With the 2012 London Olympics now underway, ConvergEx's Nic Colas takes a look at the business of the Games. As it turns out, the five-circle logo of the International Olympic Committee is essentially one of the strongest brands on the planet. Broadcasters and advertisers spent $4.9 billion to associate themselves with the upcoming Olympics as well as the 2010 Vancouver Winter Games. Future commitments to the IOC for upcoming games are already well beyond these results. The reason for this success seems to boil down to two fundamental drivers. In the developed economies of the world, the games represent an opportunity to reach a large audience that has grown fragmented and hard to reach due to everything from the social media to DVR devices. In emerging markets, ever-larger middle classes represent excellent growth opportunities for global brands. The bottom line is that the Olympics may prove to be the last piece of media content that remains relevant and interesting to the majority of the world’s consumers.
ConvergEx: Olympic Economics
Over the next 17 days over 4 billion people will tune in to watch some portion of the 2012 Olympic Games. They will cheer on the athletes from their native lands. They will enjoy the spectacle of the opening and closing ceremonies. And they will see sports as diverse as equestrian dressage, judo, and water polo. But what this majority of the earth’s population will not see are all the contests which have been relegated to the history books of Olympic Games. Early on in the development of the modern games, the host country had the option of adding sports in which they had an outsized chance of claiming a medal. This lead to some truly unusual sporting choices, including:
- Club swinging (1904 and 1932). A precursor to rhythm gymnastics, the contestants swing clubs in elaborate routines. Dominated by American contestants during the St. Louis (1904) and Los Angeles (1932) games.
- One handed weight lifting (1896, 1904, and 1906). Pretty much what it sounds like, with the average of left and right hand weights calculated to determine a winner. Won by a Greek during the first Olympics of the modern age.
- Dueling Pistols (1906). Contestants shoot at a mannequin with a target placed at throat level at distances of 20 and 30 meters. The longer distance went to a Greek at the 1906 games, held in Greece, with the shorter one taken by a Frenchman.
- Live pigeon shooting (1900). Release 300 birds, bang away and count the carnage. Won by a Belgian on at the Paris games, with a Frenchman winning silver.
- For a complete list: http://www.topendsports.com/events/discontinued/list.htm.
From humble, if occasionally oddball, beginnings, the Olympics have become a very large business indeed. Much of the most dramatic growth has come in the last 20 years. We’ve included a broad range of data about the games in the tables after this note, but here is a highlight reel:
- Revenue reporting from the International Olympic Committee (IOC) goes in four year cycles, and also all its revenue comes from “Marketing” – essentially the sale of broadcast rights and marketing partnerships. For the 2009-2012 period, “Broadcast” revenues are $3.9 billion and “TOP Programme” (sponsorship deals) are $957 million. That’s a total of $4.9 billion over 4 years, or a 7% compounded annual growth rate from the 1993-1996 revenue cycle, which netted only $1.5 billion in Broadcast and TOP Programme inflows.
- Large corporate sponsors – think Coca-Cola, McDonalds, Visa and Samsung – are shelling out $957 million for the London Games cycle, up from just $96 million for the 1985-1988 Olympic cycle of Calgary (winter) and Seoul (summer) games.
- Broadcast revenues to the IOC from the last games in Beijing were $1.8 billion, the amount that global broadcasters paid for the rights to air the games in their individual countries. The 2012 London numbers are not yet available, but they will certainly top $2.0 billion, and the growth rates for this line item are simply staggering. Consider that the global broadcast revenues for the 1960 Rome games (pre Telstar, the first satellite to allow for live transmissions between the US and Europe) was just $1.2 million. The 1988 Los Angeles Olympics cost the worlds’ broadcasters a total of $287 million. The games in Sydney (2000) broke the $1 billion mark, and London will likely do the same for the $2 billion barrier.
- The U.S. media market is the largest single driver of these increases. Since the 1998-2000 period, spending on broadcast rights for the North American market have increased from $1.1 billion to $2.2 billion, an increase of $1.1 billion. For the rest of the world – essentially the other 219 countries that show the games - the increase has been just shy of $1.0 billion.
- Where does all this money go? The answer is not clear. The IOC’s website shows that 90% of their revenues go to National Olympic Committees (NOCs), International Olympic Sports Federations (Ifs), and “Other Organizations” dedicated to the Paralympics and anti-doping agencies. Budget data from the London Olympic organizers shows that they will receive 700 British pounds ($1.1 billion) from the IOC as their share of the television and sponsor proceeds. As I noted above, revenues from the current Olympic cycle are close to $5 billion, even before you include ancillary items such as ticket sales. There’s the IOC contribution to the 2010 Vancouver games to consider in the math, but the winter games are much smaller in cost and scope than the summer offering.
The bottom line is that the IOC has a fantastic business, and this week the organization announced that its ‘Reserves’ now total $558 million. That is up over $400 million from the reserves reported in 2001, at just $105 million, although down slightly from last year’s $592 million. Advanced bookings for upcoming games – Winter 2014 in Japan and Summer 2016 in Brazil – already stand at $3.6 billion and the target is to raise over $4 billion. Corporate sponsor revenue for these two events is already at $1 billion, up from the $957 million for London/Vancouver. (See here for more reporting).
The Olympics is therefore an unequivocal business success story, unharmed by global recession, sovereign debt woes, and the other economic problems of the moment. But why? A few thoughts to close out this note:
- Broadcasters and advertisers in developed economies have to constantly address the increased fragmentation of their target audience, namely consumers of content and product. The Olympics are a one-stop-shop where all the challenges of online media/live TV/DVR fade into the background. Viewers watch events largely in real-time or a few hour delay, and there’s only one source for the content. In the U.S., this is NBC.
- In emerging markets such as China, India, and parts of Africa, the Olympics give international brands a chance to reach consumers very efficiently. How else can you show 4 billion people your logo without having to address the vagaries of each local market?
- In the ongoing debate about the value of “Content” versus “distribution,” the Olympics settle the argument in favor of the former. Yes, the Internet and mobile advertising and social media and scores of other offerings make the job of marketers and advertisers that much more difficult. But when you have globally relevant content, all those challenges fall by the wayside.
Source below for more charts (pdf):