HBR - The Olympics Needs A New Business Model

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AUGUST 05, 2016
ARTICLE
BUSINESS MODELS
The Olympics Needs a
New Business Model
by Curt Nickisch
This article is licensed to you, Shamel Janbek of Hewlett Packard, for your personal use through 2018-10-31. Further posting, copying or distribution is not permitted. Copyright 2016-08-05
Harvard Business Publishing. All rights reserved.
BUSINESS MODELS
The Olympics Needs a

New Business Model
by Curt Nickisch
AUGUST 05, 2016
The 2016 Summer Olympic Games are opening in Rio de Janeiro amid environmental and health
concerns ranging from the Zika virus to polluted competition waters. Brazil, which hosted the World
Cup in 2014, is suffering from a deep recession and a political crisis. While the International Olympic
Committee touts host cities’ economic legacy, the immense operational challenge of running a mega
event creates intense logistical, security, and financial pressures. For ideas on how to improve future
Olympics, I spoke with Chris Dempsey, a founding member of the group that defeated Boston’s bid
for the 2024 Summer Games. The former Bain & Company consultant argues that recurring cost
overruns and mothballed venues highlight the need for the Olympics to change its business model.
COPYRIGHT © 2016 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. 2
HBR: In the late 1800s the Frenchman Pierre de Coubertin was enthralled by the archaeological
excavations at Olympia in Greece. He gets the idea to revive the spirit of those ancient competitions
and bring them to the modern age. The first modern Olympics takes place in Greece in 1896. What
was Coubertin’s business model?
Dempsey: His business model was really based on that of the World’s Fair, another 19th-century
invention. The idea was, for a wide range of people to experience these events, you really did have to
move them around different cities and different continents. If you have them in one place year after
year, that requires potentially many weeks of travel by boat for most people. So Pierre de Coubertin
said the Olympics should move around, just like the World’s Fair.
He started a movement and helped create what’s now a multibillion-dollar mega event and an
incredible international brand. How responsible was the business model for that success?
You have to give Pierre de Coubertin credit for the boldness of his vision and for what he was able to
achieve. But even in the very first Olympics you saw the same sorts of cost overruns and overbuilding
that you see today. In 1896 Athens had major overruns. The king of Greece asked Pierre de Coubertin
to hold them in Athens every four years. They’d already built the infrastructure. But Coubertin was
committed to the rotation model. Eventually the Games became something that cities started to
compete for. They really wanted the opportunity to show off to the rest of the world and demonstrate
that they, too, could host such a large-scale international event.
The business model is, in many ways, a franchise model. The International Olympic Committee is a
relatively small organization. What it does, effectively, is sell the rights to various parties: the rights
to host, to broadcast, and to sponsor the Games. For that model to be successful, it needs to have
demand in each of those areas. There’s continued strong demand on the sponsorship side and on the
television side. You’re seeing questions from the host city side about whether it’s really worth it.
In 2014 you cofounded No Boston Olympics to fight Boston’s bid to host the 2024 Summer Games.
Within a year, as public support kept eroding, supporters withdrew their bid. The United States
Olympic Committee made Los Angeles the country’s candidate host city instead. What was your
strongest argument in defeating the Boston bid?
The most important argument on our side was around the IOC’s requirement of a taxpayer guarantee.
The IOC requires a signed contract that makes the host city and its taxpayers responsible for cost
overruns. The incentives just are not aligned for the IOC to choose a fiscally, environmentally, and
socially responsible plan when it’s not picking up the tab. I think Bostonians saw that the costs and
the risks far outweighed the benefits.
You believe that the Olympic business model is outdated. How so?
When Coubertin launched the Games in 1896, he could not have conceived of a world with television,
the internet, and intercontinental air travel. All of these things have shrunk our world and made it so
much easier to experience the Olympics, in person or in your living room. In today’s world you’d
never start the Olympics the way Coubertin did in 1896. We’ve clung to that 19th-century model
while the world has passed it by. Sadly, the people who endure the costs of that decision aren’t the
IOC — they’re the residents of the host city. That’s the reason we’re seeing so many issues with Rio.
People there understand it’s an example of massive resources going to the wrong things.
You went to Harvard Business School. You’re a former consultant at Bain & Company. Put on your
consultant hat. If the International Olympic Committee hired you to come up with a new business
model for the Olympics, what would you tell them?
The IOC should find a permanent location or maybe a small number of semipermanent locations to
host the Summer and Winter Games. Doing so would still allow the IOC to generate as much revenue
as it does today, and at a far lower cost to the hosts. In fact, this change could strengthen the Olympic
brand, and help forgo many of the negative stories we’ve heard in Rio and Beijing and Sochi.
The IOC would transform itself from a franchising business, going into business itself and taking
responsibility for running the Games. This would be a bold leap for the IOC, one that ultimately
would lead to a much better outcome not just for the IOC but also for its stakeholders.
A permanent location would still give you that same scale of the spectacle. All the athletes would be
in one place for the opening and closing ceremonies. But we would lose the ability to shine the
limelight on a different world city each time.
What the IOC does best and where it creates the most value is in creating really compelling content
that people around the world want to consume. And I can’t think of a reason why you wouldn’t be
able to do that at a permanent location. You’d be able to climb the experience curve by repeating
these activities on a regular basis. That’s one of the key challenges with the Olympic model today:
You’re asking a city to host the world’s biggest, most extravagant, most complicated event, but to do
it only once.
What about those broadcast stakeholders in a time zone on the opposite side of the globe?
That is probably the trickiest issue. Television broadcasters want as many live events to occur in their
primetime hours as possible. You would have winners and losers. As a whole, I don’t necessarily see
the overall value from the broadcasting stakeholders declining.
What about your other alternative model? A small number of distributed locations would perhaps
help with the broadcast media stakeholders. But you’d lose that spectacle of having all the athletes
in the same place. It would distribute a lot of the operational and the financial burden, but it would
also diffuse much of the scale.
You heard a lot about that in the Olympic debate in Boston, that there’s a certain magic to bringing all
those athletes and visitors together into a five square-mile area. On the other hand, 99.9% of people
who engage with the Olympics do so on a screen and are distributed throughout the world. They’re
going to have a similar experience, whether all those athletes are in one place or not. I think you can
find ways to make it work and still retain that magic without all of the costs and drawbacks of having
them all in one location.
In 2014 the IOC passed a series of reforms called Olympic Agenda 2020. The stated goal is to make
hosting the Olympics more practical and affordable for cities. Under this plan, the IOC would
support the use of temporary and existing venues that would cost less. Can the existing business
model work with some changes?
The IOC has made the claim before that it understands the issue and that it’s going to reform, but
it hasn’t actually demonstrated a willingness to stick to those promises. As I think about the business
model going forward, the most likely outcome is that the IOC will continue to do what it’s doing. And
it will continue to hope that some number of cities every few years will take that risk because of the
glittery promise of being on the world stage. Things will continue to chug along, with unfortunate
outcomes for residents and taxpayers in those host cities. I would love to say that I see a change on
the way, but there’s nothing that the IOC has done to date that gives me any confidence that it’s truly
reformed.
Are you going to be watching the Rio Olympics?
I was 10 years old when the Dream Team played in Barcelona, so I’ve always been a fan of USA
basketball. [The group] No Boston Olympics was not opposed to athletes or their tremendous
achievements or Olympic ideals. Our issue always was with the organizers and the IOC’s flawed
process. Thankfully, I’m able to separate those two ideas and enjoy the events.
Curt Nickisch is a senior editor at Harvard Business Review. Follow him on Twitter at @CurtNickisch.

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