Olympic Games set to break $8bn rev­enues bar­rier in four-year cy­cle end­ing with Lon­don 2012

Sportcal - - CONTENTS - by Cal­lum Mur­ray

The Olympic Games look set to break the $8-bil­lion bar­rier for com­mer­cial rev­enues for the first time in the four-year games cy­cle that in­cludes the 2010 win­ter Olympics in Van­cou­ver and the 2012 games in Lon­don, thanks in part to a mas­sive, 52-per-cent in­crease in the value of the games’ me­dia rights com­pared with the pre­vi­ous four-year cy­cle.

The me­dia rights for 2010 and 2012 have to­gether brought in $3.91 bil­lion, com­pared with $2.57 bil­lion for the pre­vi­ous cy­cle. The in­crease means that me­dia rights are now worth over four times the $957 mil­lion brought in by the IOC’s top-tier TOP spon­sor­ship pro­gramme for the 2010 and 2012 cy­cle. The me­dia rights and TOP spon­sor­ship fig­ures to­gether, plus $989 mil­lion from the Van­cou­ver 2010 or­gan­is­ing com­mit­tee’s com­mer­cial pro­gramme, and an es­ti­mated $2.14 bil­lion from the Lon­don 2012 pro­gramme, mean that the games will be worth a stag­ger­ing $8 bil­lion in the present cy­cle.

The me­dia rights fees for the 2010 and 2012 games in­clude: $2 bil­lion for the US rights from NBC, the na­tional net­work; € 560 mil­lion ($703 mil­lion) from the Euro­pean Broad­cast­ing Union for the rights in Europe (ex­clud­ing Italy, which opted out be­cause of a fi­nan­cial cri­sis at Rai, its pub­lic-ser­vice broad­caster); and $412 mil­lion for the Ja­panese rights from The Ja­pan Con­sor­tium com­pris­ing broad­cast­ers NHK, NTV, TV Asahi, Fuji TV, TBS and TV Tokyo.

The 52-per-cent rise in the over­all value of Olympic me­dia rights can be at­trib­uted to:

• The ma­tur­ing of new tele­vi­sion mar­kets, such as China, where CCTV paid $99.5 mil­lion for the rights, com­pared with the pre­vi­ous cy­cle in which CCTV was part of an Asia-Pa­cific Broad­cast­ing Union deal which ac­quired the rights across the whole of Asia, in­clud­ing China and Hong Kong, for just $17.5 mil­lion (be­fore the 2008 games had been awarded to Bei­jing)

• In­creased com­pe­ti­tion in ma­ture mar­kets, such as USA, where NBC’s $2-bil­lion rights fee com­pares with $1.5 bil­lion in the pre­vi­ous rights cy­cle, and Europe, where the EBU’s $703-mil­lion fee (ex­clud­ing Italy) com­pares with $578.4 mil­lion for the pre­vi­ous cy­cle (in­clud­ing Italy)

• The in­creas­ing role of pay-tele­vi­sion: Sky Italia in Italy ac­quired ex­clu­sive rights for € 112 mil­lion ($141 mil­lion), on con­di­tion that it sub-li­censed a min­i­mum num­ber of hours of cov­er­age to a free-to-air tele­vi­sion ri­val (Rai, which is pay­ing Sky Italia $37.8 mil­lion for a to­tal of 315 hours of cov­er­age of the 2010 and 2012 games); ESPN ac­quired ‘non-stan­dard’ (pay-tele­vi­sion) rights in Latin Amer­ica for $9.5m; and ESPN Star Sports ac­quired pay-tele­vi­sion rights in Asia for $5.2 mil­lion

• The de­vel­op­ing mar­ket for broad­band and mo­bile rights (Terra Latin Amer­ica is pay­ing $8 mil­lion for broad­band and mo­bile rights only in Latin Amer­ica – ex­clud­ing Brazil)

• The added al­lure of an Olympic Games in Lon­don, a time zone more suited to many of the main Olympic Games tele­vi­sion mar­kets than Bei­jing, in the pre­vi­ous rights cy­cle (how­ever, it should be noted that some me­dia rights deals for the 2010/2012 cy­cle were agreed be­fore Lon­don was cho­sen as host city in 2005, in­clud­ing the NBC deal which was con­cluded in 2003)

Cur­rency con­ver­sions into US dol­lars are as of June 18, 2012, so do not take into ac­count cur­rency fluc­tu­a­tions since the deals were orig­i­nally agreed.

