When commerce and governments collide

It didn’t take Skip Gilbert long. For the first time in 16 years USA Triathlon’s board of directors has approved a deficit budget. Gilbert, USAT’s executive director as of 6 months ago, is taking USAT’s $2 million war chest out for a spin.

Sixteen years ago USAT didn’t have a war chest, just a war. It didn’t even have an insurance policy, that vehicle allowing it to amass, under former E.D. Steve Locke, that rainy day fund. Now it appears time to dip into that fund, rainy day or no.

It’s not that Gilbert is spending cash, it’s how he’s spending it that’s raising eyebrows. Across three diverse commercial categories some of the better known tri-specific businessmen are crying foul. USA Triathlon, they say, is encroaching into their fields, intending to compete as a commercial entity.

The charges are that USA Triathlon has become a nationwide race organizer, competing with the very entities that make up USAT’s primary customer base. Also, it is becoming a magazine editor and unfairly using its paid membership as a basis for claiming paid circulation. So say those in triathlon’s publishing industry, and they point out that this so-called circulation is for a magazine nobody has asked for, and that has yet to print an issue.

Finally, entities like Active.com and Signmeupsports.com, former and current USAT sponsors, may soon find USAT offering online registration services to its sanctioning race directors.

To the degree these charges are fair, two questions are raised. First, is there a circumscription that confines a governing body to governance and governance only? Is it foul play when any sort of government does more than promote competitive commerce, but becomes one of the competitors? Is the government that governs best that which governs least and, if so, is this an abrogation of that responsibility? Or is USA Triathlon not a government in that sense and, accordingly, is not bound by such constraints?

The second question surrounds something which is not in doubt: USA Triathlon may or may not be a government per se, but it calls itself a National Governing Body and is imbued with both the privileges and constraints contained in the Amateur Sports Act of 1978. It is also a 501C3 corporation domiciled in the State of California, and is certainly governed by California corporate law, constrained by all the limitations on non-profits contained therein.

The legal circumscriptions on USAT’s behavior is outside the purview of this inquiry. Only the question of good governance is investigated here, and whether USAT’s posture toward its current and intended commercial ventures violates USAT’s charter or not.

USAT’s executive director in that last year a deficit budget was approved was Mark Sisson. A former Secretary General of triathlon’s world governing body, Sisson has seen the federation rise from a financially troubled start, and thinks USAT is overstepping its bounds.

“A national governing body coming under the National Sports Act of 1978 has as its sole purpose — its sole purpose — to win gold medals,” says Sisson. “When you place yourself under this Act your charter changes, you agree to certain principles.

”Beyond that, as a governing body you must ask what’s in the best interest of the sport of triathlon. If private enterprise can create a wonderful opportunity to train, get information, race frequently, then there’s very little need for intervention from the not-for-profit side. Absent this landscape, the first efforts of the not-for-profit are to enhance the business community’s efforts toward these goals. Only as a last resort,” cautions Sisson, “should a not-for-profit build businesses that step into the commmercial realm.”

Speaking about the thick, glossy magazine Gilbert promises for age-group competitors who are USAT members, Sisson says, “[existing] magazines are making their best efforts to speak to the triathlon community. I see no reason why USAT should be trying to steal away their ad revenue.”

Gilbert has another view. “Members don’t know anything about what we’re doing because we didn’t have a forum to speak to them,” he argues. “Having a magazine allows us to tell our members all the great things we’re doing, stories about members doing terrific things. When I got here I found we were lucky if we got a quarter page in Triathlete or Inside Tri.”

But what ought the hedge around a governing body to be, Gilbert was asked. Or is there any hedge around it at all?

I know where you’re going with that. Websites. Magazines. Things that are the domain of [Inside, Inc.’s owner] Felix Magowan and [Triathlete Magazine’s owner] John Duke. But [USAT’s magazine] is not there to compete with consumer magazines,” Gilbert states.

John Duke sees it differently. "My readers pay to receive my magazine and they pay to receive Inside Tri. We are paying real writers real money for real content to print a real magazine. They do not have one subscriber. They have members who are receiving a free rag — a la Pennysaver — and should not, in any world, state that as subscribers. If they want to produce a magazine, do it. But offer it as an extra where the member can elect to pay for a subscription and let them compete on a level playing field."

