The challenges of hosting major events owned by International Federations. - The 2014 Chess Olympiad

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1 The challenges of hosting major events owned by International Federations A case study of the 2014 Chess Olympics - The 2014 Chess Olympiad Harry Arne Solberg and Lin Olderøien, Centre of Sport and Culture Management Research Norwegian University of Science and Technology Norwegian University of Science and Technology

2 Some examples: Financial results in red-figures 2017 UCI World Cycling Championship, Bergen, Norway 2015 UCI World Cycling Championship, Richmond, US 1995 IAAF World Athletics Championship, Gothenburg, Sweden White elephants / Cost overruns on venues FIFA World Cup 2002, 2010, UEFA Championship, Portugal 2011 FIS World Skiing Championship, Oslo, Norway Tourism impacts lower than expected 2017 UCI World Cycling Championship 2012 London Olympics 2010 and 2002 FIFA World Cup Norwegian University of Science and Technology 2

3 Research issue: Why are these problems so common? The Chess Olympiad an opportunity to investigate: An event of medium size The dynamic forces in work - from the early start till the closing down of the office The relationship between the local organizer and the owner (FIDE) Norwegian University of Science and Technology 3

4 The 2014 Chess Olympiad Hosted in Tromsø, Norway 1-14 August, 2014 Celebration of The Norwegian Chess Federation centennial jubilee Initially planned as preparation for the 2018 IOC Olympics Attracted 3250 visitors to the city of 72, players from 167 nations 430 attendances at the FIDE congress 53,100 bed nights / 102,500 meals Occupied 100% of Tromsø s accommodation capacity. Norwegian University of Science and Technology 4

5 Major stakeholders involved: FIDE as owner Local organiser (COT2014) Tromsø city council (90%), Norwegian Chess Federation (10%) Norwegian government (funding 64% of the costs) Local hotel industry Norwegian University of Science and Technology 5

6 Methods: Seven semi structured in-depth interviews with informants from: COT2014: Administrative staff, board members Tromsø city council Norwegian Chess Federation FIDE Documents: COT 2014 documents Consultancy report (finances) FIDE regulations on the Olympiad Juridical documents Articles in newspapers / magazines Norwegian University of Science and Technology 6

7 Financial result COT 2014: Revenues: NOK133,5 mill. ( 15,9mill.) Costs: NOK137,6 mill. ( 16,4 mill.) Deficit: NOK 4,1 mill. ( 500,000) (2,9%) One creditor submitted bankruptcy petition, which later was withdrawn Creditors received 90% of the debt Norwegian University of Science and Technology 7

8 3 periods: 1. From the idea appeared until the application submitted 2. Candidacy period 3. After the awarding Norwegian University of Science and Technology 8

9 1: Before submitting the application Winning the event being prioritised (almost at whatever price) 2014 the only alternative due to the jubilee Offensive strategy: Show potential rivals that we mean serious business Increased the fee with NOK 5 mill. Earmarked subsidising of travel costs for players from low income nations Hiring key supporters to promote Tromsø s candidacy, but also an informant (mole) to seek information FIDE informing applicants that host city would also have to host the 2013 World Cup A heavy financial burden NOK13,5 mill. ( 1,5 mill.) COT2014 unprepared - had already submitted the application for governmental funding Norwegian University of Science and Technology 9

10 2. The candidacy period Two applicants: Tromsø and Albena from Bulgaria Tromsø informed by their «mole» that Albena had been offered to buy the event other sources later confirmed the information - but Albena rejected FIDE also tried to create a bidding war the day before the awarding but without success Norwegian University of Science and Technology 10

11 3. After the awarding COT2014 applied for additional funding first rejected, but later granted NOK12,5 million Russia (RCF) enrolled female team after the deadline => enrolment rejected Russia protested and was supported by FIDE => FIDE threatened to move the Olympiad to Sochi => COT2014 gave in and accepted the late Russian enrolment => COT2014 also had to accept late enrolments from 14 other teams => additional costs of 120,000 => Juridical dispute, where RCF required a compensation of 150,000, from COT2014, but RCF lost in the court. Norwegian University of Science and Technology 11

12 How to analyse these incidents? Three theoretical perspectives a) Auction theory b) Principal-agent theory c) Ethical theory Norwegian University of Science and Technology 12

13 a) Auction theory Period 1: Secret auction Regulations requires a fixed fee, but possible (and common) to bid more, which Tromsø did FIDE more powerful the more bidders there are Bidding cities unaware of each other at this stage - therefore unable to collaborate Applicants already having spent costs at this stage COT2014 extra vulnerable because of the jubilee factor FIDE successful: Candidate accepted also hosting the World Cup Norwegian University of Science and Technology 13

14 Period 2: Two candidates: Tromsø and Albena from Bulgaria FIDE tried to orchestrate auction before the awarding Tromsø and Albena unwilling and collaborated Trust had been established FIDE unsuccessful Norwegian University of Science and Technology 14

15 Period 3: Hypothetical auction with Sochi as a «possible» rival => collaboration impossible FIDE already shown they were not to be trusted COT already signed contracts with suppliers (hotels) FIDE successful Norwegian University of Science and Technology 15

16 Factors deciding the outcome of auctions Distribution of power between supply and demand side Degree of urgency Collaboration Norwegian University of Science and Technology 16

17 b) Principal-agent theory Principal = The owner of the event (FIDE) Agent = Tromsø, the agent hired to host Distribution of power a key word Principal deciding the rules Situations where rules are not being followed Situations of asymmetric information: One part taking advantage of being better informed Usually, the agent is better informed, but in this case the opposite was present Norwegian University of Science and Technology 17

18 c) Ethical theory: What are the rules and regulations? Will they be followed by those involved? How to react if not withdrawing or adopting the same behaviour? Norwegian University of Science and Technology 18

19 Quotes / reflections from interviews/newspapers: This was a world where power, positions, strong relations, and incentives are important..and where you get the impression that corruption and bribes are common it is not driven according to Norwegian morals and values Norwegian University of Science and Technology 19

20 We understood that we had to play the game according to the rules that were out there If it is extremely important to win the bid, let others do the dirty work involving instruments that in some context would be considered in the ethical grey area «Hiring a mole to seek information and influence key stakeholders and indication of mistrust Norwegian University of Science and Technology 20

21 Ethics and moral practice was contextual» An environment where procedures contradicting the rules are common => a context that makes rules relative, changeable and adjustable An environment where cultural differences create different definitions and practices of trust» Norwegian University of Science and Technology 21

22 Conclusions A local organiser not fully prepared for what will come. Had overoptimistic expectations, which is common. The meeting of stakeholders from different ethical cultures. How (un)usual is this story? Conflicting interests between owner and organiser are common Owner the most experienced of the two, and often the one who decides the premises Distribution of power important Norwegian University of Science and Technology 22

23 Thanks for your attention!!! Norwegian University of Science and Technology 23