The Shack: A New Chapter in Sponsorship

Tour de France 2009 stg 14 Verbier 19-07-09The entry of Radio Shack into the world of professional cycling is an unusual and historic move for cycling sponsorship in America. They are hardly the first American company to sponsor a European-focused cycling team. But they are certainly the first to view the value of sponsorship strictly through its impact on an American audience.

Many of the companies that sponsor cycling teams are wholly unfamiliar to non-European audiences. Quick Step makes laminate flooring. Lampre makes pre-coated steels. Rabobank is a Dutch banking company whose cycling team gained recognition before the bank expanded into the United States. Caisse d’Epargne is a French bank. Liquigas makes gas-operated barbecues, space heaters, generators and more.

Each of these companies faces stiff competition in the market in Europe; anything they can do to raise awareness or improve the company’s image is considered helpful. Historically, many company owners have been rabid cycling fans who sponsored teams for reasons more emotional than rational. Mapei’s Giorgio Squinzi was famous for his devotion to the team that bore his company’s name.

People wonder why more American companies don’t sponsor cycling teams. In many instances, such advertising is hardly necessary. Coca-Cola is easily the best selling soft drink in Europe. Microsoft? What else do computers run on in Europe?

When the 7-Eleven cycling team went to Europe, the Southland Corporation, which owned the chain of convenience stores, had zero European interests. The marketing payoff for the team’s European campaign could only be realized with cyclists and at races back home.

When the U.S. Postal Service Cycling Team was announced, one of the team’s stated goals was to increase recognition and exposure for its international mail services. Certainly its greatest success came at home with American consumers, but the USPS team could at least claim to have international recognition among its goals.

Discovery Channel may be an American company, but with 1.5 billion subscribers watching more than 100 networks in 170 countries worldwide, its interests were anything but provincial. One of its largest challenges was making sure that its many networks, such as Animal Planet, were associated with the parent company.

Radio Shack, or “The Shack,” as they plan to be known going forward, is the first American company without significant international interests to sponsor a cycling team whose primary racing schedule and strategic goals are international in nature.

It’s an odd marriage. An American company is going abroad to market its business to Americans via an international collection of bike racers racing mostly in Europe.

Come again?

Radio Shack has some 4,400 retail locations. Roughly 200 of them—less than 5 percent—are located in Mexico; the rest are located in the United States, populating strip malls in markets of half a million or more residents.

Lance Armstrong and the cycling team aren’t going this alone; he and they are but one part of a large advertising effort. Radio Shack has devoted $200 million to the re-branding effort, and 10 percent of that—an estimated $20 million—will go to owners Capital Sports and Entertainment, giving it the biggest budget ever for a cycling team.

What sort of exposure will the Shack get for the investment? They can reasonably expect plenty of coverage in the cycling media, on Versus and Universal Sports; that’s not a lot of eyeballs. Further, coverage on the French network 23 means nothing.

The scenario would be laughable was it not for one simple factor: the Lance Factor. Everywhere he goes he makes news. He doesn’t even have to win the Tour de France to be the event’s biggest personality, biggest news generator. Hate him if you want, but, objectively, cycling has never had a personality who generated headlines in so many countries. You could multiply Eddy Merckx by Bernard Hinault and I don’t think we’d hit the media impact Armstrong has.

Bike companies, particularly those that have sponsored Armstrong’s teams, noticed a bump in sales with each of Armstrong’s successive Tour de France wins. The bump became known as “The Lance Effect.” Even companies like Cannondale (with no relationship to the athlete or team) would record a rise in sales as Armstrong’s success brought a rising tide for the bike industry.

But can Armstrong save a chain that is believed by most analysts to be on the skids? Radio Shack was once the clubhouse for electronics geeks; its survival depends on it developing a mainstream clientele to purchase its mainstreamed product line. Stories on the name change to the Shack have focused on how difficult recovery will be considering the competition it faces from chains like Best Buy and now Wal-Mart, which is growing its range of electronics offerings.

Somewhere, someone has a Venn diagram showing the crossover between electronics geeks and cyclists. I’m sure those two sets have a lot of crossover.

History has proven that cyclists will throw support to companies that sponsor cycling. That John Tesh found a market for his Tour de France soundtrack and the U.S. Postal Service sold out every product commemorating the cycling team is proof enough that skinny guys with hairless legs will shop at the Shack. The sort of recovery the Shack needs is greater than American cycling fans can provide, though. The gambit then (and this sponsorship smells like a hail-Mary pass) is whether Lance Armstrong can be the multiplier to channel America’s inner geek into a strip mall shack.

The success—or failure—of the Shack over the next five years is likely to determine how likely American corporations with largely American interests are to enter bicycle racing sponsorship. A Chapter 11 filing would kill any chance of sponsorship from a company without significant European interests. If the Shack succeeds with its turnaround—and if they succeed, they will be the turnaround of the decade—cycling will see some copycat dollars from companies that equate two wheels with success.

Image: John Pierce, Photosport International

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  1. Chris Lowe

    “People wonder why more American companies don’t sponsor cycling teams. In many instances, such advertising is hardly necessary. Coca-Cola is easily the best selling soft drink in Europe.”

    Nice theory save for the fact that Coca-Cola has been a MAJOR sponsor in cycling. For many years they were the second largest sponsor (behind Credit Lyonnais) of the Tour de France. Other major American companies remain in cycling. Nike is still a major sponsor of the Tour and while they may no longer sponsor a single team, CSC remain an official partner of the Tour.

