Friday, 28 June 2013

Profit sharing in road races

As a races grow in popularity, so does the cost of entering. Chip timing, online processing fees between 4 to 11 dollars add to an already inflated ($40-350) race price. Although it costs money to host a race, one can guess that hosting a race if done efficiently can be a source of revenue.

Some of this money goes to road closures, to police, to race timing services, hosting expos, and pre and post-race entertainment. Some of this money also is allocated to prize money for the winners of the race. What correlation is there, if any, between the cost of races, the number of entrants, and the prize money given to the winners? I decided see exactly how much of this money goes to the the racers.

In theory every one toeing the start line is there to race their fastest. In practice only a few runners are there to do well while the rest run for the experience. In a previous post I defined those who train to finish and not race as "active spectators". If we consider the notion of a spectator as someone who pays to be in the presence of professionals then it's a worthwhile definition. Not least because sideline spectators do not pay to watch running races (not yet, anyway). What would a cycling fan be willing to pay to ride in the back of the Tour de France, or a hockey fan to skate on the ice before the game? Assuming running a road race is considered "entertainment", the cost of entering one is comparable to entering a concert or pro sport ticket.

One may say the experience of joggers is enriched by professional runners. There is perhaps some honour (or flattery) in being timed the same way as the best runners in the world. But all of this lies upon unfounded assumptions, and many will disagree with my line of reasoning. I can appreciate that, as most runners do not see the winners, who often finish hours before they do. Instead there is a growing tendency to cater more equally, such as presenting everyone with medals, tech t-shirts, "freebies", music on the course, and so on.

How to define a Sharing Ratio

To start we need some way in which to describe quantitatively how much money runners get versus money taken in by a given race. I define "sharing" as the following

Total purse is defined here as the total for men and women's prize money combined, but not including time bonuses. I exclude the latter because these are often separately insured. Guaranteed money is counted be it for masters, international, or Canadian-only, as long as all the cheques are made out in full every year.

Race finishers is clear enough, but why use finishers and not registrants? First because the total number of registrants is a harder number to pin down, whereas finishers are clearly listed in places like sportstats or atlanticchip. Second reason is that it provides some cancellation of error when estimating who did not pay an entry fee, opting instead to obtain their entry by raising money on behalf of a charity. For those who pledge money there is no money seen by the organizers. By deliberately lowballing the total number of race participants I can avoid a detailed attempt at subtracting charity runners.

Entry fee seems obvious to calculate, but traditionally there are several prices depending on when you sign up. For large races like Boston or NYC marathon there is only one price (well two: international and domestic), but smaller races attempt to get money sooner by offering "early bird" prices. I took the "middle" price, assuming there were 3 or more price platforms. In the case of NYC I pseudo-averaged the US and international fees to $283 (with a 2/3 bias towards American runners).  I also don't include the processing fees, as these are often given up entirely to a third party. Given that many races sell out months in advance, one may also argue this money can be compounded with interest. Money on this scale rarely sits around doing nothing. Though some money goes to paying full-time staff, I except any bills paid after race day are more strategically banked. It almost goes without saying that sponsors are a major source of funding as well.

Speaking of racing fees, I'm not so much interested in arguing the point whether fees are too high. Discussion for that can be found here, here, or here. I don't want to get bogged down too much with opinion (yet); instead I'm interested in what portion of these fees go to the winners' circle. So first let us see what fractions emerge. And without further delay here are the ratios for a handful of road races (mostly Canadian).

I admit the collection is far from complete. Many races are not on this list that rightfully could be argued should be present. I wanted a collection from coast to coast (Vancouver to St John's, plus some deliberate density of races for Ontario). Ratios range from zero (Bluenose in Halifax) to the generous Grande-Digue and Waterfront. Keep in mind in the case of Toronto there is also a half marathon and other races where there is no prize money but still have entry fees. This means hundreds of thousands more dollars for the organizers and thus lowering Toronto Waterfront's ratio.

There is, unsurprisingly, a correlation between prize purse and total racers. More runners means advertising big money, which sounds impressive even if you aren't the one winning it.

A side note not directly related to my argument shows that the correlation between race registration cost/entry fee and total races is much weaker; several orders of magnitude increase in participation leads to only a small, incremental rise (or sometimes decrease) in price. The cost of a race is in the neighbourhood of $25-100, with some of the bigger races having much larger fees. The New York marathon is one of the most expensive at $255 for US entrants and $350 for foreigners.
This near-constant cost of registration means doubling the race participation should lead to a significant bonus for the organizers, for costs such as road closures and police surveillance will unlikely double as well. The slight upturn for very large races is more a function of competition to register, thus showing some signs of a "rock concert" popularity effect.

Interestingly, and important for what I am arguing here, is there appears to be no correlation whatsoever between the size of a race and it generosity to the elite prize money share.

