If MIT Sloan accounting professor Scott Keating can offer one piece of advice to countries vying to host a future Olympic Games, it’s this: “It’s a hugely bad investment.”
Keating has considered the modern games, and if there’s anything he’s learned, it’s that the best record lies with neither an athlete nor a country, but the International Olympic Committee.
“You’ve got to remember the International Olympic Committee is a monopoly … and they try to squeeze every penny they can out of the host city,” Keating said.
The IOC is a non-profit organization charged with ensuring “the regular celebration of the Olympic Games” and the promotion of the Olympic values,” according to the committee's website. The IOC distributes about 90 percent of its revenue to athletes and sports organizations around the world, and keeps about 10 percent of its income for administrative operations. According to figures provided by the IOC, between 2013-16, the organization collected about $5.6 billion in revenue.Factor in competition from other cities promising all manner of benefits, and the eventual winning municipality ends up finding themselves overpaying, Keating said. For example, the city of Montreal spent 30 years paying back a $1.5 billion debt after hosting the 1976 Games.A 2016 study by Oxford University Said Business School professor Bent Flyvbjerg, and fellows Allison Stewart and Alexander Budzier, found that the average cost overrun of 19 of the past 30 games, was 156 percent.
“The Olympic host city loses money on the venture,” Keating said. “I think the only Olympics where it can be argued the city made money was the Los Angeles Olympics of 1984, and that was because most of the Olympic venues already existed.” But cities are beginning to catch on. Only three candidate countries made the final round for the 2020 Summer Games, and the 2024 and 2028 Olympics are going to Paris and Los Angeles, respectively. They were also the only two countries to make the final selection rounds.
Ben Shields, a lecturer in managerial communication at MIT Sloan, said there are other factors for why a city might throw its hat in the ring, beyond just the return on investment rationale.
“If there's a city or a country that has larger geopolitical goals, that will justify the investment. But at a certain point the IOC needs to consider the value that they're bringing to the table,” Shields said. “What’s interesting to watch is whether countries, or cities in the future view the Olympics as valuable enough to invest that type of money into hosting them. In a world with fewer entertainment options, fewer distribution channels, the Olympics carry a ton of value because they break through. As the Olympics as a brand faces some challenges, not only in terms of [television ratings], performance-enhancing drug issues, corruption, will the Olympics pitch to future host cities be less persuasive?”
New media metrics Another storyline Shields said he’ll be watching is the rise of streaming content and what it will do to the Olympic advertising marketplace.
“The media industry needs new universally agreed upon metrics to account for the new ways that people are consuming sports content, and it makes sense that even a property like the Olympics is going to drop in ratings, given the overall trends toward internet streaming. So we need a new set of metrics that accurately reflect fan viewing behavior in our digital age.”
During the 2016 Summer Olympics in Rio, the average number of viewers dropped to about 27.5 million viewers compared to the roughly 30 million people who on average watched the London Games in 2012. At the same time, there’s also been a jump in the number of online viewers.
The IOC reported 243,000 hours of digital coverage at the Rio Games. That’s almost three times the online coverage from London.
“The issue is that the advertising marketplace, at least on TV, is based on Nielsen ratings,” Shields said. “And so if the Nielsen ratings are going down, NBC's got to be able to make up for that in the digital audience consumption numbers that they hope to see go up across their array of platforms.”
Build, train, perform Talent will be on display during the games this month — and so will years of information in the form of data analytics. “Part of the reason why analytics in sports has become so widely used is that there's typically a very clear goal or objective in sports: that is to win,” Shields said. “The Olympics are all about winning medals.”
Any country can look at past performances and learn what medals were won, in what sport, and who won them and from what country. Benchmarking that past performance can help team managers recruit the athletes and scout the sporting events that give them the best chance at winning medals.
“I firmly believe that sports analytics is both a science and an art,” Shields said. “Sports organizations and athletes need to know the science, and they’ll make the most of these analytics capabilities by mastering the art. And the art is making sure that the analytical insights are communicated effectively to the players, the coaches, to ensure that the product on the field gets the results the numbers say that they will.”
For the athletes, that means taking advantage of wearable technologies that collect data on their performance. New training techniques are developed based on the data, and give coaches more knowledge about training loads to avoid fatigue or injury. These new forms of information are used to design and implement strategy for performance, Shields said.
“We’ve built the team, we’ve trained the athletes,” he said. “Now it’s time for them to perform.”