The America’s Cup was on a roll until it adjourned to a New York courtroom. The suit may have been settled but the Cup’s commercial progress has stalled

Back from the brink

The 32nd America’s Cup last year was a commercial triumph but the plans for the 33rd in 2009 now lie in disarray as two billionaires fight a battle between art and commerce and history and modernism. 

Seemingly from nowhere Swiss billionaire, Ernesto Bertarelli has quickly become one of sport’s most influential players. The sailing fan founded the Alinghi race team in 2000 with the sole aim of winning the America’s Cup, sailing’s most prestigious event. Incredibly he did that at first time of asking  in 2003 in Auckland, New Zealand ensuring the competition would take place in Europe for the first time in its history.

Bertarelli’s success heralded a new commercial dawn for the competition, with unprecedented sponsorship, more competing teams and a purpose-built new venue in Valencia, Spain. In total the event created total revenues of US$336m, through sponsorship and the city bidding process that was eventually won by Valencia. There was a US$93.1m surplus, 90% of which was distributed to the 10 challenging teams.

Overall the 2007 event was judged a major commercial success with record television and spectator numbers. And cream on Bertarelli’s cake was the fact that his Alinghi team successfully defended the Cup. But no one is celebrating now as the victory set in motion a chain of events that has resulted in the emergence of any sport property’s worst enemy – confusion. It has brought much acrimony, a major courtroom battle and, almost as an afterthought, the postponement of the 33rd Cup event.

At the centre of the dispute is the 72nd richest man in the world. According to Forbes magazine, Bertarelli has a personal net worth of US$7.1bn. He earned his billions as chief executive officer of biotech and pharmaceuticals company Serono International SA, founded by his grandfather in 1906.

Bertarelli had run it from 1996 when his father Fabio retired. In September 2006 he sold Serono to American pharmaceuticals giant, Merckx, for US$14.84bn. At the age of 42 and with at least US$5bn in cash on hand to do as he liked with he decided to concentrate on sailing. As well as financing and owning the team, and running the property he would also crew as an active member of the team as a grinder/runner on the boat. None of it daunted him: “When I founded Alinghi it was all about creating a team to share the passion of sailing through every channel available to as wide an audience as possible.”

Bertarelli was as much a success as a sports property promoter as he was a sailor. He thinks it was all common sense and the principles used in 2007 were first honed in 2003: “We tried to adopt a fresh and open way of doing things and making part of our base accessible to the public was only one example of the many innovations Alinghi brought to the America’s Cup.

“With the defence of the Cup, we got the opportunity to share this spirit with the whole event. When we began, we set out a clear and innovative strategy focusing on the choice of venue, the set-up of a purpose-built port, the America’s Cup Park and the Acts as part of our vision of opening the event to as large an audience as possible.”

But every silver lining has a cloud it seems and it is the increasing commercialism of the America’s Cup that, as much as anything else, is the root of the current problems.

To understand the recent conflict is to understand the history of the America’s Cup, the world’s oldest sporting trophy. The fight is all over a trophy affectionately known as the  ‘Auld Mug’. The competition was first announced in 1848 and contested in a 16-yacht race around the Isle of Wight in August 1851. The competitors were all the leading yacht clubs of their countries. America was represented by the New York Yachts Club. A schooner boat called

America won the race and the winning crew subsequently donated the trophy, through a document known as the Deed of Gift, to the New York Yacht Club so it could organise challenge races with the trophy and the right to stage the event as the prize. Remarkably the New York Yacht Club kept winning and retained hold of the trophy until 1983, seeing off every challenge for 132 years – a sporting record. And over time the trophy and the event became known as the America’s Cup, after its first winner. The winner had a continuing right to specify the venue of the following event which gave it an inbuilt home advantage. But America’s dominance could never survive the modern sporting world and in 1983 an Australian challenger, Australia II, led by entrepreneur, Alan Bond, which applied state-of-the-art technology to a new breed of boat, changed the competition forever by taking the Cup to the

Southern Hemisphere for the first time. The event was by now gaining increasing appeal, increasingly generous corporate support from Louis Vuitton and more challenging teams. In 1987 the Cup returned to the USA, thanks to Dennis Conner’s Stars and Stripes team, where it stayed for eight years until New Zealand’s Black Magic boat, led by Sir Michael Fay, successfully challenged in 1995.