There exist both large and small generous large races (Toronto Marathon & Grande-Digue), as well as large and small stingy races (Bluenose & Vancouver Sun Run). The lack of correlation would appear to show that the fraction of prize money going to runners is rather arbitrary. In practice this non-trend can be readily observed. For example in decades past the Tely 10 gave out no money, then belatedly added a purse of $3000 that now remains constant. Some races increase their prizes via bonuses (i.e. T.O. Waterfront) or penalize for too-slow times (Ottawa). New races might make a splash by providing extravagant prizes. This leaves us with the question how important money is for attracting elites, and assuming it is important, how much to give them.

All things being equal (by which I mean cost of road closures, race organizing, security and insurance costs are proportional to races both big and small), and assuming there is some degree of profit in running a race, the profits whatever they are should be shared fairly divided. A reasonable share should go to the winner's circle if we agree that

a) road races are held ultimately as a competition (as opposed to a charity fundraiser or demonstration)
b) assuming a), competition is best when attracting the fastest available talent
c) runners participating in a non-competitive spirit act as a proxy for spectators (i.e. those who idly stand by and watch are in the minority, and pay nothing to see road races)
d) the cost of hosting elite athletes is more than offset by the ratings/advertising potential/prestige (pick one) of the event.

The largest point of contention is whether fast runners have anything to do with the popularity of a race. Though it certainly helps for pro teams, even here the correlation is often weak (the Toronto Maple leafs tend to perform "poorly" yet the average ticket price of $127 is one of the highest in any sport).

How does this profit sharing compare to pro sports?

Comparing the ratios of profits found in running, I decided to use a comparison with league sports. In particular I looked at the NBA, MLB, NFL and NHL. All that is required to generate the analogous ratios is information on average team salaries, attendance, and ticket price. For instance last year about 791,000 people went to an NHL home game of the Calgary Flames paying an average of $68.18 per ticket (mind you I don't count scalping prices as these do not go towards team/league profit). As the Flames team payroll is $62.7 million that means their ticket profit ratio is 1.16. In other words if ticket sales were the sole source of revenue the team would go bust in a season.

An entire separate post could be devote to these ratios, but let's look at the overall numbers. You can see in the plot below that almost all of the ratios are greater than one! This is rather extraordinary, for it means in-person attendance cannot account for pro sport salaries. The explanation is clear enough: pro sports profit from a variety of sources including merchandise, TV advertising, TV distribution rights, et cetera.

Most leagues can afford to pay these amounts to players because leagues profit as a whole by acting in ways that serve mutual interest. Some examples include setting salary caps in the NHL or NFL thus keeping all teams more competitive, or merchandising rights that must be collectively profit shared, pooling money in other ways such as advertising time, and official clothing sales.

The NFL is a favorite model of profit sharing; the league is worth over 8 billion dollars yet there isn't a foreign market to speak of. I only had time to skim over this discussion of the sharing, but the above ratios hint at football's success: for every dollar spent on in-person they can afford to give a player $2.50 of that dollar, which is higher than MLB or NBA, and slightly above the NHL (Aside: given the much smaller advertising and merchandising markets of hockey it is clear to me now why owners were unwilling to give players more money). It is not by accident that pro teams are paid well. Consider the growth of NHL salaries (in inflation-adjusted 2013 dollars) over the past 20 years, even with a supposed salary cap:

No matter the details, as a collective entity pro sports is powerful stuff both for the organizers and players. And not just for team sports. Pro golf and tennis are highly profitable games for both as well. The 250th-ranked tennis player still earns more than $71,000. There are, apparently over 100 golfers that earn 1 million annually. Individuals for their part require bargaining power to get a share of this money. Golf has the PGA while tennis has the ATP. By contrast runners, including those in track and field (i.e. not just road running), earn a pittance. To quote the article How Much Money do Track and Field Athletes Make?,
Athletes outside of a top 10 USA ranking, other than some sprinters, milers, and distance runners, can expect to face very limited (if any) income support.
Though still only a handful of people in the world make a good living on tennis and golf, the numbers appear more generous than for running.

Returning to comparing apples to apples (as best I can manage), even in the most generous and largest races donate well under 50% of their profits to the podium. To compare running with a concert, to quote one source, there is "the common concert industry practice of giving the artist 90% of the box-office gross and leaving the other 10% for the promoter". 90% of the box office sales also went to the Jackson estate for the filmed concert This Is It. Meanwhile elite road runners earn only a small fraction (about 10%) of incoming "ticket" sales. The already meagre earnings of a road racer cannot match the share of profit found in any team in any league, being 1/10th to 1/25th as low, on average. There is no skirting around the fact that the incoming money in road races is distributed in a very difference manner than tickets profits at a pro sport.

