Facing sink-or-swim dilemma, Volvo Ocean Race simplified to survive

Prohibitive costs and declining interest left the competition in dire straights in 2013. A forward-thinking break from history helped bring it back from the brink, writes Steve Elling.

Knut Frostad, the chief executive of Volvo Ocean Racing, made a decision to standardise boats that helped drastically reduce costs for the competition. Ravindranath K / The National

To characterise it as a gamble would imply that there were other avenues available.

Not to overly dramatise it, but the directional options for the Volvo Ocean Race had become, basically, to sink or swim.

Faced with skyrocketing team costs and declining interest from sponsors, race officials in 2013 made the heretical decision to commission the construction of a standardised fleet of yachts to be used in the 2014/15 edition of the race, which moves into the open seas on Saturday.

Previously, boats were individually designed, at significant cost, and the teams with the biggest bankroll and trendiest yacht design typically won titles by outspending others.

The issue was exacerbated, in the 2012/13 race, when the various models of the Volvo 70 yacht proved to be particularly fragile, as teams traded solidity for less weight and more speed. However, only two of the six boats managed to sail the punishing Leg 6 from New Zealand to Brazil without a major failure.

A makeover was deemed essential, despite the race’s tradition of being a proving ground for innovation.

“We made a break with history, culture and attitude,” said Knut Frostad, the VOR chief executive.

Even in an upscale sport with some impressively deep pockets, the financials had become stratospheric, especially for teams hoping to contend for the title.

In late 2012, Grant Dalton, the top official for Emirates Team New Zealand, told Sailing World: “There is a crisis, and we live in a bubble. Walk out on the street; people have no jobs, there is no money, and most people within the sport who would be critical – designers being one of them – don’t actually live in that world.”

The VOR is staged every three years. Frostad said the winning boat in 2008/09 spent more than €50 million (Dh231m). The cost per team in the 2011/12 event was between €20m and €35m. This time around, with teams purchasing identically outfitted yachts from Volvo race officials for €4.4m, the seven sponsors are spending between €9m and €14m – or half the cost from three years ago.

With the global economy still mired in a slump, as the 2012/13 edition of the race began, Frostad believed a radical move was necessary for survival. So did many others. A few months back, CNN strongly implied that the event had been on life-support.

Frostad characterised the report of impending demise as a “slight exaggeration”. But in using mass-ordered boats and consolidating the race maintenance to one boatyard crew used by all seven teams – saving millions in redundant equipment and personnel costs – the phone finally began to ring. The single-boatyard model shaved 70 per cent from the maintenance line item, Frostad said.

“Now we are down to the level where we are hearing companies say, ‘Yes, now you’re talking, now we can work with you, it’s worth the money, we have the money, and we can do it’,” he said. “So, yes, I think it’s true that we were close to going the wrong way.”

Sunk costs become more palatable when they are divisible by multiple teams. It is a textbook example of the economies of scale.

There were some nervous moments. When race officials announced in May of 2012 that the one-design model was being adopted, only five boats, including Abu Dhabi Ocean Racing’s Azzam, originally signed on. Six boats competed three years ago, the fewest in event history. Spanish and Danish boats signed up this summer, bringing the total to seven. The first leg of the nine-month race begins in five days with a three-week trek to Cape Town.

“I never contemplated doing it” with five boats, Frostad said. “I probably would have done it with five, but we were building seven boats and I had to sell them. We kind of never looked at the option that we were going to fail.

“To be honest, it was tough. As we got to the end of the period, closer to the race, it got better. But when we first started pushing the concept to the market at the end of 2012, and everything was pointing down economically, it was really hard.

“The first 12 months, when we started this project, we were all, ‘Wow, how is this going to work’?”

Frostad, a Norwegian who twice served as skipper in the Volvo race, noted that his sport-crazed homeland last week withdrew a bid to host a future Winter Olympics.

“The world is changing and people are much more cautious about money,” he said. “You have to have a good sport property, but be smart about the money. We decided we wanted to be in the front of making changes. We wanted to be super progressive.”

The silver lining for boat sponsors is positively golden, too.

“The best part is, none of these changes has a negative impact on the return for the sponsors,” Frostad said. “So we’re attacking the cost, not the income side.”

Follow us on Twitter @SprtNationalUAE