We all know about the Olympics, the world’s biggest sporting event. What we do not know is that the Olympic games, not so long ago, was on the brink of existence. This is a story about how commercial forces saved the party and about the hangover that comes with it.
The Olympic games with its Olympic rings, one of the world’s best known brands, is today considered a hot target for large corporations to be associated with, and sponsorship deals worth billions of dollars are heavily sought after. Coca Cola paid $100 million for the sponsorship rights to the Olympic brand and the 2012 London campaign. In total, the International Olympic Committee raised over $2 billion in sponsorship deals for the London games, a significant contrast from the times when the athletes were prohibited to be associated with commercial brands and professional athletes were banned from participating in the games.
The turnaround came in 1980 when IOC president, Juan Antonio Samaranch, decided to allow centralized commercial financing of the games and participation of professional athletes. A bold decision, claimed to be in contrast to the Olympic spirit of an event and free from commercial and political interests. The move was criticized, but it was a decision that had to be made. The Olympics were at the time heavily afflicted with a financial collapse of the Montreal games in 1976, and massive boycotts in the games following the 1972 Munich games.
The Olympic burden on the city of Montreal has been heavy. In 2006, 30 years after the games, the city had finally managed to repay its debts on the Olympic stadium. The big O, locally called the big owe, is standing as a monument ever reminding the people of Montreal of the financially mismanaged event. The political controversies at the time, were further drawing a shadow over the games. In 1976, many African countries boycotted the games as a response to apartheid, and the western countries led by the US refused to participate in the 1980 Moscow games. In many senses, the Olympic spirit was already lost at the time, where the games, or non-participation in the games, was used as a political mean, and the cost had become unbearable for host cities. The result was that when the 1984 Olympic games host city where to be elected, only one official bid was put forward and the Olympic movement was at an all-time low.
Enter commercialism. As a knight in shiny armour, Los Angeles announced their interest in arranging the games. However, on the conditions that it had to be commercially financed through more extensive and exclusive sponsorship deals and professional athletes had to be allowed in the games. As there were few other options, the commercial forces were allowed into the Olympic world, making it into the kind of games we see today. In fact, the Los Angeles 1984 games were the first games to be commercially profitable, creating a view of the Olympic games as a commercially lucrative event and as a potential investment. The interest in, and the economics of the games, has indeed exploded since then; the revenue from the broadcasting rights has increased from $287 million to $2.5 billion between the 1984 Los Angeles games and the 2012 London campaign and is expected to increase further for next year’s Rio de Janeiro games.
Where is this going to end?
As the revenue has spiked so has the costs. Hosting the Olympic games is more lucrative than ever, but also more expensive than ever. New stadiums, facilities, and infrastructure has to be built for an event lasting for four weeks. The 2012 London games cost about £9 billion, more than three times the original budget. May it be that the increasing commercialism of the games has created a monster of the Olympics, growing too much for itself to bear. In financially unstable times and growing global inequalities, is it viable to put public resources into a short-lived event like the Olympics rather than investing in education or poverty reduction?
We have seen Athens and Greece struggle in the aftermath of the 2004 Olympic games with over-dimensioned facilities and a vulnerable economy. Protests are loud in next year’s host city Rio de Janeiro, Brazil, a city and a country with large problems concerning inequality and poverty. Are public funds really best invested in hosting the Olympic games in a country like Brazil?
Few studies, if any, show that benefits exceed costs in hosting the Olympic games. There is rather significant opportunity costs subject to hosting an event like the Olympics. Thus, there is an evident risk of an economic hangover for the hosting city and country, especially in economically more vulnerable countries, like Brazil, and as we have seen in Greece. Since it is the IOC that reaps most of the profits from the commercial rights associated with the games, where is the incentive for cities to host the games?
Still, it is undoubtedly a prestigious showcase event for governments showing political strength and the benefits of hosting the Olympics have to be measured in soft rather than hard values. The same kind of reasoning as when Coca cola spends hundreds of millions to be able to use the Olympic logo associated to its products. After all, the Olympic spirit is something we cannot measure or value and some decades ago commercialism saved its existence. Today, the picture is rather the opposite. The commercial magnitude of the games has grown to test the limits of what the Olympics can hold and it calls for some sustainability measures or else the hangover will be heavier than the fun of the party.
