Economics of Olympics

7/31/2019 Economics of Olympics

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The Olympics are on and we are into the 7th

day today. Countries are vying with each other

to win as many medals as possible to assert their supremacy.

India had fared well in the last Olympics at Beijing where for the first time it won multiple

medals. We are expecting a repeat if not a betterment over last Olympics. Hopes are still on

in games like Shooting, Boxing, Wrestling, Tennis and Badminton.

We are all enjoying the worlds biggest event which embraces one and all. It generates a

kind of euphoria and excitement for these 15 days and takes everyone into its sway.

But the big question is How much does it cost to conduct the Olympic Games or rather as

MBAs what kind of business opportunities it offers to us.

We will try to understand all that but first lets have a look at the origin of the Olympics.

During the ancient times the Greek city states were constantly into war and hostilitiesagainst each other. The Greek elders, on the lookout for a way to stop hostilities came out

with a noble idea of hosting festivals of sports and games. When the festivals were on, a

holy truce would be declared calling an end to all kind of hostilities. It was made a sacred

affair to participate in these festivals.

The first of these festivals was held in the city of Olympia around 776 BC and gradually

became a routine affair and continued in ancient Greece for almost a 1000 years well upto

about 393 AD.

These festivals hailed the human endeavor and the desire to achieve excellence by

exercising the body and the mind. For the City states these games offered the opportunity

to showcase their athletic talents and claim superiority.

In the Modern times, these games were revived by a French Nobleman named Pierre de

Coubertin. Having grown up in an era when his country and the continent went through

major unrest and wars in the later part of 19th

century, Pierre de Coubertin came to believe

that the only way to peace is when nations engage in a battle of supremacy of human

endeavor in sports and games. He founded the International Olympic Committee in 1894

and organized the First Modern Olympic Games in Athens, Greece in 1896.

Baron Pierre de Coubertin believed that the ancient Greek practice of a sacred truce in

association with the Games has modern implications, which gives the Olympics a role in

promoting peace. Athletic competition promotes understanding across cultures and thus

lessens the dangers of war.


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How relevant is organizing the Olympics today? How justified are countries in spending

billions of dollars on Olympics?

Yes, it has a greater relevance in such turbulent and restless times that we live in. Sport is

democratic and advocates fair-play. Athletes compete respecting a certain set of rules

always aware of the opponents equal rights to exert and win. It promotes brotherhood.

the effort to excel in human endeavor is more important than winning itself as is often

said.

So, the greater Philosophy of the Olympic Games is to promote Peace and Harmony among

nations through sports and games in an atmosphere of fairplay, association and

understanding.

Further, in todays unipolar world, when weapons of mass destruction looms large and any

trigger of war can potentially bring an end to humanity itself, countries no longer go to war.

But still there is an inherent human urge to exert ones supremacy. Olympics and various

other sporting events provides that platform.

All that is fine but what does it cost to conduct the games? What are the economics

involved? What do countries gain by hosting the Olympic Games?

Hosting the Olympic Games is a lot like throwing the world's largest -- and most expensive --

party.

The costs are tremendous. Massive new infrastructure projects must be planned, funded

and constructed. Security forces are mobilized, with costs ranging into the billions of dollars.

Thousands of hotel rooms must be built to house athletes and tourists; coupled with it the

cost of organizing the games itself. With expectations rising on the organizing committee to

conduct not just an flawless event, but also go one up the ladder than the previous edition

and to earn the appreciation of the best games ever, countries go out of the way to prove

a point.

And most ofit happens on the taxpayers money.

The London Olympics 2012 are being organized at a whopping 14.8 billion dollars, the

costliest ever and the costs are likely to rise. The economic viability of conducting the games

will be gauged once the games are over.

There is a big debate today on the viability of the massive expenditure made for conducting

the games; what do cities gain by organizing the games? In the past we have examples of

cities hosting the games and going into bankruptcy,


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for eg:

After the summer games of1976, Montreal went into huge debts to the tune of 1.5 billion

dollars and could only manage to completely pay-off its debt 30 years later in 2006.

Athens in 2004 was a disaster. It hoped to use the Olympics as a financial turnaround by

promoting tourism but went into debt conditions further and we know what happened toGreece in recent times.

But cities like Los Angeles after the 1984 Olympics made profit by judiciously controlling

expenditure by not getting into unnecessary constructions and using a lot of the existing

facilities. After the disaster of Montreal, there were no takers for hosting the Games and

hence, Los Angeles being the only bidder was able to dictate terms to the International

Olympic Committee.

Beijing in 2008spent almost 5.5 billion dollars. They didnt care about the cost. But China

did it as an advertisement to showcase before the world the growing economic power that

it had become and they got tremendous value for money. It was like buying a ton of

television ads.

Economists argue that there are two ways to turn the games into a financial success.

The first is to adopt the Los Angeles model, and rely on existing facilities to host events. The

second is to use the Olympics as an impetus to build long-term infrastructure projects that

would be needed with or without the games. Vancouvers Mass Rapid Transit system,

Barcelonas conversion of a massive junkyard into a sprawling seafront housing colony in

the shape of the Olympic village, Seouls ecological cleanup of the Han River and presently

Londons development of the less developed east London area with a facelift to attract

future communities and businesses are positive Olympic legacies.

Despite the risks involved cities and countries vie for the honour of Hosting the Olympic

Games. What is it in the Olympic movement that draws nations into its fold?