What about comparing running to its closest cousin, triathlons? I did the same calculations using ratios for purse money and entry fees. Ironman races are incredibly expensive to enter ($500-1000), and despite this thousands still enter and so the prize money is accordingly higher. However as a percentage of entry, the triathlete's profits are about the same as runners, at 9%. The ironman brand is a powerful one, but it is not clear that athletes get a much better share of that money. Consider this post outlining the prize money penalties athletes face if running too slow. On top of this, there is a mandatory pro athlete registration cost of $750. Triathlons therefore show a lopsided power share, as organizers call the shots without collective bargaining done on the player's side. Having a highly organized racing structure is likely necessary but not sufficient to permit a tangible monetary benefit to the racers.

 Where does one go from here?

First I want to tie up a couple loose ends. Here are some Unanswered Questions:

Is it fair not to count appearance fees and transportation provided by the race organizers? 
No. These things are also provided in pro sports. NHLers do not need to pay bus fare. Most appearance fees just cover the cost of travel. More extravagant unspoken fees exist, though with dubious tax implications. For the most part these expenses should not be considered a form of income, not even an indirect one to the athlete.

What about counting advertising sponsorship to runners?
Again, the top pro athletes make most of their money on product placement. For instance the winner of the Tour de France typically gives his winnings to the team since he will profit from sponsorship deals tenfold higher. Road races make good money on the side this way too, but it does not explain the low direct income from races themselves.

What about the manner in which the purse is distributed (i.e. does it go to top 10, top 3, etc)?
Regarding how the purse is distributed, that would be another argument independent of the discussion I wish to breach. It's unfair how much more first gets than second, but this much is true of most any sport. This is why I compare the running purse to the team salary and not normalized be the number of individual players on said team.

Races are inherently expensive to run. Organizers cannot afford to pay more money to the winners.
First note that races can as little as $15, like the MEC running series, which argues again the necessity for charging upwards of $100. More to point, given the uncorrelated scatter plot showing how widely these ratios vary, from races of a few hundred runners to almost a hundred thousand, further argues the above claim an likely one. And in all cases the ratios look to be much lower than for other collectively organized sports, but as with Triathletes the share is "correct" assuming the athletes have no way to boycott. Prisoner's Dilemma scenarios abound.

Final thoughts, pointing fingers

As to why such a small share of road race profits are given to the winner's circle, one can easily find fault on both sides: Road races are not (typically) collectively organized, and neither are the runners.

Runners having no collective bargaining means they independently cannot force anyone's hand. No single runner can "strike" or hold a lockout. But an association of runners can. It is quite possible more is not paid simply because there is not enough push to do so. Runners tend to be independent creatures; even some elite train entirely on their own. They must assemble enough that requests and promises can be made to threaten participation of the best athletes. Such planning and demand is no simple feat. Unorganized athletes, from a race organizers point of view, translates to unreliability. They cannot promise large amounts of cash if they cannot be certain who is going to show up at the start line. Being accountable only to oneself means little commitment to a particular race. As a counterexample I would cite Reid Coosaet, who treats race appearances very professionally and keeps everyone up to date on his near-future plans. If more runners were like him runners might have more bargaining chips in their pocket. In fact Reid is part of the New Balance team. And runners such as Galen Rupp are part of the Nike Oregon Project. That sponsors have taken to creating their own teams is a sign that no large-scale body is catering to long-term interests of athletes. Government sponsorship exists in Canada but the income is extremely limited and hard to maintain (usually requiring a second job). There are some clear differences in the running world versus other sports like hockey, baseball, basketball, and golf.

Races themselves must continue to strive for collective organization. From the point of view of a sponsor, funding a single race is a roll of the dice. Imagine sponsors vying for advertising space on a single baseball game the might be rained out. Races are rarely cancelled due to weather, though the 2012 NYC marathon this in fact happened. As an outdoor sport one is semi-dependent on good weather. Of course there exist several road race series in North America. In Quebec one just folded, the Coupe Dix30. But others remain like the Canada Running Series or the Rock n Roll series of which the Montreal Marathon is part of. The newest series in Canada sponsored by Mountain Equipment Co-op has arrived on scene. And of course there is the IAAF Diamond League (upgraded from "Gold" for reasons unclear). Most importantly, it should be mentioned, is that road races must avoid competing directly with each other. I'm not advocating a monopoly, but rather the avoidance of petty infighting among emerging races. Consider the Toronto Yonge Street 10 (5600 runners), which split off from the Sporting Life 10k (also on Yonge Street and with 27000 runners) and held just three weeks apart. Competition is good, but not if it forces sponsors to take sides.

This post was an experiment in creating a discussion which I rarely hear much talk about. The best way  to start, I thought, was to replace opinions with some actual data. The data's interpretation is still debatable, but if we assume runners are worth more than 10% of the collected entry fees, this would be something -economically speaking- to strive for. Perhaps if more elite runners did some collective homework of their net worth, they might earn something like 50% of total sales. As to the "how", I've only outlined a skeleton of possible solutions. As I said, this could be a start.

1 comment:

  1. Any chance I could convince you to run the numbers on some of the Worldloppet ski races?