”You can argue both ways,” concedes Gilbert. “Should we or should we not have a mag. But, if anything goes wrong, the governing body is the lightning rod. We need certain vehicles to be able to communicate our message. Four issues a year aren’t going to throw a real wrench into the machinery of our sport’s monthly glossies.”

Circling back to the original question, what is it that a governing body ought to do, and what ought it avoid? Should it be afforded a monopoly status, and should the same laws that grant such status limit the scope of government?

”Forget the magazine for a minute,” Gilbert asked. “When we set out to get a sponsor, we compete against everyone in the marketpace. We need to compete in a level playing field.”

”Why should USAT have sponsors?” we asked USAT’s executive director. “The State of State of California doesn’t have sponsors. It’s a government. Just like USAT is.”

Gilbert replied that the State of California has the right to raise taxes to fund its budget. But doesn’t USAT as well, through simply raising the rates of annual and one-day insurance fees? What ought USAT’s mission to be?

“I think the global answer to that is that a governing body should be able to create initiatives to fuel the multisport lifestyle,” Gilbert answers. “That’s pretty broad. Coaching initiatives. Criteria for standards for race directors. Athlete develolpment.”

Certainly USAT offers that and more for an athlete’s annual $30 dues, by all accounts cheap relative to the value offered by the governing bodies in other sports. USAT routinely offers and updates a stable set of rules, a set of officials trained in the enforcement of these rules, a stable, solid insurance policy, cash in the bank should this policy premium take a sharp rise, an office staff to administer this policy and adherence to sanctioning requirements for 1500 events per year, rankings, championships, worlds qualifiers, travel expenses paid for its board of directors, a national office, risk management, and of course the execution of those duties pursuant to the winning of Olympic medals. This is arguably a reasonable answer to the oft-asked question by USAT’s 55,000 annual members, “What do I get for my thirty bucks?”

But if this is enough, why venture into a commercial niche already inhabited? So ask certain race directors not privileged to be part of USAT’s several duathlon and triathlon long and short distance Grand Prix series. Is this not just favoring some of USAT’s loyal customers over others?

Not so, says Gilbert. “If you add up all the various championships we bestowed around the country, all of which we’ve now scrapped, they totaled 113.” USAT’s set of Grand Prix series is simply a way of tieing together these events in a coherent, cohesive fashion argues Gilbert. “By connecting them to a Grand Prix series, we’re adding value and elevating marketing power to their races. It’s not about an individual race, but a collective celebration of the distance.”

Fair point. But, is this something the race organizers themselves want?

“I think it's fine if they’re bringing database management in-house,” opines Jan Caille, owner of the world’s most popular triathlon in Chicago, Illinois. “I think it’s going to cost them more money than it saves them, but it’s something in their purview to do. They originally outsourced this because they tried to do it before, and they lost money. But if they want to bring it in-house, I don’t have a philosophical problem with that.

“The problem with the magazine is, it won’t work,” continues Caille.

But how should USAT gets its message out?

“Do an online newsletter,” is Caille’s response. “How many triathletes in America don’t have online access? Three? Stay out of the publishing business.”

As for the Grand Prix series, Caille is likewise skeptical. ”You can look at a long list of race directors whov’e been sucked in to hosting one thing or another. ‘Thanks for the honor.’ The series means nothing,” contends Caille. “Good races are going to prevail, bad races are goiing to fail. USAT’s Mission is to aid in the production of safe, fair, races. USAT has done nothing to help me grow my business. There’s no partnership here.”

On the other hand, Caille and the rest of America’s premier race directors, who put on USAT’s premier events, don’t need to be part of a Grand Prix and routinely decline when asked to join. Accordingly, USAT must resort to second and third tier events to cobble together a series, especially so west of the Mississippi. California, with the greatest concentration of triathletes in the country, has few if any races in any of the Grand Prix series.

Perhaps the better question is, when ought USAT to follow its market, and when ought it to lead? First, it must be asked, “What is USAT’s market?” Most informed observers agree that USAT wholesales its product, as does, let us say, Nike. Just as Nike sells to retailers, so does USAT, and race directors are those retailers. In other words, this is where USAT’s eventual consumers go to find USAT’s product.