The $8-bil­lion over­all rev­enues fig­ure is made up of:

• $3.91 bil­lion from the sale of me­dia rights

• $957 mil­lion from the IOC’s top-tier ‘TOP’ spon­sor­ship pro­gramme (the IOC had hoped to sign a 12th TOP spon­sor in time for the Lon­don games, tak­ing the to­tal over the $1-bil­lion mark, but was ul­ti­mately un­suc­cess­ful in this am­bi­tion)

• $989 mil­lion in com­mer­cial rev­enues from the Van­cou­ver or­gan­is­ing com­mit­tee, com­pris­ing: $688 mil­lion from its do­mes­tic spon­sor­ship pro­gramme; $250 mil­lion from ticket sales; and $51 mil­lion in li­cens­ing (mer­chan­dise) in­come

• An es­ti­mated $2.14 bil­lion raised by the Lon­don 2012 or­gan­is­ing com­mit­tee, com­pris­ing: $1.08 bil­lion from do­mes­tic spon­sor­ship; $931 mil­lion from ticket sales; and $125 mil­lion from li­cens­ing (the stated tar­gets of the or­gan­is­ing com­mit­tee)

Over 90 per cent of com­mer­cial rev­enues from the games are dis­trib­uted to “or­gan­i­sa­tions throughout the Olympic move­ment,” such as na­tional Olympic com­mit­tees and in­ter­na­tional sports fed­er­a­tions, ac­cord­ing to the IOC, with un­der 10 per cent be­ing used for the op­er­a­tional and ad­min­is­tra­tive costs of gov­ern­ing the Olympic move­ment.

About half of the rev­enues from the IOC’s top-tier TOP spon­sor­ship pro­gramme go to the games or­gan­is­ing com­mit­tees to as­sist them with their costs, while since the Van­cou­ver 2010 win­ter Olympics the IOC has also en­tirely funded the host broad­caster op­er­a­tions, man­aged by Olympic Broad­cast Ser­vices.

Costs The $8-bil­lion over­all rev­enues fig­ure does not, of course, take ac­count of costs: vir­tu­ally all of the Lon­don 2012 or­gan­is­ing com­mit­tee’s $2.14 bil­lion in rev­enues will go to­wards stag­ing the games, for ex­am­ple.

In April, Paul Deighton, chief ex­ec­u­tive of the or­gan­is­ing com­mit­tee, said that the or­gan­is­ing com­mit­tee was on track to meet its tar­get of rais­ing £2 bil­lion in com­mer­cial rev­enues to meet the op­er­a­tional costs of stag­ing the games.

Deighton told Reuters: “I broadly ex­pect us to break even. One way I de­scribe our project is try­ing to land about £2 bil­lion of rev­enues, with about £2 bil­lion of costs. We have got com­mit­ted just over 92 per cent of the rev­enues we need.”

Deighton, who said that the re­main­der should come from ticket sales and mer­chan­dis­ing, de­scribed as “grav­ity-de­fy­ing” the £700 mil­lion that had been raised in lo­cal spon­sor­ship in the face of the world­wide eco­nomic cri­sis of the last few years.

Ticket sales are expected to top £600 mil­lion, com­pared with a tar­get of in ex­cess of £400 mil­lion, af­ter un­prece­dented de­mand.

A fur­ther £9.3 bil­lion of (mainly) pub­lic money has been bud­geted for as­so­ci­ated in­fra­struc­ture work and other costs in­volved in stag­ing the games in what was a derelict part of east Lon­don.

In June, the UK gov­ern­ment an­nounced that un­com­mit­ted con­tin­gency funds to­talling £476 mil­lion were still avail­able ahead of the July 27 open­ing cer­e­mony.

Sports min­is­ter Hugh Robert­son said: “All be­ing well we should be able to hand half a bil­lion pounds back to the Trea­sury.”

The £9.3-bil­lion ‘non-or­gan­is­ing com­mit­tee’ bud­get, which in­cluded a £2-bil­lion con­tin­gency, was set in 2007 and was al­most four times the es­ti­mated cost at the time Lon­don handed in its bid to host the games in 2005.

The bud­get was re­vised up­wards af­ter tak­ing into ac­count pre­vi­ously over­looked costs such as VAT, in­creased se­cu­rity costs, and an ex­panded brief for the Olympic De­liv­ery Author­ity to re­gen­er­ate the lower Lea Val­ley area.

Robert­son said that the lat­est fig­ure for the games was “a great ad­vert for the British con­struc­tion in­dus­try, for sport and for UK Plc.”

Jeremy Hunt, sec­re­tary of state for Cul­ture, Olympics, Me­dia and Sport, said that the coun­try had proved it can de­liver “big con­struc­tion projects on time and on bud­get.”

The Depart­ment of Cul­ture, Me­dia and Sport has long stated its con­fi­dence that the Olympics would be de­liv­ered un­der bud­get, de­spite the Pub­lic Ac­counts Com­mit­tee, the gov­ern­ment spend­ing watch­dog, declar­ing in March that the full cost to the pub­lic of the games and legacy projects would be nearer £11 bil­lion be­cause of wrong es­ti­mates over the cost of se­cu­rity.

