EACES biennial congress Budapest, September 4-6, 2014

EACES biennial congress Budapest, September 4-6, 2014 Rustem Nureev Financial University under the Russian Government, Moscow, Russia & Evgeny Markin Russian State University of Physical Education, Sport, Youth and Tourism, Moscow, Russia OLYMPIC BUSINESS CYCLES: THE MODELS OF ADMINISTRATION AND FINANCING 1. Literature review 2. Olympic Business Cycle: main stages 3. Olympic Business Cycle: Economic vs Politics 4. Models of administration and finance and GDP growth 5. Sochi 2014 case 1

1. KEY RESEARCHES Main Literature: - Wladimir Andreff & Jan-Ftancois Nys «Sport Economy» (1986) - Holger Preuss Economics of the Olympic Games. Hosting the Games 1972-2000 (2008) - Frank Daumann and Markus Breuer «The Award of the Olympic Games - Incentives for Corruption in a Multiple Principal-Agent Relationship» (2010) - Sport influence on Europe economy and labor market: D. Dimitrov, L. Helmenshtayn, B. Moser, A. Klyaysner and J. Schindler (2006), L. Kahn (2000) and P. Staudohar (1996). - Sport marketing and management in sport: М. Shank, I. Blackshow, S. Brown, - State management in sport area and sport infrastructure and new jobs creation: R. Noll, А. Zimbalist. - Olympic Games Economy: R. Barney (1994), K. Heinemann (2002), R. Mandell (1984), A. Gutman (1992). 2

Key researches In Russian: - Investigations in the area of physical training and sport economy: B.S. Kuzmak, R.M. Orlov, V.I. Zholdak, V.E. Levitin, V.V. Kuzin - Questions of labor productivity and physical training dependence : V.I. Zholdak. - Factors which defines the efficiency of physical training: A.M. Alekseev. The theory of physical training and sport economy : V.M. Rutgaizer, V.V. Galkin. - The interest to Olympic Games economy appears at the beginning of 90s. - Olympic marketing: V.V. Ponyavin, V.I. Koval 3

2. Olympic business cycle: Main Stages Olympic business cycle (OBC) is a period of time between the moment when the country announce to participate in Olympic bid, and the moment of next (after the Olympics) tourists season finishing in host country. There is 3 main stages can be assigned within Olympic Business cycle. The main criteria is Olympic Games. 1) pre-olympic stage (~ 9 years); - Olympic Bid participation (~ 2 years); - Olympic Games organizing (~ 7 years); 2) Olympic stage (~ 1/6 year); 3) post-olympic stage (~ 1 year). 4