The Cup was successfully defended by Team New Zealand, now led by the legendary Sir Peter Blake, in Auckland in 2000. However the home team was then beaten in 2003 when Bertarelli’s Alinghi became the first European team to win the Cup, beating Team New Zealand in a 5-0 whitewash and ensuring the competition would take place in Europe for the first time. It was a total surprise as Switzerland is a landlocked country. Nonetheless it had a qualifying yacht club, Société Nautique de Genève (SNG) to enable it to make a challenge. The arrival of the Swiss was also the signal for a turn towards commercialism.

But the commercial development of the America’s Cup still lags well behind top earning sports, NFL, MLB, Formula One, World Cup soccer and the Olympic Games. The financial development process is complex, given the binding nature of the Cup’s history on the format. Ownership of the series is entirely transitory and no one knows how to break the deadlock. The winning team immediately becomes the defender and earns not only the trophy but ownership of the event itself. Therefore it was Bertarelli who determined the rules for the 2007 event and who will do so again following its successful defence last summer. That basic principle is laid out in the Deed of Gifts document that governs the event. One can only imagine how that makes Larry Ellison, owner of the BMW Oracle team and far richer than Bertarelli, feel.

The rules are arcane and scarcely believable. According to the Deed of Gifts, the defender must select a challenger of record, a team that will represent the views of all the challengers and agree the rules of the event with the defender. In 2003, for the 32nd Cup, Alinghi selected arguably its main rival, BMW Oracle Racing, as the challenger of record, so the two could form a working relationship to discuss the best commercial approach. That caused nobody any problems at all.

But immediately following Alinghi’s victory in 2007 the Swiss yacht club caused a huge controversy by appointing the Spanish yacht club, the Náutico Español de Vela, as the challenger of record for the 33rd Cup. To cynics it was a clear attempt to skew the rules for the 33rd Cup in Alinghi’s favour, especially as the Spanish club appeared to have been founded simply to take on the challenger of record role.

Wrapped up in this was a deal to keep the Cup in Valencia, which was thought to be worth US$147m to Bertarelli.

Soon afterwards the Protocol for the 33rd Cup was unveiled to the world, and the other challengers, after being negotiated between the Swiss and Spanish yacht clubs. The announcement prompted a furious response from the Golden Gate Yacht Club (GGYC), the yacht club through which Larry Ellison’s BMW Oracle Racing challenges for the Cup. Ellison – whose wealth on paper is US$16bn – is absolutely passionate about the Cup and wasn’t going to be pushed around by Bertarelli. GGYC filed a complaint against Société Nautique de Genève (SNG) in the New York Supreme Court. Filing in America gave BMW Oracle home turf to fight its cause. Bertarelli couldn’t object as the original America’s Cup Deed of Gifts names the court as the venue for any disputes. The American GGYC argued that the Swiss SNG “accepted an invalid challenge from a sham yacht club, and was seeking to impose an unprecedented one-sided set of rules that hugely favour the defender to the detriment of all other competitors”.

Tom Ehman, BMW Oracle Racing’s head of external affairs, says: “The new Protocol would give SNG’s team, Alinghi, radical new powers to control nearly all aspects of the event that are still unsupported by any explanation from SNG as to why they are needed.”

The writ effectively froze the Cup and the plans to hold the event again in 2009, only two years after the 2007 Cup. There followed a series of delays and with no resolution in sight, America’s Cup Management (ACM) eventually announced the postponement of the event, which had been scheduled for November 2009.