IOC spon­sors In July 2010, the IOC said that it was to seek one more top­tier ‘TOP’ spon­sor, to take the to­tal to 12, hav­ing signed a new 10-year deal with Proc­ter & Gam­ble, the con­sumer prod­ucts gi­ant.

The USA-based Proc­ter & Gam­ble, which has 4 bil­lion con­sumers and 127,000 em­ploy­ees across the globe, as expected, be­came the IOC’s 11th world­wide part­ner and its con­tract runs up to and in­cludes the 2020 sum­mer Olympics.

The deal, which in­cluded spon­sor­ship of the new Youth Olympic Games, came in the wake of a sim­i­lar 10-year tie-up with Dow Chem­i­cal, an­other USA-based con­sumer prod­ucts man­u­fac­turer, ear­lier the same month.

At the an­nounce­ment of the Proc­ter & Gam­ble deal in Lon­don, Ger­hard Heiberg, the chair­man of the IOC’s mar­ket­ing com­mis­sion, said that a $1-bil­lion TOP spon­sor­ship tar­get for the pe­riod of the 2010 and 2012 games had yet to be reached as the two most re­cent deals had “come at a late stage of the qua­dren­nial” and did not in­clude the win­ter Olympics in Van­cou­ver, so the ma­jor fi­nan­cial ben­e­fits would not be re­alised un­til the next four-year cy­cle.

How­ever, the fig­ure could have been sur­passed if the IOC had been suc­cess­ful in se­cur­ing a 12th and fi­nal spon­sor. Heiberg said that “un­der no cir­cum­stances” would there be more than a dozen spon­sors as the IOC did not want to “di­lute” the Olympic brand.

McDon­ald’s is thought to be pay­ing up to $200 mil­lion for its new eightyear TOP spon­sor­ship deal end­ing in 2020 and cov­er­ing the Sochi win­ter Olympics in 2014, the Rio games in 2016, the PyeongChang win­ter games in 2018 and the 2020 games, for which a host has not yet been cho­sen.

TOP spon­sors are pay­ing an av­er­age of be­tween $80 mil­lion and $90 mil­lion in the present four-year cy­cle.

The IOC earned $866 mil­lion from 12 spon­sors in the pre­vi­ous four-year cy­cle, cov­er­ing the 2006 Turin win­ter Olympics and the 2008 Bei­jing sum­mer games.

Do­mes­tic spon­sors The Lon­don 2012 do­mes­tic spon­sor­ship pro­gramme ex­ceeded its tar­get last Septem­ber af­ter sign­ing up West­field, the shop­ping cen­tre com­pany, as a part­ner.

The orig­i­nal rev­enue tar­get from do­mes­tic spon­sor­ship was be­tween £650 mil­lion and £700 mil­lion, and the tier-three deal with West­field took the to­tal be­yond £700 mil­lion, the games or­gan­is­ers con­firmed.

Deighton said: “We have a fan­tas­tic group of world-class spon­sors on board, now joined by West­field, work­ing with us to stage spec­tac­u­lar games next sum­mer. We are very grate­ful to all of our spon­sors for help­ing to pro­vide the peo­ple, prod­ucts and ser­vices we need to stage the Olympic and Par­a­lympic Games next sum­mer.”

Do­mes­tic spon­sors are di­vided into three tiers:

• Top-tier ‘Lon­don 2012 Olympic Part­ners’: Adi­das, BMW, BP, British Air­ways, BT, EDF and Lloyds TSB

• Sec­ond-tier ‘Lon­don 2012 Olympic Sup­port­ers’: Adecco, Arcelor Mit­tal, Cad­bury, Cisco, Deloitte, Thomas Cook and UPS

• Third-tier ‘Lon­don 2012 Olympic Sup­pli­ers and Providers’: Ag­greko, Air­wave, Atkins, The Bos­ton Con­sult­ing Group, CBS Out­door, Crys­tal CG, Eurostar, Fresh­fields Bruck­haus Deringer LLP, G4S, Glax­oSmithK­line, Gym­nova, Heathrow Air­port, Heineken UK, Hol­i­day Inn, John Lewis, McCann World­group, Mondo, Na­ture Val­ley, Next, Nielsen, Pop­u­lous, Rapis­can Sys­tems, Rio Tinto, Techn­o­gym, Thames Wa­ter, Tick­et­mas­ter, Tre­bor and West­field

Top-tier spon­sors are thought to be pay­ing be­tween £50 mil­lion and £80 mil­lion, with sec­ond-tier sup­port­ers pay­ing about £20 mil­lion, in­clud­ing value in kind, and third-tier sup­pli­ers pay­ing about £10 mil­lion, in­clud­ing value in kind.

Source: Sportcal

Lon­don mayor Boris John­son with the Olympic flag at the 2008 games in Bei­jing

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