Year City and Country The Length of Olympic Business Cycles Games of Olympiads Olympic Winter Games Bid starting Electi on Length of OBC (years) Year City and Country Bid starting Electi on Length of OBC(years) 1896 Athens (Greece) no data no data 3-4 1900 Paris (France) no data no data 3-4 1904 Saint-Luis (USA) no data no data 3-4 1908 London (Great Britain) no data no data 3-4 1912 Stockholm (Sweden) no data no data 3-4 1920 Antwerp (Belgium) no data no data 3-4 1924 Paris (France) no data no data 3-4 1924 Chamonix (France) no data no data 3-4 1928 Amsterdam (Netherlands) no data no data 3-4 1928 St. Moritz (Switzerland) no data no data 3-4 1932 Los-Angeles (USA) 1923 1923 10 1932 Lake-Placid (USA) 1928 1929 5 1936 Berlin (Germany) 1933 1933 4 1936 Garmisch-Partenkirchen (Ger) 1933 1933 4 1948 London (Great Britain) 1948 1948 1 1948 St. Moritz (Switzerland) 1948 1948 1 1952 Helsinki (Finland) 1946 1947 7 1952 Oslo (Norway) 1946 1947 7 1956 Melbourne (Australia) 1948 1949 9 1956 Cortina d Ampezzo (Italy) 1948 1949 9 1960 Rome (Italy) 1954 1955 7 1960 Squaw-Valley (USA) 1954 1955 7 1964 Tokyo (Japan) 1958 1959 7 1964 Innsbruck (Austria) 1958 1959 7 1968 Mexico City (Mexico) 1962 1963 7 1968 Grenoble (France) 1962 1963 7 1972 Munich (Germany) 1965 1966 8 1972 Sapporo (Japan) 1965 1966 8 1976 Montreal (Canada) 1969 1970 8 1976 Innsbruck (Austria) 1969 1970 8 1980 Moscow (USSR) 1973 1974 8 1980 Lake-Placid (USA) 1973 1974 8 1984 Los-Angeles (USA) 1977 1978 8 1984 Sarajevo (Yugoslavia) 1977 1978 8 1988 Seoul (South Korea) 1980 1981 9 1988 Calgary (Canada) 1980 1981 9 1992 Barcelona (Spain) 1985 1986 8 1992 Albertville (France) 1985 1986 8 1996 Atlanta (USA) 1989 1990 8 1994 Lillehammer (Norway) 1987 1988 8 2000 Sydney (Australia) 1992 1993 9 1998 Nagano (Japan) 1990 1991 9 2004 Athens (Greece) 1995 1997 10 2002 Salt-Lake-City (USA) 1994 1995 9 2008 Beijing (China) 1999 2001 10 2006 Turin (Italy) 1997 1999 10 2012 London (Great Britain) 2003 2005 10 2010 Vancouver (Canada) 2001 2003 10 2016 Rio-de-Janeiro (Brazil) 2007 2009 10 2014 Sochi (Russia) 2005 2007 10 5 5

Olympic business cycle VS classical business cycle The common features 1) Fluctuations (waves) 2) Length 10 years (Juglar cycle) 3) The same phases Differences 1) The different order of phases 2) Consequences (for some countries Olympic business cycle is cause of growth, for another the cause for regression) 3) Olympic business cycle is a unique cycle for the country, but the classical business cycle is regular (take place one after another). It has the same economic features in different countries but depends on cultural specific and mentality. 4) Olympic business cycle is either help to economy to overcome the depression or to make a strong support for stable growth. 5) Classical business cycle has the same influence in different countries. Olympic business cycle depends on the scale of country economy. 6

2.1. Pre-Olympic Stage Main Indicators of Olympic Bids International Olympic Committee has developed a special system of Applicants and Candidate cities estimation. Candidature Acceptance Procedure includes 11 indicators: 1. Government support, legal issues and public opinion (including compliance with the Olympic Charter and the World Anti-Doping Code*); 2. General infrastructure 3. Sports venues 4. Olympic Village(s) 5. Environmental conditions and impact 6. Accommodation 7. Transport concept 8. Safety and security 9. Experience from past sports events 10. Finance 11. Overall project and legacy Independent analytical agencies calculate BIDINDEXes: - Gamesbids. - Aroundtherings. 7

General Approach 1. Each indicator can be in diapason from 1 to 10. 2. The acceptable minimum is 6. 3. If city receives less than 6 then this indicator is colored in matrix in red color. 4. It is the signal that city has not enough developed in this sphere. 5. Let s illustrate this procedure on the example of Games of XXXI Olympiad 2016. 8

Elections of 2016 Olympic Host City 1) Government support, legal issues and public opinion (including compliance with the Olympic Charter and the World Anti-Doping Code*). * The Working Group has commented on the Applicant Cities compliance with the World Anti-Doping Code, but not assigned grades. Source: Games of XXXI Olympiad 2016 Working Group Report 9

2) General infrastructure Source: Games of XXXI Olympiad 2016 Working Group Report 10

3) Sport Venues Source: Games of XXXI Olympiad 2016 Working Group Report 11

4) Olympic Village(s) Source: Games of XXXI Olympiad 2016 Working Group Report 12

5) Environmental conditions and impact Source: Games of XXXI Olympiad 2016 Working Group Report 13

6) Accommodation Source: Games of XXXI Olympiad 2016 Working Group Report 14

7) Transport concept Source: Games of XXXI Olympiad 2016 Working Group Report 15

8) Safety and security Source: Games of XXXI Olympiad 2016 Working Group Report 16

