Is it Time for the Olympics to Change Its Business Model?

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August 5, 2016, Observer

As the Olympics got underway this summer, many are questioning the current business model with much speculation about the apparently declining desirability of the “hosting” proposition. This has produced a number of suggestions about how the current business model may need to change to guard the Games’ sustainability. One suggestion entails keeping it in one location so that the costs of new infrastructure are curtailed a bit. Others entail changes to cost sharing and revenue sharing arrangements.

Paul Christesen, Professor in the Department of Classics at Dartmouth College, author of Olympic Victor Lists and Ancient Greek History (Cambridge University Press, 2007) and Sport and Democracy in the Ancient and Modern Worlds (Cambridge University Press, 2012), proposes his own model in the Observer (first published at The Conversation).

It seems as though the Olympics have become too big, too costly and too complicated to be hosted by a single city. The solution? The International Olympic Committee (IOC), the governing body for the Olympic Games, should hold competitions for each different sport in a different global city.

The 2016 Summer Olympics are underway with severe budget overruns, the menacing Zika virus, super-bacteria lurking where athletes will swim and sail, and some waterways reportedly contaminated with raw human sewage and human body parts. Security is such an issue that the Australian team entered their quarters to find “blocked toilets, leaking pipes and exposed wiring.” Vanessa Barbara, who covers Brazilian politics and culture for the New York Times was more categorical in her lengthy assessment a few weeks ago: “The Olympic Games in Rio are an unnatural disaster.”

The U.S. basketball team has shunned the Olympic Games athletes’ villages since 1992. The team stayed on a ship at the 2004 Games in Athens, used hotels in Beijing in 2008 and London in 2012, and now they are being housed on a luxury cruise ship. Regarding overall security, striking police officers held up a banner at the Rio airport that read, “Welcome to Hell: police and firefighters don’t get paid, whoever comes to Rio de Janeiro will not be safe.” The governor of Rio de Janeiro declared a “state of financial disaster” in order to free funds to meet rising costs. It may have made sense in 2009, when the IOC awarded Rio, the first South American city, with the boon of hosting the Olympics, but to many, this endeavor has proven today to be at best an epic exhibition of nerve.

The IOC was founded in 1894, when only the spectators who were physically present could watch the Olympics. Travel was slow, difficult to arrange, and expensive. In addition to advances in technology enabling everyone anywhere to tune in, the size of today’s games may call for a new “decentered” business model.

Since 1980, the number of events held at the Summer Olympics has increased by 50 percent, the number of athletes competing and countries participating has nearly doubled, and the number of people needed to operate the games has tripled. The London Olympics, where more than 10,000 athletes competed, required a support staff of 350,000 people.

Christesen does not deny that there is something special about the pageantry of the opening and closing ceremonies for the world’s biggest sporting event. He recommends that the athletes be flown to attend these two events.

These ceremonies could be permanently situated in a single place that would become the spiritual center of the Olympics. Lausanne, Switzerland, where the IOC is headquartered, or Olympia, Greece, the place where the Olympics originated nearly 3,000 years ago, would be a couple of good options.

But there are challenges to this proposal. The exclusive right to broadcast the 6,500 hours of 2016 Rio athletics cost NBC more than $1 billion. What would be the additional costs to position TV crews around the globe?

In 2014, the IOC considered many proposals for restructuring the games, including the proposal that Olympic events be held in different cities. Louisville, Kentucky would be an ideal host for the equestrian events, and so on. “An Olympic softball stadium in Athens, Greece, was unusable the minute the games ended, since softball isn’t a popular sport in Greece. The same stadium in Athens, Georgia, however, would be an invaluable local resource for decades to come,” writes Christesen.

The International Olympic Committee awarded the Games of the XXXII Olympiad in 2020 to Tokyo, beating out Istanbul and Madrid, not without allegations of corruption.

Last year, NPQ covered the “unmaking of the unpopular bid” to hold the 2024 summer Olympic Games in Boston, which included a report that the Boston 2014 organizers significantly underestimated the actual cost of hosting the event. The city eventually rejected the host opportunity and others have followed suit. Harvard Business Review recently published an interview with Chris Dempsey, one of the organizers of the group that organized for that Boston rejection. He says that the current business model was based on that of the World’s Fair, dating back to the turn of the century before last and is a basic franchise model but that host cities are seeing not just declining returns but sometimes overwhelming losses for participating. He ventures, however, that despite a recent commitment to reforms, the IOC is likely to remain doing what it is doing until it is forced to do otherwise:

The IOC has made the claim before that it understands the issue and that it’s going to reform, but it hasn’t actually demonstrated a willingness to stick to those promises. As I think about the business model going forward, the most likely outcome is that the IOC will continue to do what it’s doing. And it will continue to hope that some number of cities every few years will take that risk because of the glittery promise of being on the world stage. Things will continue to chug along, with unfortunate outcomes for residents and taxpayers in those host cities. I would love to say that I see a change on the way, but there’s nothing that the IOC has done to date that gives me any confidence that it’s truly reformed.

—James Schaffer