The first question you really have to ask is what (who) is actually included in the salaries figure quoted earlier. The CMC staff are not. Nor are the CADF staff. (Despite hiving both of these activities off to special-purpose vehicles, for some reason their staff numbers are disclosed in the accounts, as if the UCI felt they had some moral obligation toward them.) Are the commissaires, etc. salaried? Highly unlikely. And not if the HR section of the UCI’s annual report is to be credited. Are the management committee salaried or just on expenses? Good question.

If, as seems most likely, the number of people included in the salaries figure is just the UCI staff of 63, this suggests an average salary of just over 100,000 Swiss francs per head. That’s an average: some people get paid less than the average, that’s the way averages work. And some people get paid more. How many get paid more would tell you how much more they get paid. Sadly, the UCI’s accounts lack opacity on this issue.

But the real question here is how the saving in salaries was achieved when you look at what happened to the head count. Twelve staff were lost between 2008 and 2009 but none between 2009 and 2010, and yet still there’s a saving of 2.6 million Swiss francs in 2010. Some of that could be attributable to the 2009 change in head count, as there appears to have been (as the UCI accounts euphemistically refer to it) a non-recurring charge of 977,375 Swiss francs relating to reorganisation in 2009. Call that redundancy (which is what it’s usually the euphemism for) and not only is the 977,375 CHF non-recurring, so too is the salary base to which it was attached. Which for that sort of payoff must have been pretty impressive. That, then, could explain a large chunk of the 2.6 million Swiss francs saved. But not all.

But here’s where things get strange. In 2009, the UCI had a total of 13 resignations/redundancies. They appointed an additional 11 staff. That’s a net reduction of just 2 staff members. Go back to the head-count table given earlier, where UCI staff of 75 in 2008 became 63 in 2009. That leaves the disappearance of 10 staffers to be explained. A total of 14 members of staff were transferred to the CMC, the CADF and Global Cycling Promotions (GCP). Ten of them ended up in the CMC and the CADF. Suggesting four went to GCP.

But here’s a curiosity: do the math – 73 staff in 2008, minus 13 leavers in 2009, plus 11 starters, minus 14 transfers, that would leave you with a staff of 57 in 2009. The reported figure was 63. Where did the other six come from?

Let’s park that problem. What else could contribute to such a large salary saving? Here we should consider the geographical location of the UCI’s staff: Switzerland(62%), the rest of Europe (29%), and outside Europe (9%). These figures are unchanged from 2009. The reason this is important? Fluctuations in exchange rates.

With the Swiss franc strengthening against other currencies, particularly the euro and dollar, the cost of paying staff based outside of Switzerland is falling when converted into Swiss francs. Simple example for you. You have a staff member who’s being paid in euros. Let’s give this hypothetical staffer a salary of €100,000. To make life easy (for me – not the hypothetical staffer), that’s paid in one single instalment, at the end of the year. At the end of 2009, that would have translated into 148,000 Swiss francs. At the end of 2010 it would have been only 125,000 Swiss francs.

There’s insufficient information available to put a figure on the amount the UCI actually saved in this fashion. While we’re told that 38% of UCI staff are outside of Switzerland, we don’t know what proportion of salaries are not paid in Swiss francs. First of all we shouldn’t assume that all staff are paid equally. Nor should we assume that all staff who work in Switzerland are paid in Swiss francs. Some senior members of staff might prefer (or demand) that they get paid some, if not all, of their salary in another currency. While we can’t put a figure on the amount the UCI actually saved because of the strengthening Swiss franc, it is fair to say that having 38% of your salaries paid in currencies that are depreciating against the Swiss franc would produce a nice saving.

Currency fluctuations, though, are a double-edged sword. Most of the of the UCI’s salary costs are in Swiss francs. Most of the UCI’s income is in euros. As the Swiss franc strengthens, the UCI’s income declines.