    Why sponsor one team when you can sponsor the whole race? Not only does sponsoring the race guarantee you some degree of exposure (unlike a team where exposure usually only comes through winning) it also prevents your corporate image from being dragged through the dirt when some arrogant/stupid individual racer tests positive and drags the whole team – sponsors included – into the toilet.

    As for Radio Shack, worth keeping in mind they’re one of the largest retailers of mobile phones in the country. Bad thing is the mobile industry isn’t doing so well right now (just look at T-Mobile or Sprint). That and there is just something downright depressing about their stores!

    1. Author

      Chris: Coke’s sponsorship of the Tour de France lasted only a few years and was but one event in a very long season. When you do the math on what that sponsorship cost compared to what sponsorship of a team cost, their expenditure can hardly be called major. Team sponsorship has always been considered to have a much greater impact and has been much more expensive. Additionally, their sponsorship was nothing on the order of title sponsorship. Nike’s expenditure to serve as the jersey sponsor is tiny by comparison as well. CSC fits the classic advertising profile for team sponsors: a company wanting more exposure to a European audience; their ongoing sponsorship of the Tour still fits with that goal.

  2. DW

    I think the Shack understands that the US cycling market alone is not enough to warrant a $20m investment, so they’ve got Lance running and competing as a triathlete to attract more domestic attention to their brand.

    He’s going to be busy next year. And how will this impact his focus on cycling?


    1. Author

      DW: It will be interesting to watch Lance compete on several fronts. As long as the fitness requirements aren’t too disparate, it is reasonable to think that the demands to stay at a high level fitness will serve him well. However, an especially mountainous Tour could make a triathlon more difficult and vice versa, too much swimming could hurt his climbing.

  3. George

    A good friend of the family is a regional manager for Radio Shack. Just this past Saturday, we were on the porch drinking coffee and I made a joke about branding the chain “The Shack” and the conversation quickly came around to Lance.

    Our friend told us that every one of his stores has had people coming in and referencing Lance. The bump in traffic already there.

    Don’t forget that part of the Lance bump is cancer survivors and those who have been touched by cancer. That’s a lot of Americans; certainly it’s a better percentage of the population than the cyclists and the run/bike/swim crowd.

  4. Da Robot

    I thought globalization would bring more Asian and American businesses to the cycling table, and perhaps they are just coming slowly, but a sport that collects no admission charges, probably needs to do a better job of soliciting sponsorship.

    As always, the doping issue has an effect.

    The UCI will say they’re testing could be better with more money, and the money people will say they’d write bigger checks if it wasn’t for the dope.

    I am hoping that the Shack’s involvement signals some post-doping era in which big money sponsors come back to the fold to lift the sport.

    Thanks for addressing this topic, P.

  5. Larry T.

    “The Shack” is shacking up (sorry couldn’t resist) with LANCE ARMSTRONG. I don’t think they care much at all what the team does, where it does it or who else is on it. They’re banking on Armstrong getting ink and zillions of electrons spent on following whatever HE does, be it TdF, MTB racing, marathon running or his foundation. How long before the TV spots with Lance saying, “I do all my tweets with a Radioshack (insert product name here) and you should too. For each (insert product name) you buy at your local “Shack” 5 bucks will be donated to the LAF and you’ll get a free Team Shackstrong T-shirt” are all over broadcast and cable TV? And is China now cranking out zillions of cheap “Team Radioshack” cycling computers for the Lance fans to install on their bicycles? I wouldn’t bet against it!

  6. Charles Cushman

    “an estimated $20 million—will go to owners Capital Sports and Entertainment, giving it the biggest budget ever for a cycling team.”

    I find it amazing that a budget of $20 million is the biggest ever, what is that, on pitcher for the New York Yankees?

    As far as marketing, although I have used “The Shack” in the past, it always had a sleazy feel. It would be nice if they could fix that.

    1. Author

      Thanks for reality check Charles. It’s a shame, huh?

      Just think, for what A-Rod was paid, you could have started a whole racing league.

  7. bikesgonewild

    …highly ironic that “radio shack” comes on board as a team sponsor & shortly thereafter the ‘uci’ announces the gradual phasing out of race radios…

    …the move in that direction has been in the cards for a while but it’s funny (ha ha, not peculiar) that it came up now…

    …& the “shack” encompasses a lot more than just “radios” so i doubt their participation will be anything but a positive for them…

  8. Jim Freeman

    Yeah, “The Lance Effect” is real. His participation in this year’s TDF prompted me to get back into riding more seriously, resulting in a bike purchase despite being a “bum”, courtesy of the recession. One of my better heeled lawyer friends just bought a very flashy Madone. We’re both doing our part to help end the economic downturn, with Lance’s help. 😉

  9. wayde tardif

    Radio Shack has other stores outside the USA and Mexico – there are several here in the UAE for instance, so its no wonder that sponsorship on an international scale is of interest to the company . . .

    1. Author

      Jim: Congratulations on your return to the fold. Whether it was Lance or fond memories of Eddy Merckx that got you back on the bike, it’s good to have a cyclist back.

      Wayde: Radio Shack has stores in the UAE? Wow. They make zero mention of that in their media or investor literature.

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