Rio has been and gone! There is little doubt that the Olympic Games remain one of the absolute pinnacles in terms of drama, entertainment, sacrifice and spectacle. I mean, when else would you possibly get worked up over the outcome of an archery shoot-off, or stay up until all hours watching badminton? In many ways, it’s the paramount of Good Business.
From a global engagement perspective, it is clear the Olympics are an unqualified success. The degree of financial and intellectual effort that is contributed, including branding and marketing, means that anything from hats and t-shirts to pop-songs become automatically recognised as linked to the event. Every four years, whether it’s London or Beijing or Rio, we tune in and tune out, spending hours in front of the screen to cheer on our favourites, or even the underdog from that downtrodden nation who is competing against all odds. It’s compelling. If the Olympics were a product (and some may argue that these days, they are), it would be a runaway best-seller.
Being the Olympic host is a prestigious moment for the city lucky enough to be chosen. As a business model, the Olympics ostensibly meet all the requirements to be successful:
- It has a powerful value proposition (watch the best of the best competing for gold and glory);
- A good understanding of the value of scarcity (only comes around every four years);
- An accessible product (anyone with a TV can be part of the action);
- A powerful and visible brand (100-plus years and still going strong);
- Solid, time-honoured systems and processes to ensure optimal functioning; and
- A rigorous set of rules and codes to ensure smooth running of the event itself.
Toss in multiple revenue streams (including just about every major sponsor clamouring for a piece of the action), and endless potential for product extension (clothing, TV rights, tourism, endorsements etc.) and on the face of it, the Olympics, and specifically hosting the Games, should be one of the most lucrative and rewarding business transactions available today.
Why then do most host cities lose millions or even billions – losses from which some never recover?
Some will argue that this is a long-term investment, one which will be recouped over many years, long after the dust has settled. Others will argue that the invariable infrastructural improvements and economic opportunities created through hosting the Games justify any investment, no matter how loss-making it may be.
I disagree. You see, while the Olympics may seem a sound investment, it is actually more like a pyramid scheme than a genuine long-term business proposition. Not many other business models would accommodate such unbelievable over-capitalisation in not only permanent infrastructure (which one could argue may have long-term benefit), but also in temporary and sports-related infrastructural development, which inevitably has no real value beyond the Games themselves.
The fact that every major city to host the Summer Olympics in recent times has experienced huge cost overruns, London included, suggests that the model is fundamentally flawed. Here are five reasons why the Olympics business plan should be avoided in your business:
- Challenges adhering to budgets;
- Heavy investment in non-core assets (e.g. stadiums that cannot be filled);
- Excessive shareholder dividends (the IOC takes a big slice of the pie); and
- Huge expenditure on a short-term event with questionable and hard-to-quantify life-time returns.
My advice? Use the adage “if it’s too good to be true, it probably is” to temper your ego and remind you to look carefully at the long-term returns on any massive, high-profile investment. Unless you can resign or sell your company before the long-term pain of the decision comes to bite you, rather spend your money in a less flamboyant way by employing great people, delivering exceptional service, and having a compelling product or service that does not require huge capital outlay. Learn from the hard lessons many host cities have experienced, and rather enjoy the Olympics for the spectacle that they are, not the windfall many hoped they might be.
Anton Ressel is a Senior Consultant at Fetola and has over 15 years experience as an entrepreneur, trainer, business developer and mentor in the emerging business sector. A published writer for Sawubona, Business Day, fin24, Entrepreneur Magazine and many others, Anton is a Director of the Fetola Foundation as well as co-founder of Streetwires, one of South Africa’s largest and most successful social enterprises. Follow @AntonRes on Twitter.