• by Wayne Friedman , October 9, 2006

Despite the biggest name in cycling having retired and the specter of drugs swirling around the sport, Discovery Channel has begun negotiations to renew its $10 million to $15 million-a-year sponsorship of its U.S.-based road cycling team.

In June 2004, Discovery Channel made a major announcement that it had inked a three-year deal to get involved in professional road cycling, becoming the lead sponsor of the team of seven-time Tour de France winner Lance Armstrong. The deal goes through the end of the 2007 season, which typically ends in October.

In announcing a deal just before the Tour de France, Discovery made it clear that its commitment to cycling was more than just Armstrong. (The company made a separate deal with Armstrong.) Its intent was also to heighten its cable network businesses in Europe and other non-U.S. territories, using other European-based cycling professionals on the team.

Cycling has seemingly done much for Discovery. With Lance Armstrong gunning for a sixth and then seventh Tour de France victory, the network had a strong association with one of the biggest names in sports. But Discovery was already a well-known name in this country. What awareness gain did Discovery get in Europe and other non-U.S. territories--which has been a major part of its stated marketing goal with cycling? Where does Discovery go from here now that Armstrong is retired? Will Discovery attempt to build on other major U.S. riders on the team--George Hincapie, Tom Danielson, or Levi Leipheimer?

Discovery would not discuss its marketing performance or any current negotiations. A spokeswoman would only say: "The deal has given us tremendous value. We have an incredible relationship with CSE [Capital Sports & Entertainment, which manages and co-owns the Discovery Channel Pro Cycling Team.]. We are negotiating now." CSE executives did not return phone calls.

As if the Armstrong retirement wasn't enough, experts say Discovery's negotiations are also hampered by the fact that the team is considering legal and other punitive actions against former team captain Frankie Andreu, of the U.S. Postal Service cycling team, predecessor of the Discovery Channel Cycling Team. Andreu admitted to taking performance-enhancing drugs in a few races in 1999.

Major drug news hit the sport of road cycling in 2006--two of the Tour de France pre-favorites were thrown out of the race before it started, and this year's winner, American Floyd Landis, of the Phonak cycling team, tested positive for a banned substance. Marketing experts suggest that Discovery is examining all possible ramifications and protections around a new contract.

Still, the team is in "negotiations," and that is a positive harbinger to some sports marketers. "It's a good sign that they are talking," says Neal Pilson, president of Pilson Communications, a former president of CBS Sports. "It seems to mean that [despite the sport's current image] it still wants to go ahead."

Or perhaps, renew for at a better price tag. One marketing executive suggested that all the talk surrounding performance-enhancing drugs could in fact drive down the price--to about half that or more of the current deal. That would make sense to some extent because it's not paying a big Armstrong contract. The team has also let go many veteran cyclists, looking to rebuild with younger riders.

Current cycling sponsors say they have a "zero tolerance" policy when it comes to drugs. But that means different things to different companies. In some contracts, that might mean if an athlete is implicated, a team's sponsor can bail; in others, a team might wait for an official positive test from the management of a cycling event or certified anti-drug sports agency.

After Landis tested positive, the incoming sponsor--financial company iShares--pulled out of a deal in which it would be the new major team sponsor, replacing Swiss-based Phonak, a maker of hearing aids. Other major teams/sponsors looking to protect themselves from bad press, such as Germany-based T-Mobile, say they are instituting even more stringent drug testing, beyond what cycling official organizations require.

A number of Discovery network executives privately wondered why the network would continue with cycling when its marquee name, Lance Armstrong, has retired--and considering the specter of drugs. "The sentiment here is--why are we doing this when money could be better spent somewhere else?" said one executive. "For instance, we have had some severe ratings declines with our programming."

But other sources in Europe--where cycling is a much bigger sport than in the U.S.--say that Discovery has gotten its money's worth.

"In Europe, there is direct correlation in cycling with product and brand awareness," says a marketing executive who has struck a recent major sponsorship cycling deal. For instance, the executive says that hearing-aid maker Phonak, which was a relative newcomer to cycling, dramatically increased its brand awareness because of its sponsorship.

As for Armstrong, other executives say he is still an important and visible part of Discovery's marketing process--now being a part owner of the team (Armstrong still makes regular press appearances for the team, including one major press appearance at this year's Tour de France)--but less so for the on-air marketing of the network.

Armstrong and the team have also been involved in a number of Discovery Network programs, focusing on the team, health, exercise, and even one of his cars. Back in 2004, then-girlfriend Sheryl Crow gave him a 1970 Pontiac GTO as a gift, then surprised him by having the car improved and made over on TLC's "Overhaulin' show.