Posted on 11 March 2012.
LONDON/BERLIN March 8 – Banks have gone bust and countries teetered on the brink of default since Beijing hosted the Olympics in 2008, but the Games have defied the downturn, growing ever richer on the back of record sponsorship and TV income.
Broadcast revenue for this summer’s London Games and the Winter Olympics in Vancouver in 2010 will total $ 3.9 billion — up 50 percent on the previous four-year period.
On top of that, the 11 international companies who sponsor the Olympics have paid nearly $ 1 billion for the chance to market their products on the back of the Games.
Despite the convulsions shaking the global economy, the Olympics are sheltered in a sweet spot — ideally placed to benefit from the huge expansion of television markets and the globalisation of commerce. The Games promise compelling human drama played out before a mass audience.
“If you wanted to call it a brand, it is a brand that appeals to the higher emotions,” said Paul Deighton, the former Goldman Sachs banker who is chief executive of the London Organising Committee for the Games.
Deighton said the Olympics, at their best, conveyed an inspirational message of hard work being rewarded which moved viewers and appealed to big corporate customers.
“It makes people cry the emotion of it. These are huge emotional stories,” he said.
FASTER, HIGHER, RICHER
Critics say the commercialisation of the Games, a process that has accelerated since Los Angeles played host in 1984, has divorced the Olympics from their lofty ideals of promoting peace, unity and education.
Sponsorship invites controversy as exemplified by U.S. company Dow Chemical, which signed up as a backer of the Olympic movement two years ago and will additionally pay for a decorative wrap to hide some of the uglier tubing around London’s Olympic Stadium.
Dow’s involvement has rekindled anger over compensation for the 1984 Bhopal disaster in India at a pesticide factory owned by a subsidiary of Union Carbide. Dow bought Union Carbide in 2001.
The International Olympic Committee (IOC), the Swiss-based body that oversees the Games, has also been forced to justify building up cash reserves of almost $ 600 million — money it says provides a buffer against a Games being cancelled.
Britons paying an eye-watering 9.3 billion pounds ($ 14.8 billion) for the Games at a time of sharp state spending cuts will be curious to learn where the Olympic revenue goes.
The IOC redistributes over 90 percent of its marketing income — splitting it between the host, international sporting federations and more than 200 countries sending their athletes to the Games.
London can use its cash to pay the bill for staging the Games but has to pick up the full tab for building shiny new stadia in a formerly rundown area in the east of the capital.
“The financial model is the government is paying for the assets that are there long term and the IOC effectively pays for what is in the organising committee….which are the Games expenses,” Deighton said.
Deighton expects London to break even on the 2 billion pound cost of putting on a show which runs from July 27-August 12.
On top of its slice of central IOC revenues, Deighton and his team have raised and can keep 700 million pounds ($ 1.10 billion) from one-off sponsors led by BT, Lloyds Banking Group, BP, BMW, EDF, British Airways and Adidas.
London also gets to keep over 600 million pounds from ticket sales. A smaller sum from the sale of 2012 merchandise — those souvenir hats and T-shirts — will help it to balance its costs.
Public funding is supposed to bring a long-term economic dividend once the Olympic flame has been extinguished. However, the results are mixed — the Barcelona Games in 1992 helped to regenerate the Catalan city, but 2004 host Athens has been left with a sorry herd of white elephants it cannot afford to maintain.
The success of the IOC’s marketing machine has allowed it to give every country an additional $ 100,000 this year to help their Olympic preparations and blunt the impact of the global economic crisis.
The IOC said its long-term planning gives it insurance against the economic storms of the past few years.
“Most of the contracts for 2010-12 Games were already in place by 2008,” IOC finance commission chief Richard Carrion told .
The finances of the Olympics — like other sports events — have been transformed by television’s insatiable appetite for live content. U.S. network NBC, controlled by Comcast, paid about $ 2 billion for the rights to the 2010 winter and 2012 summer Games.
“The NBC contract was signed in 2003. It was well in advance of Vancouver and London being selected as cities,” he added.
NBC has since signed a $ 4.38 billion deal for four winter and summer Games through to 2020, securing the Olympic movement’s financial future for the next decade.
The cash cushion also means the IOC can also pick and choose when it renews deals. In the case of the NBC deal, it delayed negotiations for more than a year as it waited for the U.S. advertising market to bounce back after 2008.
“We sort of have the latitude of deciding within certain parameters when we want to enter the market and in that sense it was smart to wait (for the NBC deal) until the right moment came along,” said Carrion.
PLENTY IN RESERVE
Such deals have helped the IOC to treble its cash reserves over the decade since Belgian Jacques Rogge, a former surgeon and Olympic yachtsman, took over as its president.
Carrion, an IOC member from Puerto Rico seen as a potential successor to Rogge in 2013, said the reserves built in a buffer in case a Games cannot be staged.
“You want enough in the reserve fund to carry out the work of the Olympic movement without interruption,” he said.
The Olympics were suspended during World War Two, resuming with the 1948 Games in an austere London. They have been held every four years since although Cold War boycotts in 1980 in Moscow and four years later in Los Angeles thinned the ranks of athletes and appeared to threaten the future of the movement.
Besides broadcasting, the IOC has a strong revenue stream from its top sponsors, 11 global corporations who sign long-term agreements to associate their brands with the Olympics.
Soft drinks company Coca-Cola Co has been sponsoring the Olympics since 1928, while household goods company Procter & Gamble and Dow Chemical joined the programme as recently as 2010.
U.S. companies General Electric, Visa and McDonalds are also sponsors, along with Europeans Atos and Omega.
Japanese group Panasonic, South Korean company Samsung and Taiwanese group Acer add an Asian component to a line-up from which companies in the BRIC economies are conspicuous by their absence.
IOC marketing chief Gerhard Heiberg is happy to stick with a formula that is likely to bring in revenues of over $ 1 billion for 2014-16, seeing scope to add one more backer. Sponsors enjoying exclusivity in their category, effectively placing a ceiling on the numbers in the programme.
“Sponsors seem to be happy with the current setup of the programme,” Heiberg told . “Nobody has come up with a clear alternative. So it will be adjustments and not a revolution. 12, that will be a maximum. 12 are enough.”
Heiberg did, however, expect that companies from fast growing markets would eye a spot on the programme.
“The world has opened up more. The Games will be going to Rio de Janeiro and South America for the first time in 2016. At some point we have to give the Games to Africa.”
HITTING THE TARGET
American swimmer Michael Phelps and Jamaican sprinter Usain Bolt have become multimillionaires after striking Olympic gold.
However, for lower profile sports, the Olympics offers a significant cash boost every four years and provide an ideal showcase to attract new fans and participants. There is a queue of sports seeking to gain a place at the Games.
Tom Dielen, Secretary General of the World Archery Federation, predicts an infusion of around $ 11 million from the London Games when archers will compete at Lord’s, the historic home of English cricket.
He said that while the sport had reduced its dependency on the Olympics in recent years because of the development of a World Cup, it remained vital.
“The fact that the sport is more visible gives a boost to sponsorship,” he told . “It is very important and that money is fully invested in the sports again. It makes the universal development of our sport possible.”
MySportNews іѕ a sports news digest publication that compiles real time, on demand sports news, articles, аnd resources. This article was distributed by Syndicated Sports news wire and aggregation service, For more Olympic sports news see: Games cash machine defies global doom.