Billionaires Kill America's Cup Sailing Tournament

Feb. 8 (Bloomberg) -- Billionaires Larry Ellison and Ernesto Bertarelli have turned an America’s Cup boom into bust.

A 30-month wrangle over rules canceled a 19-team qualifying event, scared off sponsors like Banco Santander SA, UBS AG and Nestle SA and shrank the organizing budget to 8 million euros ($11.1 million) from a record 230 million euros in 2007, organizers said.

The wait continued today. The start of the best-of-three sailing regatta in Valencia, Spain, was postponed for two days because of a lack of regular wind speed today, race officials said. The event is sandwiched between the Super Bowl and the Winter Olympics in Vancouver. International interest has declined so much that organizers gave away the television rights, officials of Bertarelli’s Alinghi team said.

“This is not going to be a windfall for anyone,” Gary Jobson, the president of U.S. Sailing and the cup-winning navigator in 1977, said in an interview. “It’s going to cost them both a lot of money.”

The economic impact of the 159-year-old event, sailing’s oldest competition, is less than 10 percent of the $7 billion last time, according to Tom Cannon, a sports business professor at the U.K.’s Liverpool University. There are no infrastructure benefits and most of the about-$500 million spent will be on the two competing boats, Cannon said.

Switzerland’s Bertarelli, 44, said his team has struggled to get sponsors to replace UBS and Nestle, which used the last event to promote its Nespresso brand. The 65-year-old Ellison’s BMW-Oracle retained Bayerische Motoren Werke AG while losing backers including insurer Allianz AG.

95% Legal

“It’s a difficult sell,” Alinghi captain Brad Butterworth, 50, said in an interview. This America’s Cup is “95 percent legal, 5 percent sport.”

Bertarelli got $10 billion in the 2006 sale of family drug company Serono SA, while Ellison, chief executive officer of Oracle Corp. is worth about $22.5 billion, making him the world’s fourth-richest person according to Forbes magazine.

Bertarelli has accused Ellison of turning the event into a spending race to suit his challenge, comparing the U.S. billionaire’s tactics to “corporate raiding.”

“Larry has more money than anyone else, so why would he like a Cup that costs less,” Bertarelli said in an interview last month. “He likes a Cup that costs more.”

Oracle team CEO Russell Coutts, 47, says Alinghi consistently tried to bend the rules in its favor. Ellison didn’t respond to a request for an interview for this story.

No Challengers

“Bertarelli’s new protocol did not make commercial sense,” Coutts said. “Most corporate sponsors want the competition regulations to be stable and provide a fair format and rules for the teams.”

The billionaires’ spat has even touched on which has the better business and sailing credentials. Bertarelli was to have been Alinghi’s helmsman today, while Ellison wasn’t named among 10 sailors on the BMW-Oracle boat, according to team statements. Ellison said early today his participation depends on the weather conditions.

It’s the first time there hasn’t been a qualifying contest since 1988, ostracizing challengers from countries including South Africa, Italy and New Zealand that competed last time. The 2007 event made a profit of 66 million euros shared between 12 teams. For this year, Geneva-based Alinghi ceded management of the commercial rights to Valencia’s city hall and regional government.

“The America’s Cup has lost the sense of national importance,” Cannon said. “From being one of the four or five biggest sports events, it’s become frankly parochial.”

TV Rights

The Spanish authorities are airing the event on the Internet for the first time. The value of the media rights is limited because the event could be over in as little as three days, according to Jerome Pels, general secretary of sailing’s ruling body ISAF, which is based in Southampton, England. The last edition, including a qualifying event sponsored by luxury- goods maker LVMH Moet Hennessy Louis Vuitton SA, lasted three months. Today, a few hundred spectators were milling around the port zone, where a big screen has been set up to show the racing.

The cup dates back to 1851, when John Cox Stevens, commodore of the New York Yacht Club, challenged U.K. skippers to a race off the Isle of Wight. Cox’s boat, America, won and his club defended the trophy for 132 years until an Australian challenger snapped the streak. Alinghi became the first European winner in 2003 and defended the title successfully four years later. CNN founder Ted Turner and the Aga Khan are among previous team backers.

Legal Tussle

The legal tussle over this year’s race began when the U.S. team challenged Alinghi for naming specially formed Spanish yacht club Club Nautico Espanol de Vela to co-write the rules. BMW-Oracle won the right to become challenger and in May 2009 a judge in New York ordered a resolution with a so-called Deed of Gift match.

To be sure, it’s not the first time there has been a dispute between wealthy America’s Cup team owners. The last Deed of Gift match in 1988 between Michael Fay’s New Zealand challenger and Dennis Conner’s Stars and Stripes also descended into acrimony over boat regulations.

In 1903, U.K. tea trader Thomas Lipton began a 10-year wrangle with the New York Yacht Club over rules, only for World War I to delay the contest until 1920, according to America’s Cup historian Jacques Taglang.

“It was the same type of discussion but with more politeness,” Taglang said. “There was a lot of letter writing and chatting.”

‘Dogzilla’ Boat

The boats for this edition will be the fastest in America’s Cup history, team officials said. Oracle’s “Dogzilla” has sailed at more than 41 knots, or about 46 miles-per-hour, CEO Coutts said. The trimaran, whose 190-foot carbon-fiber foil is bigger than the wing of an Airbus A380 passenger jet, gets its nickname from the D.O.G. moniker for the Deed of Gift match.

The Alinghi catamaran, with a width similar to two tennis courts side-by-side, is more geared towards lighter winds, Coutts said. With the boats too big for most regattas and tricky to transport, Ellison and Bertarelli may not get much mileage on their investment after this week.

The Swiss team’s boat, which had to be airlifted over the Alps from its landlocked base by a Russian military helicopter, may be transported back to Lake Geneva to try and set yachting speed records, Butterworth said

“It’s not something that you just give to a yacht club or weekend sailor,” Butterworth said. “It’s pretty quick.”

To contact the reporters on this story: Alex Duff in Valencia at aduff4@bloomberg.net; Aaron Kuriloff in New York at akuriloff@bloomberg.net.
Last Updated: February 8, 2010 12:47 EST