MOSCOW. (RIA Novosti economic commentator Yelena Zagorodnyaya) -Indisputable statistics show that the Olympic Games are more often an economic loss than a gain.
One would think there would be a tried and tested method for turning a profit from the world's number one sporting event, but apparently Olympic organizers have generally failed to adequately consider the most important factor - private enterprise. The Olympic Games are only profitable if they are funded by private capital as well as by the government, and the more the better for a host nation.
The Olympics in Moscow in 1980 and in Athens in 2004 saw the biggest losses. In both cases, they were fully financed by the government. The figures on the Moscow Olympics are still classified but according to tentative estimates, net losses amounted to 150 million rubles (or $250 million according to the then rate of exchange). This was no small amount considering that the 1980 Winter Olympics in Lake Placid cost only $179 million, and the winter games in Sarajevo in 1984 had a price tag of $200 million. Three years ago, Greece ended up with a record loss - total revenues from the $14 billion games barely exceeded two billion dollars.
Games funded by private sources have produced quite different results. The success of the 1984 Olympics in Los Angeles has not been matched up to this day. With a budget of $660 million, these games produced a profit of $220 million owing to clever Olympic marketing. For the first time in Olympic history potential sponsors were divided into three groups and they were given the exclusive right to use Olympic symbols depending on the size of their contribution. The success of the Los Angeles Olympics is believed to have prompted the pragmatic Juan Antonio Samaranch, then president of the International Olympic Committee (IOC), to launch the Olympic Program (TOP). In 1985, the IOC gave several multinationals exclusive rights to the use of Olympic symbols in exchange for annual contributions of five million dollars.
Exclusively funded by private companies, the 1996 Atlanta Games also yielded a handsome profit of about $600 million. But their tight-fisted organizing committee saved money on everything, from accommodation and catering to the construction of temporary sports facilities. The financial success of the Olympics in other countries has also directly depended on the involvement of private capital in the funding of the games.
It is not possible to come up with a mathematical formula for the best proportion of private and public funding of the Olympics, all the more so as their costs represent an equation with many unknown quantities. Who can predict the weather in the winter of 2014? Will it be snowing or will snow have to be brought from the slopes of Mount Elbrus? Who can calculate the expenses involved in providing security for the Games in Sochi? Could the organizers of the Sydney Olympics in 2000 predict that four years later (after 9/11 and the start of the war in Iraq), their colleagues in Athens would pay as much for the security of the Olympics as the Australians' entire budget for the Games - $1.5 billion?
But one thing is clear - a clever allocation of roles between the state and private capital will allow the organizers of the Games to earn the biggest profits. Statistics paint an optimistic picture. Thus, the sale of broadcasting rights for the 1960 Rome Olympics produced a little more than one million dollars; the relevant figure for Los Angeles in 1984 was $287 million, and for Athens in 2004, $1.5 billion. Sponsors from among the IOC TOP partners are also becoming more and more generous - they paid $96 million for the Calgary-Seoul Olympic cycle in 1985-1988, compared with $866 million for the Turin-Beijing round in 2005-2008.
Russia is aware of the need to involve business in organizing and funding the preparations for the Games. The government has already decided that private investors will contribute 135 billion rubles (five billion dollars) to the budget of 314 billion rubles (about $12 billion) slated for the preparations for the Games in Sochi in 2014. In reality, overall private investment will be much greater. The Interros Group, for one, was one of the first in Russia to see the potential of Krasnaya Polyana, a ski resort near Sochi where the Games' alpine events will take place, and is now building another resort there. Having heard the news from Guatemala, it has already changed its investment plans. Now Interros is going to put an extra $1.5 billion into Sochi's infrastructure. More companies are bound to join in. The organizing committee should convince businessmen that investing in this international event is excellent advertising.
But huge investment does not guarantee that Sochi 2014 will turn a profit. Samaranch's financial genius has ensured that the host country has to part with a substantial portion of Olympic revenues. The organizers receive 49% from the sale of broadcasting rights (the biggest item in the Olympic budget, constituting on average 53% of all revenues), and the rest goes to the IOC. The latter distributes the money among itself, national committees and international Olympic federations. The host country also receives half of sponsors' contributions (amounting to 34% of all income on average). And though the national organizing committee receives 95% of ticket sales, their share is not big - only 11% of the total. It is also entitled to all revenues from the sale of licenses during the Games, but they account for a mere two percent of all income.
It will be a long time before we start calculating the financial results of Sochi 2014. But the participation of Russian businessmen in the preparation of the Games is indispensable if we want to be able to use the Olympic facilities afterwards and turn Sochi into a Mecca for tourists from all over the world. To all appearances, the business community is only too happy to lend a hand.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