It proved a wise decision as a few days later Ellison was victorious in court. The Spanish yacht club was deemed an illegitimate challenger and was replaced by Ellison’s BMW Oracle. And that wasn’t all. The presiding Judge, Justice Kahn, ordered Alinghi to meet BMW Oracle Racing in a straight race for the America’s Cup unless the two sides could agree to a new format for the competition that included other challenging teams. No one wanted that after the success of Valencia.

The BMW Oracle team responded to the court’s decision by stating it would prefer to see “a conventional America’s Cup regatta” and that its preferences would be to firstly “seek to agree rules with all competitors along the lines of the 17th October ‘nine points’ compromise proposal and race a conventional America’s Cup competition in Valencia in 2009”; secondly, “if a Deed of Gift challenge went ahead, the club would seek to race under the AC90 monohull rule already published. If Alinghi did not agree to that, in multi-hulls”; thirdly, “In all scenarios, GGYC would seek by mutual consent to have a Challenger Selection Series with as many challengers as possible”.

Bertarelli responded to the decision in an open letter on 7th December, outlining his vision for the future of the Cup. He said: “The recent events in the New York courts, with the Judge ruling the CNEV invalid because it had not held its regatta at the right time, show the Achilles’ heel of the event and the possibility of its destabilisation through individual actions. Again, as in 2003, our vision has received criticism from those reluctant to change. I stand by one of the principles of the Cup: the Trustee, with the Defender, has the responsibility for the governance of the event and to implement changes which will allow it to prosper. With a view towards the future and having studied the rules of the Cup, I observed that the Deed does not actively promote parity for the teams and a long-term future of the event.

“In October of this year I went to New York to start a dialogue with the New York Yacht Club to examine what enthusiasm there was to make the event more relevant to today’s sporting landscape. The Deed of Gift was, after all, written over 150 years ago at the NYYC and could not anticipate the changes that the world has undergone. I was not expecting the discussions to be completed swiftly but I was thrilled when Charles Townsend, Commodore of the NYYC and George W. Carmany III, Chairman of NYYC America’s Cup Committee, expressed the same feelings.

“It is fair to say that the 33rd America’s Cup has been ill-fated and I have a desire to make it right. The fastest way to achieve this objective would be for the Golden Gate Yacht Club and the Société

Nautique de Genève to work with the New York Yacht Club on revising the Deed of Gift to make it appropriate for today without losing what makes the America’s Cup special. As part of this process I am happy to compromise on some of the Defender’s rights to achieve what is best for the event.”

Bertarelli went on to question whether the Defender should automatically qualify for the America’s Cup match itself, as history dictates, or whether it should have to qualify for the finale alongside the challenging teams. He also suggested that the event schedule and venue should be announced “several cycles in advance, allowing planning and funding”. Such a move would be popular with sponsors and teams who are unable to plan long-term because of the constant unpredictability of venue and format caused by the fact that the winning team has the right to effectively do what it wants with the Cup. He also asked whether “the governance of the Cup should become permanent and be managed by entities representing past and current trustees as well as competing teams”.

He also revealed he had spoken at length with arch-rival Ellison explaining his vision. But as 2007 ended there was still no firm date for the 33rd Cup and the whole America’s Cup community remains in a state of limbo. The words of Tom Ehman, one of the sport’s most experienced players, spoken several months ago, become more apt by the day: “The America’s Cup is more like the real business world because there’s some governmental structure that is put in place by (an) old piece of paper called the Deed of Gifts. But after that it’s an arm wrestle.”

These words were spoken as the Cup finds itself in the midst of a commercial revolution settled in Europe for the first time, with sponsors looking for increased continuity. But the struggle between the commercial pressures and the history and tradition of the event will dictate its future. The impossibility of any sort of long-term planning in such a climate is a tricky problem for the sport to resolve.

Bertarelli is clear what he wants. He desires Valencia to be the permanent home for a bi-annual Cup. To him it is clear: “The uncertain format of the event meant that teams – and the entire America’s Cup community – had no future beyond the next Cup. This leads to teams only surviving one cycle and the whole event needing to recreate itself every three to five years. This results in a substantial increase in costs and difficulty in securing long-term sponsors.”