Billionaires make waves at the America's Cup

As the battle for the America's Cup heats up, controversy rages onshore.

By Chris Redman, Fortune contributor

(Fortune Magazine) -- The America's Cup, or the "Auld Mug," has a strange way of cursing its heroes. Buccaneering Australian businessman Alan Bond finally wrested the trophy away from the Americans in 1983 but was jailed for embezzlement within a decade. After failing to win the Cup in Il Moro di Venezia in 1992, Italian industrialist Raul Gardini returned home to a corruption scandal, penned a one-word farewell - grazie - to his family, and put a bullet through his head. New Zealand sailing ace Sir Peter Blake didn't even get a chance to say goodbye: In 2001 the two-time Cup winner was shot and killed on his boat by pirates at the mouth of the Amazon.

Now, as the 32nd Cup kicks off (the preliminary Louis Vuitton Cup is due to finish on June 12; the main race begins June 23), another hero can be forgiven for wondering if there really is a curse: Swiss biotech billionaire Ernesto Bertarelli.

Oracle CEO Larry Ellison is the Cup's lead challenger.

Back in 2003, Bertarelli's Alinghi - an out-of-the-blue challenger from a landlocked country - became the only first-time entrant to win since the race's inception in 1851. The Cup's eccentric rules allow the winner of the trophy to stage the next challenge and all that goes with it. It's as if the winner of the Super Bowl got to control the NFL for the year and could change everything from the shape of the field to the player requirements. So Bertarelli, a Harvard Business School grad who sold his company, Serono, to Germany's Merck in 2006 for $13.3 billion, decided to shake things up.

With approval from the lead challenger (Oracle (Charts, Fortune 500) CEO Larry Ellison), he created America's Cup Management (ACM), ostensibly to run the Cup in a more businesslike manner for the benefit of defender and challengers alike. But ACM--headed up by Bertarelli's boyhood pal Michel Bonnefous--has faced a chorus of complaints from the challenger teams.

Says one longtime Cup participant: "Challengers used to have their own organization to represent them. We gave that up in the interests of a more streamlined Cup, but we have received very little in return." Italian shipping magnate Vincenzo Onorato, backer of Mascalzone Latino, even went public with his anger at ACM, accusing them of being the "12th challenger" in the Cup.

Dissing the defender is nothing new to the America's Cup, and Bertarelli's reputation for gamesmanship was never going to allow him an easy ride. Cup insiders haven't forgotten that during the last Cup he financed expensive apartments in Geneva for his hired Kiwi guns so they could masquerade as Swiss residents and qualify for the Alinghi team despite never visiting their digs (he has since ditched the nationality rule altogether).

This time around he has rankled Cup loyalists by firing his winning skipper, Russell Coutts, and then using his rule book to prevent the New Zealander from sailing for a competitor.

Although ACM is pledged to act in the best interests of all the participants, the contenders complain that event sponsors recruited by ACM are being favored over team sponsors with the result that the latter - vital to the future of the Cup -are wavering in their support.

That comes on top of the challengers' running battle with ACM over finances. Cup revenues are estimated at around $300 million, but the challengers get only a share of what's left after ACM's expenses. That "profit" is estimated by Bonnefous at around $48 million, 10% of which goes straight to ACM. Alinghi takes half of what's left, leaving the 11 challengers with roughly $2 million each and a conviction that they have been shortchanged. Bonnefous counters that ACM has generated a tenfold revenue increase, so that contenders are better off than ever.

Bruno Troublé, a tournament veteran who now oversees the Louis Vuitton Cup on behalf of the French company, won't comment on whether there is tension with sponsors, but he echoes Bonnefous' stance. "There's a long history of challenging teams being unhappy with the defender," he says. "But once the racing starts again you'll see this Cup will be bigger and better than ever."

But who will see the Cup? If it is to become a seaborne version of Formula One, it needs to deliver a substantial television audience. Bonnefous is confident that the eyeballs will be there, especially as the European venue ensures a more viewer-friendly time zone. But the challengers believe ACM has already blown it and have written formally to register their concerns.

"They should be giving away the TV rights in order to build an audience," says one veteran who claims ACM has scared off potential broadcasters by demanding exorbitant fees. "Sailing is never an easy sell and can be a scheduler's nightmare," adds Cup historian Bob Fisher. "But when it works it works brilliantly. The Cup can't afford to get this wrong."

In Europe the Cup will be carried by a number of national and commercial broadcasters including Canal+ and Sky Sports; viewers in the U.S. will have to rely on the Versus Network - formerly OLN - for coverage. "This will never rival soccer's World Cup," says Troublé, "but I'm confident we'll have three times the coverage we had in New Zealand."

With millions already invested in the event, those backing the boats pray he's right. After all, the Cup has become more than yachting's Holy Grail, it's a big business. Germany's entry, United Internet, flies the flag for an ambitious ISP. French challenger Areva is named for a company that builds nuclear power plants. American boats used to have inspirational names like Reliance, Enterprise, and Resolution; now the U.S. entry is called BMW Oracle.

"The Cup ticks all the right boxes for these companies," says British marketing guru Tom Henderson. "Sailing is at the luxury end of the sporting and lifestyle spectrum. In the public's mind it's about beautiful people on boats."

But back in Valencia, Spain, in mid-April, people found themselves with very little to do when the wind failed for four straight days. Bertarelli, who chose the Spanish venue for its supposedly reliable winds, must be wondering: Is he the latest victim of the Cup's curse?  Top of page