9) Experience from past sports events Source: Games of XXXI Olympiad 2016 Working Group Report 17

10) Finance Source: Games of XXXI Olympiad 2016 Working Group Report 18

11) Overall project and legacy Source: Games of XXXI Olympiad 2016 Working Group Report 19

FINAL SCORE Source: Games of XXXI Olympiad 2016 Working Group Report 20

Source: www.gamesbids.com The Bid Indexes of GamesBids Agency on the eve of 2014 and 2016 Olympics final voting International sport analytical agencies also have their own ratings. They analyze the same indicators by themselves and present Bid indexes. BidIndex results on the eve of 2016 Olympics capital choosing CITY HIGH LOW CHG INDEX Chicago 61.24 58.78 +1.23 61.24 Madrid 59.50 57.80 0.00 57.80 Rio-de-Janeiro 61.61 59.73-0.19 61.42 Tokyo 61.41 59.20-0.18 59.02 BidIndex results on the eve of 2014 Olympics capital choosing CITY HIGH LOW CHG INDEX PyeongChang 64.99 55.72 +00.09 64.99 Salzburg 65.35 60.63-01.31 62.62 Sochi 63.17 56.71 +02.22 63.17 21

Number of Applications Austria Belgium Germany Spain Number of Candidate Cities to Host The Games of Olympiad (1896-2016) Italy Canada Russia (USSR) USA Finland France Switzerland Sweden Yugoslavia Japan China Mexico Brazil Argentina Cuba Turkey Great Britain Malaysia Egypt Tailand Puerto-Rico SAR Greece Australia South Korea Hungary Netherlands Ireland Czech Republic Azerbaijan Dubai 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 1992-2016 1972-1988 1948-1968 1924-1944 Countries Calculated by authors on the base of www.gamesbids.com, www.olympic.org 22

Austria Belgium Germany Spain Number of Candidate Cities to Host Olympic Winter Games (1924-2018) Italy Canada Norway Poland Russia (USSR) Slovakia USA Finland France Switzerland Sweden Yugoslavia Japan Andorra China Bosnia & Herzegovina South Korea Kazakhstan Georgia Bolgaria 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 1992-2014 1972-1988 1948-1968 1924-1944 Countries Calculated by authors on the base of www.gamesbids.com, www.olympic.org 23

Public and private cost-benefit analysis on pre-olympic stage Participation in election procedure Costs Benefits Public Olympic bid documentary support, Participation fee, preparing and organization of activities to popularize the idea of Olympic Games hosting inside the country and abroad Olympic Games Questionary preparing Applicant City advertising, infrastructure development and preparing for IOC Commission visit country image increase, knowledge increase about applicant city abroad Business - Participation analysis Investment attraction increase Created by authors 24

Public and private cost-benefit analysis on pre-olympic stage Olympic Games Organizing Costs Benefits Public Business Organization costs, - Administrative costs - Opening and closing ceremonies - Olympic touch relay Technical costs (stadiums, swimming pools, Olympic village, press-center etc.) Infrastructure development (roads, underground, electronic communications etc.) Environmental protection Hotels construction Tourism infrastructure development in hope for the future benefits DIRECT TV rights selling, Sponsors (national and worldwide) licensing ticketing (partially) Sells through the Internet Coins, lottery etc. INDIRECT unemployment decrease aggregate demand growth taxes growth business activity growth country and city availability growth Investment attraction growth Advertising of goods and services Created by authors 25

Public and private cost-benefit analysis on pre-olympic stage Olympic Games Organizing Committees revenues from marketing programs (1993-2004) 100% 90% 80% 70% 60% 50% 4,4% 1,8% 2,1% 17,1% 16,6% 9,8% 19,0% 20,3% 17,4% 10,6% 15,4% 15,8% 40% 30% 20% 10% 47,6% 48,9% 53,3% 0% 1993-1996 1997-2000 2001-2004 Periods of time TV rights selling Sponsorship National Sponsorship Ticketing Licensing Created by: 2006 Marketing Fact File, IOC report, 2006 26

