The Sports Professor Rick Horrow, in conjunction with promotional partner Northern Trust, analyzes the 10 key business questions as the Torino Olympics begin.
In July, 1999, the International Olympic Committee awarded these Winter Games to Italy’s fourth largest city – Torino – in a mild upset. Sion, Switzerland – the favored candidate – was rejected by many IOC members after their fellow Swiss IOC member Mark Hodler alleged that some committee members accept bribes in exchange for votes. The result: the first Italian Olympics since the 1960 Summer Games in Rome.
Competitively in the Games themselves, American athletes are coming off their best Winter Olympics in history, winning 34 medals in the 2002 Salt Lake Games. Many top performers are back, including controversial skier Bode Miller, and speedskater Apolo Anton Ohno – others yearn to be household names by the Closing Ceremonies on February 27. From a business perspective, the Winter Olympics will inspire 10 major questions as the 17 days unfold.
1. Will the Torino Olympic Organizing Committee put on games that essentially break even from a budget perspective? Most probably. This week, the final budget was unanimously approved by the Organizing Committee’s Board of Directors. Costs are expected to be US$1.48 billion, with an income of US$1.43 billion. The City of Torino has pledged to cover the remaining $49.7 million. The Italian Parliament will pass a scratch-card lottery game helping cover any additional shortfall that might arise. Some $600 million (or 40 percent of the total budget) comes from broadcast rights, up from 33 percent in 2002. Corporate sponsorships will contribute 39 percent, including about $173 million from 11 TOP sponsors. Four Italian companies – Fiat, Sanpaolo Bank, Telecom Italia, and its TIM mobile phone subsidiary – signed on as sponsors at approximately $50 million per company.
Ticket sales are always a concern. However, ticket revenue makes up just six percent of the budget for these Games, down from 13 percent for the Salt Lake City Games. Good thing, as about 20 percent of the tickets remain unsold. Minneapolis-based Carlson Wagonlit Travel found that 86 percent of agents had seen “no interest in the Games.” Olympic tickets are notoriously last-minute buys. About 95 percent of the tickets were ultimately sold in Salt Lake City, and about 89 percent were sold in 1998 for the Winter Games in Nagano, Japan. It is hard to imagine a “walk-up crowd” in the European Alps, but the Olympics may inspire such last minute splurging (especially if the weather holds). The economics of these Games involve lower than normal sponsorship revenue, and above average Olympic expenses, as organizers decided to spread the 15 competition venues over seven municipalities. These Olympics will be fine budgetarily, especially compared to the $10 billion Greek Olympic budget two years ago in Athens – costing approximately $1,000 per Greek citizen.
2. Will NBC and international television executives be happy with their Winter Olympic investment? Yes. NBC’s $613 million rights fee deal for the Torino Olympics stands in stark contrast to the $50,000 that CBS paid to telecast the Winter Games in Squaw Valley, California 46 years ago. NBC bid $2.3 billion for the three Olympic package that included Torino and $894 million for the 2008 Summer Games in Beijing. NBC made over $50 million in Sydney in 2000, and up to $75 million each for Salt Lake 2002 and Athens 2004. The network believes in the Games as their “premium brand,” extending its rights deal for 2010 in Vancouver and 2012 in London.
Over 2.1 billion watched “some or all” of the Salt Lake Games, and over four billion viewed the Summer Olympics two years ago in Athens. NBC plans a record 416 hours of coverage – including the most high definition coverage in Olympic history (surpassing the 375.5 hours of record coverage in Salt Lake). Despite the six-hour time difference between the East Coast and Italy, much coverage will be shown live in the East, and all 54 men’s and women’s hockey games will be televised live (emphasizing the “premium event” nature of the Games). Ratings are always uncertain, but past trends tell us that ratings for these Games probably won’t match the 19.2 average for the Salt Lake Games, but are likely to top the 16.3 that CBS earned in Nagano. ESPN got into the act through a deal to show video on its website – though on a tape-delayed basis – to the over 15 million monthly users of their service.
Domestic viewership will depend on how our athletes will perform – especially the hockey team and figure skaters late in the second week. Notably, however, the Games will be televised in more than 200 countries, including Laos and some Pacific islands for the first time. Stay tuned.
3. Will corporations be satisfied with their return on Olympic investment? The jury is still out. Many Corporate America ad executives view the $700,000 for 30-second spot Torino ad buy as a “good deal,” especially compared to the $2.6 million 30-second cost for the recently completed Super Bowl XL. In fact, both Visa and McDonald’s passed on the Super Bowl, but have made major Olympic commercials. Marketers say that they can run several Olympic ads to make up for the audience you would get in one Super Bowl spot, and there is “no scrutiny about the creative level of commercials during the Olympics.” In other words, less risk for ad executives. McDonald’s and Visa paid TOP sponsorship dollar to be one of the nine major Olympic partners. Though Xerox and Sports Illustrated/Time have not renewed their sponsorships, Anheuser-Busch and others have extended their deals, at least through the Beijing Olympics.
Clearly, the Olympics remain a classic “premium buy.” Olympic-related advertising is always responsible for an 8-10 percent spike in ad sales during those respective years.
Hospitality may be another matter in the Alps this year. Hard to get to and hard to get around, these Olympics present challenges to corporate entertainment executives who spend substantial dollars at major events. Sponsors spent over $1 billion for hospitality and advertising in Athens during the Summer Games; expect much less of that this year. The other risk involves the Games themselves. Coca-Cola made a major commitment to the U.S. basketball “Dream Team” two years ago in Athens. After their early fizzling, Coke introduced a new Powerade flavor called “Flava23,” a tribute to LeBron James – not necessary the U.S. Olympic team. For Corporate America, performance will be the key. However, goodwill will always justify the expenditure. A recent Harris interactive poll says that over 61 percent of product buyers say that “dedication, athletic achievement, patriotism, sportsmanship, and perseverance” are key attributes identified with Olympic participation. Hopefully for Corporate America, these virtues – rather than doping, complaining, and losing – will carry the day in Torino.
4. Who will be Corporate America’s Olympic endorsement darlings? Michelle Kwan (if healthy), Gretchen Bleiler and Lindsey Jacobelis (if successful), and Bode Miller (if “sufficiently corporate”). Post-Olympic endorsements remain available – for those that “rise above the Olympic clutter.” Total committed Nike endorsement deals now approximate $2 billion, up over 19 percent from last year. Most Olympic winter athletes, however, have a short “corporate recognition life” – usually until the snow melts. If successful, U.S. Olympic figure skater Michelle Kwan may transcend this, especially as the “lead Olympian” for Coca-Cola’s mega advertising campaign. Olympic snowboarders Bleiler and Jacobelis have had the second most pre-Olympic ads, and an opportunity for stardom on the slopes. Then there is Bode Miller “speaking his mind” to the New York Times, 60 Minutes, and the like. His current endorsements include companies like Nike, Charles Schwab, Visa – but also smaller companies like Atomic, Spyder, and others. His performance in the next 17 days may make the difference between legitimate “celebrity” and “pre-Olympic diversion.”
5. Will these be a secure Olympic Games? Pray for it. Italy’s Interior Ministry estimates that the cost for security will exceed $110 million. Plans call for 9,200 officers from law enforcement agencies, “paying special attention to protecting American and Israeli athletes.” The Athens security expenditures surpassed $1.2 billion, almost twice that spent for Salt Lake City two years previously. The IOC continues to require a mega million dollar insurance policy covering the risk of the Games being canceled because of “war, terrorism, earthquakes, or flooding.” Organizers hope that this will never be necessary.
