How Oracle's Larry Ellison rerigged America's Cup for success
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.
|After a bad experience, Larry Ellison has worked to remake the property.
“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.
|Among the changes: sleeker boats, races closer to shoreline, and big plans in San Francisco.
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
“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.
And because teams will be using a uniform boat the same way NASCAR teams use a uniform car, Coutts expects teams to spend less money trying to best each other with more technologically sophisticated boats. He said elite teams will likely cost about $86 million and competitive teams $30 million. In comparison, Ellison reportedly spent $400 million on his America’s Cup win.
In addition to developing a new boat that would allow broadcasters to show races live, organizers invested in a new graphics package that superimposes lines on the race course so viewers can identify the race leader and race-course boundaries. Known as LiveLine, the technology was developed by Stan Honey, a co-founder of Sportvision, the company behind football’s yellow first-down line.
“When you look at the television images and the product now, it’s much more fast-paced and much more understandable,” Coutts said. “It used to be a game of chess. Chess on the water. Now it’s more like watching a car race.”
The combination of the boat, which made race times predictable; LiveLine, which made races easier for TV viewers to follow; and the deal with San Francisco, which is the first U.S. city to host the event since 1995, made it possible for America’s Cup organizers to get a television presence in the U.S. They bought time with NBC for the America’s Cup finals and a series of preliminary races, which is an improvement over the “weather-permitting broadcast” that ESPN aired online in 2010. Before then, America’s Cup had a spotty history on domestic cable channels.
“The new technology they’re using made it very exciting,” said Jon Miller, NBC Sports president of programming. “These boats are much faster, much sleeker than the boats of the past. Their LiveLine technology won a Sports Emmy. There was a lot there that we thought would make for compelling and exciting television.”
The majority of races in 2013 will be shown on NBC Sports Network, but NBC committed to air the first two days of the America’s Cup finals live. Organizers also cut 30 international broadcast contracts covering more than 130 countries.
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
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.