The scheme of IOC financial flows Previous Olympic Games << >> Olympic Games Broadcusting The Olympic Partnership Licensing Ticketing National Partners National licensing Next Olympic Games << >> 100% 100% 100% 100% International Olympic Committee (IOC) 51% 10% 0% 5% 40% 10% 49% NOCs and ISF of Olympic movement member-countries 50% 100% 95% 100% Organizing Committee of the Olympic Games 100% Created by: Marketing Fact file 2002 - IOC, 2002; Marketing Fact file 2006 - IOC, 2006; Галкин В.В. Экономика и управление физической культурой и спортом. Изд. «Феникс», Ростов-на-Дону, 2006; www.aroundtherings.com; www.gamesbids.com; www.olympic.org 27

2.2. Public and private cost-benefit analysis on Olympic stage Costs Benefits Public Business Security Sportsmen accommodation and food Advertising activities, festivals etc. Utilities Subsidies to the Factories and companies which are closed for the Games period to traffic jams avoiding and so on. General organizational costs restrictions for factories and industry companies work number of tourists increase, country image increase, ticketing (partially) Sells through the Internet GDP and GRP growth taxes country image increase, Investment attraction increase Advertising of goods and services souvenirs and sport equipment selling plastic cards transactions hotels full filling sportsmen and guests expenditures Created by authors 28

2.3. Public and private cost-benefit analysis on post-olympic stage Costs Benefits Public Business Infrastructure and equipment operation costs Infrastructure and equipment operation costs bank interest revenue assets selling, hosting other mega events hosting other mega events souvenirs and sport equipment selling tourism Created by authors 29

3. Olympic Business Cycle: Economic vs Politics Summary of Gross Spending Related to the 2010 Games Source: 2010 Winter Olympic and Paralympic Games Report 30

Distribution of the investments for the Olympic Games (%) Created by: Preuss H. The Olympics. Handbook on the Economics of Sport. Edited by Wladimir Andreff abd Stefan Szymanski. Edward Elgar Publishing, UK, 2009 31

Political and economic business activity inside the Olympic business cycle (a typical issue) Business Activity Previous OG Debrief Economic Business Cycle (by revenue) Political Business Activity 2 года 5 лет 2 года 1 год Economic Business Cycle (by costs) Т 0 The beginning of Bid Procedure Т 1 Host-city and country announcement Т 2 Venues and infrastructure readiness Т 3 Olympic Games (2 weeks) Т N Time Source: created by author. 32

Econometrical analysis Y t = α + β*y t-1 + θ β is the coefficient shows the rate of GDP growth per capita in Olympic Games hostcountries. β 0 10 years before Olympic Business Cycle β 1 Olympic Business Cycle China 2008 0,93 1,31 Italy 2006 0,56 1,14 Greece 2004 0,93 1,23 USA 2002 0,95 0,99 Australia 2000 1,01 0,60 Japan 1998 1,10 0,69 33

4. ADMINISTRATION AND FINANCING MODELS OF SUMMER OLYMPIC GAMES IN 1972-2008 We followed by Holger Preuss model (2000). But we only a little change the level of models defining. 1. Model of public administration and financing (the share of public participation more than 67%); 2. Mixed model of administration and financing (the share of public participation from 33% to 67%); 3. Model of private administration and financing (the share of public participation less than 33%) 34 34

Administration and financing models of summer Olympic Games in 1972-2008 Created by: Preuss, Holger. Economics of the Olympic Games. Hosting the Games 1972-2000. Sydney: Walla Walla Press in conjunction with the Centre for Olympic Studies, The University of New South Wales, 2000, 291 p.; Коваль В.И. Олимпиада 80 (экономический аспект), «ЗНАНИЕ», Москва, 1978 (Koval V.I. Olympics 1980 (economic aspects). Moscow, 1978, in Russian); Прицельный олимпийский огонь // Эксперт, Москва, август 2004 (Direct Olympic fire // Expert, August 2004, in Russian); Игры кончились // Smart Money, 28.07.2008, 27 (117) (The Games ended // Smart Money, 28.07.2008, 27 (117), in Russian) 35