Again, a simple example for you. A four-year ProTeam licence costs €100,000. This can be paid in four annual instalments. At the start of 2010, €25,000 would have bought you 37,000 Swiss francs. At the start of 2011 it would only buy you 31,000 Swiss francs. If you were one of the UCI’s Swiss-based minions, would you accept at 16% cut in your salary just because French and German bankers are too scared of being stung by the economic crises besetting countries like Greece and Ireland to get their act together? No, you wouldn’t. So the UCI has a problem.

* * * * *

So much for salaries, then. I apologise for spending so much time on them, but since they do make up most of the change between 2009 and 2010, they are worth looking at in some detail. And there does seem to be a degree of smoke and mirrors going on here.

Let’s go back to the income and expenditure statement. Jump down to the bottom line. Actually, the line just before the bottom line: the transfer from the General Reserve. In 2008, in order to massage a deficit of 4 million Swiss francs into a tiny surplus, 4 million Swiss francs were released from the General Reserve. In 2009, the figure was 1.3 million Swiss francs. There was no need to use the General Reserve to massage the numbers in 2010, hence nothing was released from it.

Is this legal? Yes. Is it moral? Dumb question – this is accountancy.

So let’s ask a more sensible question. Excluding the reserve adjustment (which is really just an accounting sleight of hand to hide the UCI’s blushes) between 2009 and 2010 the UCI’s bottom line improved by 1.3 million Swiss francs (from a deficit of 1.2 million to a surplus of 0.1 million Swiss francs). Let’s bring back in the payroll saving: 2.6 million Swiss francs. Somewhere along the line, half of that saving was lost before getting to the bottom line. Where’d it go?

That’s one of those good news/bad news stories. The good news is that it actually got boosted by 0.8 million in savings before getting to the bottom line, bringing the actual savings made in 2010 up to 3.4 million Swiss francs. The bad news is that 0.4 million was lost to poor performing investments and a further 1.7 million was wiped out by currency fluctuations. How you lose such a large amount on fluctuating currencies I’ll leave it to you to work out for yourself.

Some of this problem of fluctuating currencies can be managed – by hedging. Hedging itself, though, is not cheap and knowing how to do it right requires intelligence and experience. Two words the sceptical among you rarely associate with the UCI. Best to hope, then, that you are wrong. It’s also important to remember that hedging has been an option the UCI could have – and may have – opted for in 2009 or 2010.

The other way to mitigate the problem is to whack up licence costs and other fees levied on teams and race organisers. And that is where all of this is relevant to the revenue-sharing debate: the teams are not the only ones looking for a larger slice of the cake. The UCI can do a good impression of Oliver Twist, too. Only it’s harder to tell the UCI to piss off.

Next: Where do you hide a tree?

Previously: What’s in it for the Amaurys?

Question: How much sponsorship income did the UCI have in 2010? Hands up those of you who said none? Oh dear. So many.

Let’s clarify something for those who think that the UCI had no sponsorship income in 2010: according to the UCI’s recently-released accounts, there was zero income from UCI sponsors last year (compared with 5,482 Swiss francs in 2009 and 163,861 Swiss francs in 2008). That is not the same as saying that there was no sponsorship income.

How? Simple. It’s a language game. The UCI accounts refer to UCI sponsors. If you read the full accounts, you’ll find that the UCI have sponsorship agreements with Patrick/Safety Jogger, Santini, Shimano, Skoda, Swatch and Tissot. These cover the World Championships, World Cups and other UCI-organised events. So where’s the money from these sponsors buried, then? In the competitions to which it relates. The UCI itself has no sponsors. But UCI events continue to be sponsored. And, by associating sponsors with events rather than the UCI, the income from those sponsors can be buried far from prying eyes. Like a tree you need to hide, the UCI’s sponsorship income is buried in a forest. A forest of numbers.

* * * * *

Question: what was the UCI’s income in 2010? Was it: A) 25.6 million Swiss francs; B) 33.4 million Swiss francs; or C) 39.9 million Swiss francs?

Hands up those of you feeling smug with yourselves at having plumped for 25.6 million Swiss francs? Well wipe that smile off your face because it was a trick question. The correct answer is all three. Welcome to the surreal world of accountancy.