Assume one way USAT fulfills its mission is to fulfill the stated needs of its race director customers. “If you were to poll RDs,” Gilbert was asked, “how certain are you that they would say 'yes' to this set of nationals series'? Alternatively, have you asked yourselves, as an organization, what would they say 'yes' to? That is, what if you bought 250,000 swim caps per year and offered them at 25 cents a cap? Same with swim buoys, traffic cones, and so forth? In other words, should Race Directors vote or be polled, and what would they choose? Are their choices what ought to govern your offerings?"

“We actually have that in our initiative pipeline,” answered Gilbert. “What we’re putting together is a toolbox for the RD… Stuff the RD might not have the resources to operate. We’re working with a manufacturer who has an online kiosk, offering these things with no minimums.

“And, we’re flying in five race directors to Colorado Springs this weekend, to form a round table, a focus group, to ask them about these things we’re doing.”

One question Gilbert will ask these RDs is about an online registration engine, one of the most contentious elements of USAT’s expansion plans. Again, as is the case with USAT’s magazine, Gilbert contends that such an engine is not designed to compete with Active and Signmeup. But as with John Duke and his Triathlete Magazine, executives at Active certainly feel as if competition is coming their way.

But Active’s folk are holding their tongues, because they still feel a war with USAT can be averted. All sides, however, maintain a posture that speaks to a certain eventuality, and Gilbert is aware of this: If USAT offers online registration to its member RDs, the gloves will be off and perhaps Active, perhaps other online engines are liable to flip the switch and start offering an insurance plan to its customer RDs.

Gilbert could, of course, simply be playing a very shrewd game of brinksmanship. When asked if this is just a way of making sure Active doesn’t get into the insurance game, he is coy, and refuses to answer in either direction.

Certainly a deal is out there to be done between Active.com and USAT. But then, there seemed a deal out there between WTC and USAT, and that agreement wasn’t forged. So, USAT could see itself waging a war on two fronts if things go sour with Active.

And, Active isn’t the only entity capable of cobbling together yet another pseudo governing body, paralleling WTC’s Global Triathlon Group. USAT has recently ceased business with Timberline Timing, and this timing, registration, and database management company has reportedly sued USAT over a breach of contract. Both Active and Timberline appear to have horsepower needed to be robust competitors to USAT.

Maybe this can be boiled down to a philosophical question of business. Maybe USAT’s management and office staff simply doesn’t like to outsource. Are database management, online registration, magazine publishing and race series organization business modules with which USAT does have intersection, but has traditionally outsourced? Maybe USAT simply sees itself as bringing in-house businesses in which it is already legitimately engaged?

”We just needed to bring that database management in-house,” Gilbert says. “It was time. We’re too big to not be managing our own database and rankings.”

Inside Triathlon’s publisher, Kyle DuFord, Isn’t so sure. “Skip Gilbert makes me nervous. They need somebody who has institutional knowledge with respect to how things work in the industry. Within months we're out, so is Timberline Timing, so is WTC. They're trying to bring everything in-house. All their own membership, marketing, retail, publishing. But what they're not doing is taking care of their own backyard.

“Am I worried about their magazine?” posits DuFord. “No. They really don't understand how to put a magazine together. They have no clue what they're getting into. I’m worried that they're not taking care of the things that matter to me, as a card carrying member of USAT."

Perhaps USAT ought to bring these good and services in-house. On the other hand, skeptics might argue that the U.S. Government should nationalize its own industries of strategic import, like oil, defense, highways, should one leverage that view far enough.

This takes us full circle, and to our original question. What circumscribes a governmental entity? It’s generally considered a good thing to have competition in industry, and a bad thing to have competition among governments. There ought to be a lot of oil companies, airlines, computer makers, telecommunications operators, most people agree. Yet, there should be only one U.S. Government. As regards USA Triathlon, it is afforded monopoly status, both legally and, in large measure, by the triathlon industry. Only WTC, owners of the Ironman Triathlon, have so-far crossed that historic line.

The question is, has USAT crossed the line in reverse by venturing into the realm of commerce?

”USAT needs to reach out to race directors,” says Caille to this question. “Ask, ‘How can I help you?’ Do this, and don’t compete with those who’re trying to scratch out a living in the industry.”

Is USAT just carrying out its mission in a bold, robust fashion, as Gilbert asserts. Or is it sufficiently aggressive in its competitive stance that Active.com, Triathlete and others might declare open season on USAT? Might USAT's historic ability to offer, unfettered by robust competititon, insurance programs to race directors soon be a thing of the past?