An economic analysis of governance in cycling

Over the past week professional cycling has been thrown topsy-turvy by the fallout from the US Anti-Doping Agency’s report on their investigation into performance-enhancing drug (PED) use in the U.S. Postal Service team, 1998-2006. The focus of the dossier is, of course, Lance Armstrong, and the eyewitness testimony is extensive and not very surprising to those of us who have been following the sport for a long time (since 1985, in my case). Based on those affidavits, Armstrong has lost sponsorship contracts this week with Nike, Trek, and other companies, and has stepped down as the chairman of the cancer charity he founded, Livestrong (although he remains a member of its board). Friday the Dutch bank Rabobank announced the end of its sponsorship of both its men’s and women’s professional team (leaving World Champion and Olympic gold medalist Marianne Vos on a team without a name sponsor), giving as its reason that “[w]e are no longer convinced that the international professional world of cycling can make this a clean and fair sport. We are not confident that this will change for the better in the foreseeable future.” This statement suggests an economic hypothesis: doping in sport is a problem of perverse incentives and poor governance institutions, and poor governance in cycling undermines the credibility and profitability of the sport.

Professional cycling has a governing organization, the Union Cycliste International. As currently constituted, UCI decision-making is hierarchical, and riders, team directors, sponsors, and the cycling industry have little input into rulemaking. UCI’s mission is, in part, to establish rules ranging from the minimum allowed weight of a bicycle for competition to anti-doping rules and penalties. But part of its mission is also the promotion of the professional sport of cycling through its sponsored events, and increasing the size and popularity of the sport. These missions come into conflict in situations where, say, a popular athlete who brings a lot of revenue into the sport may be using PEDs — do they enforce the rules and risk the revenue hit? (Note also that this conflict of interest pervades the NFL, MLB, and other sports and sporting organizations) Their revenue mission may undermine their self-governing regulatory mission, and they thus have perverse incentives that can lead them to overlook, or try to cover up, high-profile violations of the anti-doping rules. Both the current and former UCI presidents have come under criticism for their faulty stewardship of the sport, because their past actions indicate that they associated complacency in the face of doping with more revenue and a higher profile for the sport. At best, UCI has looked the other way; at worst, it may have been complicit in concealing high-profile violations.

Another organization that plays a regulatory role in conjunction with UCI is the World Anti-Doping Agency, WADA. The infamous Festina affair at the 1998 Tour de France led to the formation of WADA in 1999, as a joint initiative of the International Olympic Committee and national governments. USADA, the U.S. member of WADA, was founded in 2000. In the current case, USADA has presented its documentation to UCI, which will state on Monday the actions it will take in response.

But WADA/USADA also have perverse incentives. Economist Roger Noll has done extensive research on the political economy of sports, and recently did an excellent EconTalk podcast with Russ Roberts (it’s long, but the doping discussion is at 46:45-57:45). Noll argues that WADA/USADA have perverse incentives because their fees are proportional to the number of infractions they catch and punish. Thus WADA earns its keep by expanding the list of prohibited items, setting unreasonably stringent thresholds for them, testing for them, and punishing their use. Rather, athletes should be able to make the rules by which they commit to abide, constrained by not engaging in illegal activities (this is complicated in the countries in Europe that have made doping a criminal offense). In other words, the sport should be self-governing in terms of determining its own rules. In WADA, athletes have almost no role in defining standards and thresholds, although there is an athlete committee.

I agree with Noll that effective self-governance is an important bulwark against WADA’s perverse incentives and the problems arising from external legal encroachment (and further government involvement) in sport. Had the UCI been effective and transparent in promoting and enforcing anti-doping policies, they might have prevented the Festina affair, or penalized it ex post effectively enough that an external public-private organization would not have been created.

But I think the institutional design issue is trickier than that. An organization like UCI would still have conflicting incentives as long as it is responsible both for the determination of rules/penalties and the testing and enforcement of those rules. Suppose the UCI implements a “good” set of rules  What incentive would the UCI have to enforce such rules?  As long as one organization is responsible for both rulemaking and enforcement this tension is inherent, and detrimental to the credibility, the popularity, and the profitability of the sport.

I’m suggesting a more collaborative, networked (dare I say stakeholder) organization for cycling governance. In this model the riders, team directors, sponsors, and industry have a voting role in decision-making, on matters from bicycle weight to banned substances and thresholds. Those rules should be transparent and allow riders due process (including no immediate public announcement except for in competition when it’s obvious) and a right of appeal (which is currently lacking). If UCI is determining those substances and thresholds, and penalties, they should not be involved in testing for enforcement, which should be administered by an independent third party. WADA/USADA as currently constituted do not meet a reasonable definition of independence, though, which is one reason why this is so tricky to change from its current dysfunctional institutional design.