Accountancy, for those of you who don’t get it, is an art, not a science. Most people think it’s just bean counting: one bean plus two beans equals three beans and so on until you know exactly how many beans it takes to make an espresso. Most people are wrong. Accountancy is all about story-telling. Sometimes it’s about telling heroic tales of derring-do, inflated revenue lines, and massive profits. Other times it’s about crafting a misery memoir, hardly any revenue, and most of it wiped out by costs. In order to know which story you’re going to tell, you have to know your audience. Investors? They usually want tales of derring-do. The taxman? Better give him a misery memoir.

The audience for the UCI accounts is a bunch of greedy bastards who, if they see massively-inflated revenue lines, will want a bigger slice of the cake for themselves.

Let’s take a look at those UCI income numbers and the different stories that could be told. First, the top-line revenue as reported in the recently-released UCI accounts:

To this figure we could – had the UCI not hived them off to a special purpose vehicle (SPV) – add in the amounts levied upon riders, teams, and race organisers to cover the cost of anti-doping:

Having done that, we could also add in the income from the World Cycling Centre (CMC), had the UCI not also hived its activities off to another SPV:

Three different income numbers. Three very different income numbers. And all of them not incorrect.

* * * * *

Why is any of this important? Simple: because people see a headline figure and get all excited about it. Only they haven’t got a clue what they’re really getting excited about. Some of this is the fault of the accountants. They are, as we’ve established, telling a story. The art of misdirection is part of the storyteller’s armoury. Why shouldn’t accountants use it? The UCI’s storytellers are simply trying to play down the amount of money that flows through the UCI’s accounts each year. (There are other, much darker, forces which may be at play in the hiving off of some of the UCI’s activities to special-purpose vehicles, some of which you’re already aware of. For the moment, we’ll ignore them. Important as they are, they’re not part of this story.)

It should also be noted, however, that some of the people who pull a number out of an income statement and get all excited about it are also at fault here. Consider the response recently by some to the fact that the UCI had income of 12 million Swiss francs in 2010 from the World Championships. All they were short of doing was shouting “Cwoar! Look at the francs on that!”

Let’s throw a bucket of cold water over this figure:

The World Championships come with costs attached. Considering the revenue figure without reference to those costs is plain dumb. Okay, you say, but in this case the expenses are not very large and we’ve only gone from 12 million Swiss francs to 10.5 million Swiss francs, what’s 1.5 million Swiss francs between friends? (About €1.2 million at the year-end exchange rate! – Ed)

But what is actually being referred to here? The World Championships, what are they? For a lot of cycling fans, they are just the road championships. But there’s a lot more to them than that.

For those to whom the World Champions are only about the road events then, we’ve gone from 12 million Swiss francs income to 10.5 million Swiss francs net income and now down to just 8.6 million Swiss francs income coming from the road events, without knowing what the matching cost of those road events was. The cake slice gets smaller each time we try to measure it accurately.

But why single out the World Championships? Why did those who trumpeted loudly the 12 million Swiss francs figure not also consider the 2.1 million Swiss francs revenue from other events? Possibly for this reason: those events lose money.

Here, for me, is the important point: people who single out an inappropriate revenue figure without both considering the direct costs associated with it and the other events it subsidises are making a very weak argument.

Which is a fair way of summing up the whole revenue-sharing debate that the AIGCP attempted to ignite over the summer at the Tour de France. It has been, so far, a very weak argument. A headline figure – $200 million – was waved about and a share of it was demanded. No consideration was given to the accurancy of this figure. No consideration was given to the costs associated with this figure. No consideration was given to other events, all that mattered was the Tour. And no real consideration was given to the fact that the teams are already in receipt of a negotiated share of the Tour’s revenue.

All of these points we will be returning to later in this series. But, before we do that, we’ll complete our look at the UCI’s most recent financial report.

Next: Measuring the UCI’s cholesterol levels.

Previously: The UCI’s role in the revenue-sharing debate