This business of hosting Olympics

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A week after fireworks and a festival of music saw out the Summer Olympics of 2012, it’s quite clear that the Games proved to be anything but the nightmare than many Londoners had feared: the city’s transport infrastructure held up, while London saw nothing like the onslaught of visitors that many had expected (and which had prompted many city dwellers to flee on holiday).

Fuelled by hundreds of enthusiastic purple-shirted volunteers, the logistics around the sites seemed to work seamlessly — while Britain’s sporting success cheered a nation, which with little prospect of economic growth in sight, sorely needed a boost.

Unsurprisingly perhaps, politicians have sought to draw on some of that enthusiasm, with Prime Minister David Cameron calling for the “ambitious” spirit displayed over the course of the Games being used to help the country face its economic challenges.

Britain’s public spend on the Olympics – £9 billion (Rs 78,700 crore) has been more restrained than many nations. For example — learning from previous hosts that had struggled to find the promised alternative uses some of new, expensive sporting arenas created as part of the Games — it opted for more temporary spaces (around a third of the venues are permanent and newly built).

Still, the final tally of expenditure is far in excess of the original £2.4 billion (Rs 21,000 crore) spend estimated at the time of the bid — perhaps hardly surprising given the huge contractual demands that hosting a Games places on a nation.

The exacting demands placed on a host nation and its National Olympic Committee, usually kept confidential, were made public a couple of years ago by the organisation, Games Monitor, which published the Host City Contract as well as the long list of technical manuals on everything — from the thousands of rooms that must be provided for the IOC (International Olympic Committee) and others, to the transport (from free transport for everyone from judges and competitors to media and sponsors) and even economy class travel to London, to the stringent brand protection, comprehensive medical services and doping controls, cultural programmes, to name a few.


The burden to deliver clearly falls on the host city and its organising committee (the London Organising Committee of the Olympic and Paralympic games, or LOCOG): “The City, the National Olympics Committee and the Olympic Games Organising Committee undertake to indemnify, hold harmless and exempt the IOC, its officers, members, directors, employees, consultants, agents, contractors…from all payments and other obligations in respect of any damages suffered by the IOC…resulting from all acts or omissions of the City, NOC and/or the LOCOG…relating to the Games,” the contract reads.

A nation also cedes a lot of authority: everything a country should wish to do around the Olympics — even coin and stamps issued in commemoration, or marketing programmes — must be run past the IOC, which retains the full intellectual property rights associated with the Games and its brands.

While the core infrastructure (including the permanent venue), security, and so on are paid for out of the public coffers, other aspects such as some temporary venues, ticketing, the provision of Olympic cars, the Opening and Closing ceremonies and technology relating to the Games, all come from the budget of the organising committee, LOCOG.

This body is in part funded by the IOC — the Olympic contract states that the amount received by the national organising committee is at the “sole discretion” of the IOC.

London’s organising committee received around half of its £2 billion (Rs 17,500 crore) budget from this. The remainder has come through its own private sponsorship deals, ticketing sales (according to the contract it is entitled to 92.5 per cent of revenues from ticket sales), and merchandising sales.

While the funds raised by a national organising committee are meant to cover its expenses, any cost overrun must be funded by the host nation (LOCOG has insisted that it has kept to its revenue targets). LOCOG has sought to raise additional revenues, through the auctioning off of torches, as well as items such as the men’s 4 x 100 relay, and tennis balls used at the Games.

The IOC itself makes most of its money (just under 50 per cent) from broadcast rights — which have soared from $1.2 million in 1960 from the Rome Games to $1.7 billion in Beijing.

The remainder comes from sponsors, and a fraction from ticketing and licensing — of this 90 per cent goes to other parties, including the National Olympic Committees, International Olympic Sports Federations and other bodies such as the World Anti-Doping Agency. The host nation itself does not receive any part of those revenues.


The way the costs are divided between the different parties is meant to ensure the bulk of what is paid by a nation such as infrastructure, are investments that will deliver returns over the next few decades — whether through the creation of jobs for domestic suppliers and infrastructure firms, better transport links, boosts to tourism and so on, says HolgerPreuss, a professor of Sports Economics at the Johannes Gutenberg-University in Mainz, Germany.

Of course, the extent to which these deliver over time is questionable — various studies conducted over the years of past Games have pointed to limited long-term tourism gains, while the experience of cities such as Athens and Beijing has demonstrated that its one thing to pledge that the new infrastructure and buildings will be put to great uses in the future and quite another to deliver on this.

Their experiences haven’t fazed the British government: David Cameron has estimated that some £13 billion (Rs 1,13,700 crore) worth of economic benefit — including investment from overseas, tourism, and new contracts for British firms — will be reaped as a result of hosting the Games and an accompanying series of business summits for foreign investors.

The Park is set to be redeveloped once the Paralympics are over, while there is fierce competition amongst various sporting organisations (including Premier League club West Ham) to take over the 80,000-seat capacity stadium, and the Olympic Village, sold to Qatar in a £557-million (Rs 4,880-crore) deal last year, is set to become a residential neighbourhood.

Whether all this prevents London soon from being home to a host of white elephants remains to be seen.

The experience of Athens and Beijing does not support the view that the London Games will lead to long-term economic spin-offs.

(This article was published in the Business Line print edition dated August 20, 2012)
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