03 Aug 2012

Off and Running: Faculty on the Olympics


BOSTON—Staging the Olympics is a Herculean task. Years of preparation, including budget-busting financial requirements, a panoply of construction projects, world-class logistical and communications challenges, and event-planning needs that stretch the imaginations of platoons of party planners, lead to a two-week spectacle that captures the attention of people around the world. With the Games of the XXX Olympiad off and running in London, three Harvard Business School professors offer their insights.

Stephen A. Greyser, Richard P. Chapman Professor of Business Administration, Emeritus, and recipient of the American Marketing Association's 2010 Sports Marketing Lifetime Achievement Award.

The power of “The Rings” — the brand power of the Olympics — derives from the global recognition of the five rings (representing the five continents), the wide array of corporate sponsors seeking to co-brand with the Games, and the huge revenues that the Olympics attract from both sponsors and broadcasters.

The Olympics are not the Super Bowl — the annual single-game championship in America's favorite sport and another powerful magnet for advertisers. Nor are they the World Cup—the quadrennial single-sport, multi–week championship of professional soccer that commands vast attention in much of the world, but limited interest in the United States.

Rather, the Olympics both encompass sport at its highest level and transcend sport. They constitute the apex of competition by individuals and countries in hundreds of events (302 in London, to be exact), involving sports that may be very popular in one part of the world and virtually unfollowed in another. The common thread is the excellence of competition, characterized by the Olympic motto, "citius, altius, fortius" (faster, higher, stronger).

In addition, the Olympics are an event-filled entertainment package, launched by the spectacle of the Opening Ceremonies, which drew a record 40.7 million viewers in the U.S. last week. For advertisers, that large number is even more appealing since it comprises a higher-than-normal proportion of women (especially when gymnastics and swimming are featured) compared to typical sports programs. The TV tradition of "up–close–and–personal" human interest stories focusing on athletes' personal lives also broadens the audience mix, as does the element of national pride that comes with victory and the emotional flag–raising ceremony that follows.

The brand power of the Olympics is also fueled by business and marketer attention, especially sponsorship and broadcasting. The select group of corporations that are official International Olympic Committee (IOC) worldwide sponsors are said to pay $90 to $100 million each for the right to use the rings globally in their marketing efforts. These companies typically spend large additional amounts on advertisements to support their sponsorship. On the broadcast side, the largest IOC rights fees come from NBC Universal, which paid $1.18 billion for the 2012 Games, and will pay $4.4 billion for the next four Olympics through 2020.

So, combine the excellence of multi-sport competition, infrequent occurrence, national pride, and the spectacle and story beyond the games themselves. Then mix in the strong support of global brands and count the extensive television coverage (over 5,500 hours in this country alone) and record audiences that have tuned in during the initial broadcasts from London, and it's crystal clear why, from a marketing perspective, the Olympic Rings have a golden glow to them.

John D.Macomber, Senior Lecturer of Business Administration and former chairman and CEO of the George B. H. Macomber Company, a general contractor.

Mega sporting events like the Olympics bring a global spotlight, plenty of cash, and many marketing and PR benefits to prop up national pride and purpose. They can also bring commercial benefits to sponsors of soft drinks, telecoms, athletic gear, and other products. But there are no gold, silver, or even bronze medals for the Olympics' host city and country. In fact, for them it's almost always a financial disaster.

Real estate and infrastructure make a case in point. The exorbitant cost of new structures, the limited number of opportunities for post-Games usage, and even the sometimes questionable quality of the construction are often lost in the excitement of bringing the Olympics to “our fair city.” According to one news report about the aftermath of the 2004 summer Olympic games in Athens, for example, “In 2008...twenty-one of 22 venues from the games were closed, most of them derelict and covered in graffiti.” And a recent article in The Atlantic.com points out that the national stadium in Beijing, built at a cost of $480 million and the centerpiece of the 2008 Olympics, "has no regular tenant." Instead, having fallen far from Olympic glory, it’s a place where tourists now pay $20 a head to race around the track on Segways

Beyond all this, when it comes to Olympic construction, there are few commercial buildings in the asset mix. Cities don't claim that office buildings, retail malls, or factories were built for the Games. Even Olympic housing is seldom successfully transformed into apartments or public housing once the athletes leave their village, perhaps because it's in the wrong place for permanent residents or poorly designed for families in a mass market. Finally, consider the costs of projects that more often than not go way over budget and then result in crushing long-term debt burdens. Montreal's Olympic stadium, for instance, which was erected in 1976, became known as the "Big Owe." It took that city 30 years to repay the municipal debt — $1.5 billion in 1976 dollars, or more than $6 billion today.

Sometimes "building new urban infrastructure" is a justification for hosting the Games, but this is more of a sales pitch than a financial analysis. New subways or water projects need to be repaid from usage fees over the very long term. London or Beijing may upgrade a transit line to accommodate the rush of athletes and visitors, but these municipalities can and should find a way to finance these projects independent of the Olympic fortnight.

Although the Games are also promoted as an exercise in national unity and as justification for urban renewal that would otherwise have been resisted, they take their toll in human costs when old structures and their inhabitants are forced to make way for high-priced gentrification. When the Olympic Games are breathing down the city fathers' necks, there's no room for discussion or compromise when people's homes (especially those of low-income residents) need to be razed for Olympics construction.

Bottom line: From an urban planning and investment perspective, the spectacle that is the modern Olympics can be pulled off only by large, rich cities that have most of the existing infrastructure and venues in place and access to substantial subsidies. A supportive political environment (think Seoul, Beijing, and yes, London) is a priceless asset as well.

As you watch the London Olympics unfold, be assured that the euphoria that ends with the Closing Ceremonies will quickly be replaced by the harsh reality that comes with paying the bills. In the future, political leaders need to ask themselves one question: Can your city and country afford to be crippled with debt for decades by an event whose excitement lasts only for days?

John T. Gourville, Albert J. Weatherhead, Jr. Professor of Business Administration and an expert on consumer behavior, pricing, and innovation.

The blog below, cowritten with Marco Bertini of London Business School, originally appeared as a blog post on HBR.org. It was excerpted from the authors' article "Pricing to Create Shared Value" in the June 2012 issue of Harvard Business Review.

The committee organizing the London 2012 Olympic Games faced an extraordinary business challenge: How to price 8 million tickets in a way that allows equitable access to 26 sporting events, meets revenue and attendance targets, and adheres to the explicit social objective of making the Olympiad "Everybody's Games."

To accomplish this, the committee took what we call a shared-value approach to pricing. Traditional pricing strategy is by definition antagonistic, but it needs to become a more socially conscious, collaborative exercise. Businesses should look beyond the dry mechanics of "running the numbers" — still relevant but no longer sufficient — and recognize that humanizing the way they generate revenue can open up opportunities to create additional value. That means viewing customers as partners in value creation — a collaboration that increases customers' engagement and taps their insights about the value they seek and how firms could deliver it. The result is benefits for firms and customers alike.

By studying the 2012 Games and the committee's multiyear pricing process, we determined five pricing principles that every business, whether it has a shared-value mission or not, could profitably adopt. Here are the five principles and how the organizing committee applied them:

Read the continuation of the full blog on www.hbr.org

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Jim Aisner