America's Cup- Sweeping changes will ease financial pain for teams

by Richard Gladwell on 4 Jun 2011
Sweeping changes have been made to the America’s Cup Protocol following a Competitors Forum earlier this week, held by teleconference, and followed by subsequent discussions, negotiations and voting.

The fundamental change that has been made is for the America’s Cup World Series to be split away from the America’s Cup itself.

This will enable teams to compete in just the America’s Cup World Series, or compete in the America's Cup as well.

In other words there is now a two-level competition.

The effect of this move is to greatly ease the financial pressure on the newly established teams ahead of a yet to be announced television package - vital for teams to be able to propose, sell and sign sponsorship before being able to commit to a full America’s Cup campaign.

The Performance Bonds for the America’s Cup have been dropped completely, initially they were set at two payments of USD1.5million. Subsequently they were reduced to payment of $200,000 and $800,000. That first payment was due on 30 April and missed by at least one team, possibly several.

Now, the only financial requirement on teams is to pay an Entry Fee for the World Series of $100,000 by 1 August 2011 and an Entry Fee of $200,000 by 1 June 2012 for the America’s Cup.

Previously the America’s Cup World Series was intended to be a lead-in regatta for the America’s Cup. Initially it would use the AC45 one design developed to both build an audience for the America’s Cup, and get new teams up to speed with the intricacies of the wingsailed wig, and match racing in multihulls.

After Media Trials in Auckland, the class proved more than up to the task, and its life has been extended into an Event in its own right. The AC45's will be used right through this current America's Cup World Series cycle. There will be no ACWS competition using the AC72 class until after the 34th America’s Cup. Downside is that the plans to hand the AC45's over to youth sailors have been set back, however no doubt they will be accommodated in some other way. Dropping of the Youth component as it was structured drops a significant amount of cost and logistics from the Cup financial equation for all teams.

The Challenger Selection Series (Louis Vuitton Cup), and any Defender Series will be sailed in the AC72 class and effectively will be the same format as for a normal America’s Cup.

For all teams, new and established, the changes will be significant.

All that an entered team will now have to commit to is payment of a 50% deposit on an AC45 class yacht by 10 June 2011, and take delivery by the first event in Cascais, Portugal. If the competitor fails to race in any ACWS regatta using AC45’s they will be fined $150,000 – under the first version of the Protocol they lost their first performance bond of $1.5million.

Of course, some teams are much further down the track than that - coming off a platform of an established sailing and sponsorship program - enabling AC72 design programs to be initiated last October. That is their gain, and they will also be allowed to retain any sponsor contractual commitments they have in regard to launch and sailing of AC72's.

Two bites of the Cup cherry

Besides the extra wriggle-room in terms of costs, another big gain for the new teams is that the changes will allow the creation of a two-Cup strategy.

In other words a new team forming and facing the Herculean task of turning in a first-up Cup winning performance will now be able to promote themselves to potential backers as being in the game for the next two cycles.

The first stage of this strategy will be to compete on the AC45 series – of which there are three events scheduled for 2011, seven for 2012 and another three for 2013 – the year of the 34th America’s Cup.

If the team can get together sufficient funding for their AC45 program, they can continue through that series only. The television coverage and sponsorship opportunities should be sufficient for that program to 'wash its face' or break-even.

Depending on finance and fortunes, given that a good initial showing in the racing program would attract sufficient backing to allow the team to continue or expand, the new team could either purchase the standard AC72 design package and build a standard boat, or two, for the 34th America’s Cup.

That approach would be unlikely to be sufficient to win the America’s Cup, but it would certainly be a big step towards a full blown campaign for the 35th America’s Cup.

One of the points of interest in the 34th America's Cup will be who can be the top team using the standard package. That will really show which team has the sailing ability to compete with the fully funded, more experienced teams, and will show to sponsors that they will be a sound investment for the 35th America's Cup.

At at a third level of competition, the new teams could step up into a full blown America’s Cup campaign for the 34th America’s Cup including the engagement of a substantial design team.

Pulling the Pin

Those teams who are currently dragging their feet will be finally shut out of the ACWS and America's Cup come 10 June 2011 – the time by which they will have had to pay a deposit on an AC45.

America’s Cup teams will have to sail in both the America’s Cup and America’s Cup World Series. However the way is now open for teams to drop out, without draconian penalty, after the conclusion of the ACWS.

An America’s Cup team cannot elect to bypass the ACWS and concentrate solely on the AC72 development, and then appear for the first time in the Louis Vuitton Cup.

The new arrangement also bypasses the need for stringent Surrogate Yacht rules, and these are now defined as any yacht from which technology is transferred to an AC72, provided it is more than 10 metres on length. Teams will be able to sail Extreme 40's, for instance, provided there is no technology transfer to an ASC72 program, and certain other criteria are met.

The use of AC45’s throughout the America’s Cup World Series will see the traditions of the America’s Cup maintained, where the Defender did not come up against the Challengers until the Match itself. That situation will now continue as the Defence and Challenger teams will compete against each other in the smaller AC45’s only, saving the AC72's for the Challenger and Defender Selection Series (Louis Vuitton Cup).

Previously it was planned to have the teams switch to the bigger AC72’s, in March 2012, and earlier this week this class-change was delayed by three months into mid-2012. Now it has been wiped altogether. Under the original plan the latter half of the road to the 34th America’s Cup would have seen boats that were potential competitors in the Louis Vuitton Cup compete against each other – robbing the LVC of its initial intrigue of two competitors testing each other for the first time.

Financially, established teams are expected to be largely unaffected by the changes. For them, some of the pressure to get AC72’s into the water will be relieved, and they will be able to sail a two-boat campaign in their home waters, or in San Francisco.

Easier TV sell

For America's Cup Event Authority, negotiation of the television deal will be made easier, to some extent, by the new arrangements. Firstly the chances of their being ten teams on the starting line for Cascais will be very high. Secondly it will be possible to demonstrate the spectacle during, say, the first three events, enabling broadcasters to see ahead of time as to what is on offer. That will allow a proper price to be set, rather than rights paying broadcasters having to take racing, sight unseen, ahead of the first round of ACWS.

The wriggle-room afforded by the new shaped competition will also allow a correct price to be set for the TV rights. Not over-hyped, and not undersold because of the perceived risk that the new ACWS won't deliver on its promise.

For the new teams the pressure will be off to some extent. If they are unable to generate sufficient sponsorship revenue, they can elect to compete only in the America's Cup World Series - stay within their sponsorship/competition budgets - and live to fight another day. But on the other hand, new teams could do well if good television exposure is sold, which in turn offers good team sponsorship opportunities. The unknown factor is how the 40metre high wingsail will be valued - which is surely the best billboard in world sport, and offers a unique sponsorship opportunity.

Next major milestone for the America’s Cup will be a media conference to be staged in San Francisco on 15 June where the identity of all entered teams is expected to be announced, and the teams should also be present.

The new Protocol can be view by http://www.americascup.com/media/files/m3291_2011_06_03_Protocol%20updated%20to%20include%20Amendment%20No.8.pdf!clicking_here