It only proves one thing that inherently mankind is a peace-loving species and there is a

deep rooted craving in each one of us to connect with each other in a more constructive

way; a craving for excellence in an atmosphere of fairplay. The Olympic movement

successfully touched upon that very important aspect of human nature and emotion and

over a period of more than 100 years built an aura, a brand which today in commercial

terms is the 2nd

most valuable brand in the world next only to Apple.


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There is so much Global interest for the Games that Television Companies around the world

give it their best shot to win rights of broadcast of the events. With viewership comes

advertisement.

More than 40% of the revenue spent for conducting the games comes from sponsorship by

commercial organizations who line up for associating with brand Olympics.

Global brands like Coca Cola, Mc Donalds, GE, Samsung, Panasonic, P&G, Omega, Visa,

BMW, Adidas, UPS, Cisco, Deloitte to name a few are official sponsors for the London

Games.

And yet in terms of traditional advertising and sports sponsorship the Olympic investment

will not provide any form of exposure for the Olympic Games are unique in the world of

sports events, in forbidding any form of advertising in the stadium or on the athletes. So the

billions of television viewers watching the Games around the world, will not see any sponsor

names around the track. From just watching the Olympic broadcast, no one will necessarily

know who the Olympic sponsors are.

So why are all these blue chip companies associating themselves with the Olympic Games

if there is no discernable exposure benefit the traditional foundation of any sports

sponsorship programme?

Simply put, Olympic sponsorship is not about awareness, it is about building affinity with

the consumer. As companies strive to build their own brand identity, the Olympics offers a

unique platform for companies to develop and enhance their own brand identity, byborrowing the values of the Olympic brand.

The Olympics possess a set of values that are undeniably valuable to any marketer like

honour, integrity, determination and commitment to excellence, all qualities that most

companies aspire to. The Olympic Games possess attributes such as dignified, worldly,

global, modern, multi-cultural and dynamic all of which reflect well on sponsors and

project a positive image. Sport offers a platform and marketing tool for companies to

connect with the consumer, by using something that they care for and respect.

Coca Cola perhaps spends more on sports marketing than any other company in the world,

and has been a partner of the Olympic Games since 1928. In a blunt appraisal of Coca Colas

marketing strategy, a senior Coke executive explained why. We have to constantly market

our beverages in a way that creates the impression that theres more than just the liquid in

the package, something refreshing the spirit. The Olympics do that for us.

So what exactly is the Olympic brand. The Olympics is where the world of sport and the

yearning for peace meet. And the basis of the Olympic marketing programmes is designed


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to capture this positioning pulling at peoples nationalistic heart strings or international

values while selling a product. No other brand has such power.

The Olympics are much more than a brand. After all they have a 3,000 year history and

encompassed a global movement long before globalisation was ever talked about.

What an Olympic Medal means to nations?

Countries spend millions of dollars to prepare their contingent for the Olympic Games. The

prestige and honour of winning an Olympic Medal is so high that countries are ready to go

to any extent for that Honour: to cite two extreme examples:

This year the Australian swimming coach said in an interview: You dont win silver or

bronze, you lose Gold

Last Monday, shortly after winning an Olympic silver medal in mens weightlifting, ChinasWu Jingbiao broke down during a live interview for the CCTV network. Im ashamed for

disgracing the motherland, the Chinese weightlifting team and all those who supported me,

Im sorry!

Wu was feeling guilty for committing a cardinal sin in Chinese sports: failing to achieve gold

in an Olympic event in which you are heavily favored.

Taking part in competitive sports has greatly inspired China in shrugging off its poverty and

isolation in the past decades. Chinese athletes' performances in the sports arena have

accompanied the nation's rising status and efforts to integrate with the world.

A gold medal means youve won honor for the country, Silver and bronze mean failure and

regret.

Athletes and associations are under immense pressure to perform and bring glory to the

nation so much so that performance enhancing means are explored at any given point in

time to the extent of consuming life threatening drugs that even affects human genetic

systems.

We in India cannot follow the chinese model of strict regimentation. We have to follow the

Western way of incentivizing and supporting the athletes.

Our sports minister has offered to bring in a policy to designate as IAS officers those who

win medals at the Olympics.


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There is a lot at stake. Let us now examine What role we as MBAs can play in the business

of Olympics and sports

2% of CSR: Recently Government has announced that there will soon be a policy whereby

Corporations will be bound to spend at least 2% of their profits on CSR activities.Development of sports is a good area to focus on. A focus on the development of sports in

the Rural and lesser privileged areas will serve two purpose: Poverty alleviation and sports

development and it will serve the companies to get the required benefits.

Sports Insurance: Insurance in sports is a niche area which has not been tapped.

Sportspersons spends a lot of money and effort in preparation for sports events. They also

are potential victims of severe injuries for which they may be covered.

Sports Management: Sports has become so competitive that a sportsperson cannot

possibly compete at the world level all on his own. Sports Academies and sports

foundations are essential which provide all facilities and which identifies the talent and

manages the talent to perform at the highest level. Management of such organizations

needs to be done professionally. In India we have two such foundations namely Mittal

Champions Trust and Olympic Gold Quest which are managed by professional Mangers

and former sportspersons.

Build brand value though media: Sports is a big arena which can be commercially tapped ifvalue is built around particular sports. Like IPL today is a brand, Badminton is a Brand in

countries in Malaysia, Indonesia and Denmark. The Badminton association in England is

managed by professional managers.

So, in conclusion Id say that Olympic games are here to stay. Countries will no longer fight

wars but will battle it out in the sports arena to assert supremacy. We as managers may try

and be a part of it by bringing in innovation to contribute and benefit from it.

Economics of Olympics

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