Forget Silicon Valley—In the Latest Startup Craze, Fortune Is Being Spun from a Sport of the Cave Man
Joe Reynolds was 27 when he launched Red Frog Events, a Chicago-based producer of adventure races. In 2012, its sixth year, Red Frog posted revenue exceeding $50 million, prompting Inc. magazine to call it the nation’s ninth-fastest growing company. It can’t add races fast enough to satisfy demand for its $60-and-up slots.
“This is just the beginning for Red Frog,” said Reynolds.
Once a largely nonprofit business, the race industry now boasts publicly traded players in entertainment (Walt Disney ), apparel (Nike inc.) and health clubs (Life Time Fitness). Private equity firms, meanwhile, have purchased Competitor Group Inc. and World Triathlon Corp., owner and organizer of Ironman-brand triathlons.
Yet there’s still plenty of room for the little guy. Three years ago, only a half-dozen race-management companies belonged to the Road Runners Club of America, a foot-race industry association. “That number has grown to 210,” said Road Runners executive director Jean Knaack, and that doesn’t include organizers of triathlons, adventure challenges and other newfangled races.
“The barrier to entry is low,” said Scott Dickey, who might benefit if it were higher. As chief executive of industry giant Competitor Group Inc., Dickey faces an ever-expanding field of rivals, though that hasn’t slowed the growth of his company’s Rock ‘n’ Roll race series. Competitor Group stages that race in about three dozen cities now, up from only six in 2008.
Behind this growth is seemingly unlimited demand and disposable income. Forget the economic downturn. From 2006 to 2012, marathon finishers in the U.S. jumped 26%, to 518,000, even as the average cost of entry in the nation’s top 100 marathons rose 36%, to $89, according to Running USA and Twin Cities in Motion, two nonprofit running groups.
The more participants, the greater the profit. Few foot-race organizers put on costlier events than Competitor Group’s Rock ‘n’ Roll marathons and half-marathons, which feature live bands across the course and other amenities. For the 2012 Seattle Rock ‘n’ Roll race, the company spent $909,039 in that city, a figure that doesn’t include the cost of bibs, timing chips and national contracts for portable toilets and truck rentals, according to a company-commissioned economic impact study.
But entry fees for the race exceeded $2 million, and the company also receives revenue from corporate sponsors. “Once you get past 10,000 runners, you’re going to see a profit,” said Dickey. Rock ‘n’ Roll races commonly draw far more than 20,000 runners.
On the expense side, there’s a lovely oddity: free labor. Race workers—people manning registration booths, aid stations on the course and the finish line—often are volunteers, serving on behalf of a host city, race sponsor or charity raising money from the event. At many races, more than half the workforce is volunteer, contributing to the profits of race owners.
Like high-tech startups, race companies increasingly are known as hip and cool places to work. When Red Frog Events advertised for an in-house attorney, about 250 lawyers applied, many from top-drawer firms, drawn by explosive growth, a benefits package billed as the “world’s best” and an office that features a rock-climbing wall, tree-house conference room and bar.
The job went to Derek Holland, a 36-year-old former Boston College runner who was on the cusp of making partner at a blue-chip law firm when he quit to join Red Frog.
“My parents thought I was crazy,” said Holland, who can wear shorts and T-shirts to the office. “But when they came down and toured our offices and saw what and how well the company is doing, they understood.”
Rising prosperity is benefiting even not-for-profit races. A big spike in participation at the Portland Marathon boosted revenue to $2.5 million in 2011 from about $1 million in 2007, according to its most recent Internal Revenue Service filing. After decades of receiving no pay as Portland’s race director, Les Smith earned $250,350 in 2010 and $127,296 in 2011, reflecting the increased workload of adding a kid’s race and musical bands along the course.
A hot category is triathlon. After retiring as a YMCA president, Steve Tomboni launched a triathlon company in 2010 that will stage 38 races this year. Based in Muncie, Ind., Tomboni hopes to become a franchiser, selling know-how and other services to would-be triathlon organizers elsewhere.
Success isn’t guaranteed. Startup costs may be modest, but organizing races is complex and tedious, typically requiring city permits, traffic control, portable toilets and security. Amid a proliferation of options, athletes won’t return to a poorly executed race. Race startups often fail.
In recent years, some notable successes have developed new niches. As a veteran competitive runner, Travis Snyder came to realize that many people lacked his athletic seriousness and zeal for training, but still wanted to participate. So he launched the Color Run, a 5-kilometer event that emphasizes camaraderie and outright silliness over competition. Throughout his races, participants are showered with bright-colored dye.
“I kind of saw there was potential in a more experiential event that was more inclusive,” Snyder said.
The first Color Run took place in early 2012. This year, Snyder expects to stage more than 100 events for more than a million participants, at entry fees that start at $35.
The story of Tough Mudder is similar. Its participants pay entry fees that can reach $180 to negotiate courses featuring mud pits, rope climbs and other obstacles. In 2013, its sixth year, Tough Mudder expects to stage about 52 races for some 700,000 participants.
Its founder, Will Dean, first proposed Tough Mudder in a startup-idea competition at Harvard University. His idea failed to win; professors serving as judges doubted there was much of a market for the race series.
“I guess that’s why they’re business school professors, not entrepreneurs,” said Alex Patterson, Tough Mudder’s Chief Culture Officer.
source: The Wall Street Journal By KEVIN TRAHAN and KEVIN HELLIKER