Olympic Games: a Boom or a Bust for Business Development?

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By Jin Xiaoye, CIPE Global Intern

With the Winter Olympics now underway in Sochi, Russia, it is not only the events themselves that are attracting attention: the high cost of the Games and reports of poorly-constructed facilities have garnered headlines alongside the star athletes and their performances. As in other recent cases of major international events held in emerging market countries, the Games are being seen as both a test of the host country’s ability to pull of such an event, and of whether the promised economic impact will materialize.

The Summer and Winter Olympic Games, as well as the Paralympics, are held every four years in a designated host country. These are competitive events for elite world athletes and great cultural exchanges for participating countries. But sporting concerns have increasingly taken a backseat to discussions of the financial and economic impact of the games.

More and more emerging-market countries have been given the opportunity to host major international events in recent years. The 2010 World Cup, hosted by South Africa, proved to be a huge success in many respects – creating a boom in tourism and raising confidence in the country’s economy. But like other recent events, such as the 2008 Summer Olympics in China and the upcoming World Cup in Rio de Janeiro, Brazil, it also generated controversy around the cost and long-term economic impact.

The business community has embraced cooperation with the organizers of the Olympics, a trend which has especially benefitted multinationals and other large businesses. However, corruption and other negative consequences like embezzlement and human rights violations have come to one of the biggest global sports festival too.

Like major international exhibitions such as the World Expos, the Olympics have become a platform to promote cultural understanding and international trade. The events have also become a major business opportunity, not only through the construction of venues and lodging (intended for public use after the games) but also involving firms bidding for the limited number of exclusive production and sales rights.

Launched in 1985, the Olympic Partner Program (TOP) was set up to allow businesses of all kinds to launch services related to the Olympics with exclusively authorized property rights and to gain branding reputation, in exchange for sponsorship fees paid to the Olympics organizing committees and the Olympic Movement.

Credit should be given to Olympics for its positive economic influence. Under the circumstance of economic downturn, these lavish sport events can help boost the local economy in their host country, supporting tourism and real estate via “Olympic Tours” and souvenir sales as well as generating big construction contracts. The Olympics also creates enormous (though temporary) job opportunities through direct contracts between the Olympic Committee and local businesses. In London 2012, it was estimated that more than 7,000 contracts were signed, translating into approximately 75,000 jobs.

Though the Olympic commercialization efforts claim to be beneficial and transparent, they don’t always live up to their long-term promises. After the games, governments can struggle to maintain the facilities. While in the past some businesses suffered from devastating loss due to boycotts or terrorist attacks, today they tend to suffer from the effects of unfair competition and corruption.

A survey by a research firm BDRC Consultancy found that though 4% of all Britain’s small and medium-sized firms obtained Olympic contracts (an improvement over past games), the 2012 Olympic Games did not give an overall boost to the economy for small businesses in London. There were a large number of firms specifically based in the capital who said that the Olympics negatively impacted on their businesses after the Games and that the event failed to be a catalyst for them to explore the new markets.

According to a news report by Huntington Post, small businesses were unsupported because of the lack of market connection. “It was never going to be of much use to small businesses unless you had some unique connection,” said a small business retailer.

At this year’s Winter Olympics in Sochi, a bigger concern has been corruption, especially as costs ballooned to over $50 billion – the most expensive Winter Olympics ever. Reports of corruption and workers’ rights violations have already cast a shadow on Sochi. Allegedly, a large amount of money from a building contractor might have gone towards kickbacks instead of on Olympics projects, and reporters and guests were complaining about unfinished hotels and undrinkable water before the games even began.

In all, the business community stands to benefit from these revitalizing and image-improving sporting events, but only if problems like systematic corruption can be prevented, for instance through greater transparency or reform of procurement systems. Problems come along with success and glory, yet opportunities lie ahead.

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