Is there a way out? I think the way out is to follow the money, and that’s where the Rabobank sponsorship departure is painful in the short run but may help to realign these perverse incentives at UCI in the longer run. The way out has to be through cultural change from fans and sponsors to agitate for change at the UCI. Their leadership is no longer credible; they have lost the trust of many fans, team directors, athletes, sponsors (as reflected in Rabobank’s comments), and industry members. That lost trust now means lost revenue, and that changes the equation for UCI — losing sponsors because “the international professional world of cycling [cannot] make this a clean and fair sport” may prompt some rethinking, change in leadership, institutional change within UCI. And it should. One suggestion moving in that direction comes from Doug Ellis, co-owner of Slipstream Sports, who suggested on Twitter that “Maybe it’s time for a sponsor summit. If the people putting money into the sport demand change, there must be change.

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4 thoughts on “An economic analysis of governance in cycling

  1. Lots of the same issues come up in forensic science, Lynne. Broad governance is an important principle as Jim Cowan argues in JOIE. So to is checks and balances, IMHO, including redundant testing. I wonder also if they run their tests blind. I bet they don’t. “Sequential unmasking” is an important principle in forensic science.

  2. Seems like you may have a role as Jonathan Vaughters consulting economist in his efforts to form a breakaway league. ;-)

    My sense is that part of the problem with cycling is also the sponsorship model. UCI keeps the money from TV revenues for the sport while the teams have to work with outside sponsors. That means that UCI has even more skin in the game than is typical for other sporting organizations with split promotional/governance incentives.

    Finally, while I agree with some of the sentiments expressed in the Noll podcast, its also worth remembering that things have actually gotten much better with WADA governance. Best evidence for this is that power output/kg (and hence speeds on HC climbs) have dropped considerably over the past decade. Second best evidence is that studies of B-samples indicated that the average blood sample from the peleton has changed dramatically as the EPO test and the bio-passport systems have been phased in. So the WADA picture is one of over-enforcement in some areas but also tremendous progress in others.

  3. Mike, I agree with you on both counts. TV revenue sharing would be a good issue to visit in the massive change and rethink that UCI should undergo. With respect to WADA/USADA I’m more concerned about the fuzziness of the interactions, sharing of information, and jurisdiction with the USDOJ and Novitsky. With respect to sports inquiries, I don’t trust them to behave in anything other than a megalomaniacal, power-seeking way. It’s the involvement of national governments in WADA/USADA etc. that makes me think that they cannot act in an independent capacity.

    And as for JV, he knows where to find me, any time ;-). I respect him immensely.

  4. Excellent post, Lynne. Of course, it’s not just the riders and governing bodies like UCI, WADA, and USADA that are to blame. Team sponsors and event organizers have been complicit in doping going all the way back to the origins of the Tour de France. See here: http://en.wikipedia.org/wiki/Doping_at_the_Tour_de_France, The Campionissimo, Fausto Coppi, was once asked if he ever used performance enhacing drugs. He said, only when he needed them. When pressed about how often he needed them, he admitted, all the time. In part, it’s the nature of long stage races, where organizers expect cyclists to race consecutive days in high mountains, which takes a heavy physiological toll on the body. And that problem is, of course, compounded by the high stakes (e.g., the money and the glory), which create incentives to gain a physiological edge. If races like the Tour de France had less money and status attached to them, then, needless to say, the incentives to invest resources in doping would be diminished. Likewise, if the races were made less severe. But it’s certainly not in the interests of the organizers or team sponsors to make the races easier and less financially rewarding.

    Beyond the UCI’s conflict of interest, to which you correctly allude, there’s also the issue of rampant corruption. The fact that Lance Armstrong “donated” more than $100 thousand to the UCI’s anti-doping efforts is just one case in point. The USADA’s dossier on the Armstrong case contains many additional allegations of payoffs and threats intended to corrupt the oversight process.

    As for the USADA, on the merits the case against Armstrong is completely convincing, even in the absence of physical evidence – the testimony of George Hincapie alone would be enough to convince most cyclists that Armstrong is guilty. However, the lack of due process has been stunning. I’ve never before encountered an adjudicatory process in which a decision is announced made all the evidence has been collected, and press releases are issued before the findings are released.

    Personally, I’m not convinced there’s any good answer(s) to problems of doping in cycling (let alone other sports, such as American football, where the subject of rampant doping is not even on the public’s radar screen). It seems to be a repeat-play game where the sub-game payoffs are largely dependent on the technologies available to the relevant players (cyclists and teams v. anti-doping agencies). Currently, the anti-doping agencies detection technologies seems to have caught up to the available doping technologies. But, thanks to the high stakes involved, there is every reason to expect research to continue on new doping technologies that cannot be detected with currently available anti-doping technologies.

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