October 22, 2017

Strategy and the future of Olympic Games bidding

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I have previously written about the Olympic Games as a mega project and the unique human-behaviour characteristics that enable its scheduled completion time and time again, mostly by compromising cost. Last year’s Rio Olympic Games, for example, completed with just over 50 per cent cost overrun. There have been much worse cases in the past, as indicated by a recent analysis of the cost overruns in previous Olympics.

The next Summer Olympics will be held in Japan (2020) with a budgeted cost of £2.76 billion. Recently, the International Olympic Committee (IOC) announced the countries that have been awarded the hosting of the 2024 and 2028 Summer Olympics: France (Paris) and the US (Los Angeles). This was actually the first time that the IOC had chosen two hosts at the same time. It was simply because more and more countries are reluctant to bid because they consider the risks related to the outcomes of such a complex and expensive project to be too high. The IOC had to secure the nominees before they changed their mind…

However, beyond the one-off project and from a more strategic perspective, is hosting the Games a ‘good’ endeavour for bidding countries? Can a country that steps forward to host the Olympic Games actually make profits? What possible long-term benefits are they after?

The IOC and the (ever-decreasing number of) bidding countries are constantly looking for other alternatives to sustain the future of the gluttonous Olympic giant. Some of the potential business models include:

  • holding the games globally by sharing existing sport venues between several countries. However, the extravagant opening ceremony probably cannot be distributed…
  • holding the games in a permanent hub with international funding regardless of its geographic location.
  • commissioning corporate sponsors (and not the countries themselves) as financiers.
  • defining a rota of countries to host the games (dispose of the competition bid element).

Such options may reduce the economic burden on countries – dominated by enormous fixed costs with high depreciation rate for physical deterioration of the sport venues and Olympic village – by better utilising existing infrastructure.

In the EBS MBA Strategic Planning course, we look at similar scenarios. We examine how a strategic decision is assessed by using a structured process model that distils long-term strengths and opportunities for the business. Of course, a country is more than just an ordinary ‘business’ and its objectives are beyond maximising financial profits. It’s more about maximising value for shareholders (citizens) and stakeholders (the international community) alike.

Some values such as pride can even be intangible. Therefore, a country wishing to host the Olympic Games should not only consider the immediate outcomes of the construction and operation project, but also how it can further upgrade its position/performance in its macro-environment. In other words, could it achieve a competitive advantage?

Would you want your country to host the 2032 Olympic Games? Registration is still open.

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Shai Davidov About Shai Davidov

Shai Davidov, Edinburgh Business School, Senior Teaching Fellow