Sunday, March 16, 2014

The Cost of a Race

There was a question posted on the Louisville Landsharks Facebook Page earlier today dealing with the cost to do Ironman.  There were several comments on it.  I thought I would spend a few minutes to respond to the question and to give my thoughts on some of the comments.

The simple answer to why it cost so much to do Ironman is because people will pay it.  I will go into that latter, but first lets look at the cost to put on a race in general.  The cost can be broken down to three categories.

The first are fixed cost.  These include insurance, sanctioning, venue, traffic, control, other emergency services such as water patrol and EMS, awards, timing, labor, permits, marketing etc.  I was reminded of how these expenses can affect a race as I was walking through Lowe's today.  There was a guy wearing an old Run For The Sun t-shirt.  That was a 4 mile run that was held for several years by the Downtown YMCA.  It was a well done race and had good participation.  Traffic control cost went up to around $8,000 and the race stopped.  There are many intersections Downtown and officers are paid for a minimum amount of hours.  I have heard that the KDF Mini and Marathon cost over $100,000 in traffic control.  The venue chosen may cost from a few hundred dollars to several thousand.  The more elaborate the race the more the labor expense.  Volunteers can do some jobs, but many require trained people.

The second category of cost are variable and relate to a per participant cost.  These include t-shirts, medals, food at the finish, aid station supplies, numbers, pins etc.

Lets take an imaginary race and look at the cost.  Lets say the fixed cost are $10,000 with a break even point of 100 Athletes at $100 each.  That means the cost of those athletes t-shirts are figured in.  The per participant cost is going to be $25.  If we have 150 participants there is a $3750 profit from the race.  If we have 500 there is a $30,000 profit.  If only 50 people show up the race director loses his ass.  Lets say that we had 200 athletes and a profit from the race of $7,500.  It all sounds pretty good.

That brings us to the third category of expenses the business expenses.  These include salaries, equipment, training, travel etc.  The equipment to time a triathlon including timing points, clocks, chips, computers, TVs etc is going to cost in excess of $50,000.  All this equipment must be maintained.  There is the transition area with all the bike racks and fencing. markers for the swim course, Tables, tents, coolers etc.  Everything has to get to the race so we need a couple of trailers.  There must be a place to store all this stuff.  Electric bills must be paid.  There has to be a website.  All these cost are spread through multiple events, but still are a significant factor. In other words a race can make money, and it still be an overall loss.

We made $7,500 from our fake race, but considering it took months to prepare for and the business expenses that must be figured in was it really worth it.

The business expenses is one reason why no one ever gets an answer to that question on where every dollar from a race goes.  If the finish line clock dies during our fake race (minimum $1,000 to replace) does all that money come from that event?  What about the flat tire on the boat trailer?  We used the generator at the event, but not at the next two, how do we spread that around?

Ironman is a huge business and a huge expense.  Take everything we just talked about and throw it out the window, because it is not even close.  Bigger staff, more euipment, travel, longer course requiring more traffic control (two shifts in some areas).  I would say the cost of Ironman Louisville are easily $500,000.  Now much of that is covered with sponsorships and other revenue sources such as merchandising, but lets ignore all that for the sake of our discussion.  At $600 a person for 2500 athletes that is a revenue of 1.5 million and a profit from the race of 1 million.

Now we have to discuss the business expenses of being Ironman.  I can not even guess how much they are.  there are large staffs, offices etc that must be paid for.  Where I have a trailer they have a semi.  It will cut into that million, but they still made a tidy profit.

Ironman is owned by Providence Equity Partners.  Providence has owned 180 companies in their history.  They are an investment firm.  There goal, as it should be, is to make as much money from their investments as possible.  Ironman is no different.  If you have so much of a product to sell and you sell it all the next time you charge more.  If every Ironman race sells out at $600 the next year charge $700, then $800.  When they stop filling at $1200 you know the market value of doing an Ironman is $1,100.  The athletes will make the final decision on what the fair market value is.

Does it matter if the CEO of Providence makes 1 million or 10 million a year?  That is a matter of personal opinion.

So there is my explanation of why it cost so much to do Ironman.  But let me address a couple of other issues that were brought up on the facebook page.

Where Providence Equity bought Ironman as an investment.  Cynthia and I started putting on races because of you guys.  There were few races around 14 years ago and people wanted more, so we agreed to do it.  I am not saying that from the financial do our races standpoint, but from the standpoint of we have seen many of you start your journey in these races and have seen many things over the years both good and bad.  We look at you as friends and family.  I tend to be fairly blunt with my friends and family so here I go.

In the comments on facebook somebody mentioned their house payment.  I know it was just a comparison, but if you are having a hard time deciding between paying your bills and doing a race, even if it is a Headfirst Race, pay the bill and if there is any money left over get some help because you have a problem.

There were also several comments about the finish line at Ironman.  I agree that is a special thing, but it is not everything.  Martina Navratilova said "The moment of victory is much to short to live for that and nothing else."  When I won the Championship of the Americas in the Double Iron Distance (see some of you thought I never was and really I'm a has been) there were TV cameras and newspaper reporters waiting at the finish line for me.  It was a great moment.  When I think back about my experience the special memories were the people I trained with including some of you, the people from all around the world I got the chance to meet and the things I saw along the way.  We are all just an injury or accident away from not making it to the next finish line.  Like I always say if you are not having fun you are doing it wrong.  Enjoy every finish line whether it be Ironman or a small 5K but start enjoying it at the first step in your training and make it all special.

As far as what races to do the answer is easy.  Do what you want.  Very very few people are able to put food on the table with the money they make from competing in triathlon.  For the rest of us it is about enjoyment.  If you want to buy a new bike hire a coach and do Ironman outstanding.  If you want to do a local race and take the family to Disney World with the money you saved more power to you.

I will say this about Headfirst.  If you have ever done one of our longer races I hope there is one thing that shows.  When Cynthia brings out the grill at Taylorsville and spends the day cooking or when she spends two weeks cooking soups before Otter Creek and Lovin the Hills in addition to the normal race things It is not about business it is because she and the rest of us at Headfirst love you guys.  Get that at a big race.