Inflation in 1988-2006 Olympic Host Countries Created by: World Bank 36

Investments in 1988-2006 Olympic Host Countries Created by: World Bank 37

Spain s (a) and Australia s (b) GDP per capita and GDP growth in dynamics (1980-2006) a) Spain b) Australia Created by: World Bank, International Monetary Fund 38

Greece s (a) and China s (b) GDP per capita and GDP growth in dynamics (1980-2006) a) Greece b) China Created by: World Bank, International Monetary Fund 39

The Role of Economy Size in Defined Models It should also be noted that analysis of different models of administration and financing must also take into account the size of the economies themselves. Olympic Games of 1984 and 1996 in the United States had no noticeable effect on the economy in view of the fact that the correlation of the budget of the Games and the U.S. budget was too small about 0.01% per capita. GDP per capita in the United States was growing steadily, but the GDP growth rates ranged. Otherwise this correlation reached 1,13% per capita annually in some countries (Greece). Examples: USA, etc. 40

5. SOCHI 2014 CASE. Usually it is divided 4 main levels of administration and financing: 1. the state of the Olympic Games host-country, 2. the region/ district, 3. the city (the capital of the Games) and 4. the private sector. All of these levels is involved in Sochi Olympics organizing: - the President and the Government of Russia, - Krasnodar Region Administration, - Sochi Administration and - private sector. The Games Organizing Committee is usually responsible for Games preparation. In Russia it is the "Sochi 2014" Organizing Committee Created by the analysis of Russian State Laws and Official documents Sochi 2014 OCOG 41 41

Total costs for Olympic Winter Games 1994-2014 (bln $) Russia Canada Italy USA Japan Norway Calculated by Authors on: Flyvbjerg В. Stewart A. Olympic Proportions: Cost and Cost Overrun at the Olympics 1960 2012 - Working Paper // Saïd Business School, University of Oxford.- 06.2012 42

Main economic indacators of Russia, Sothern Federal District and Krasnodar region (2012 vs 2005). Krasnodar region Sothern Federal District Russia 2005 2012 2005 2012 2005 2012 Capital Investments per capita, 22 236 150 312 17 692 88 666 25 161 87 770 RUB (Rank) (27) (11) Unemployment (%) 7,4 5,6 8,4 6,2 7,1 5,5 Income per capita, RUB 5 545 21 077 5 757 18 603 8 088 23 058 Sourse: created by authors on Goskomstat data (www.gks.ru) 43 43

TOP-30 of Russian Cities for Doing Business (2012) Calculated by Authors on Forbes data http://www.forbes.ru 44

Gross regional product index growth (2006=100) Krasnodar region Average in South Federal Region Sourse: created by authors on Goskomstat data (www.gks.ru) 45 45

Average income per capita (month; RUB; 1990 г. thousand RUB) 25000 20000 OBC Sochi 2014 18796 21077 18603 15000 10000 9692 9277 11906 11423 13752 12929 16892 15114 16584 5000 5757 5545 7245 7193 1592 1563 0 0,206 1990 2000 2005 2006 2007 2008 2009 2010 2011 2012 Russia South Federal District Krasnodar region Source: calculated by authors on Rosstat data (www.gks.ru) 46

Sochi 2014 Summary. Model of public administration and financing; 1) institutional preconditions for the effective private sector development; 2) world s best practice implementation; 3) features private business oriented management on the state level. 47

Conclusion (1) Olympic business cycle is a specific type of middle run business cycle. Olympic business cycle can help to overcome the country regression or make an impulse for rapid economy growth. The cost-benefit analysis and correlation between economic and political business cycles have shown that the highest accumulation of financial and administrative resources is needed on pre-olympic stage. Otherwise the payback of the Games and its legacy depends on the program which will be realized on post-olympic Stage. The econometrical analysis has shown that GDP growth is higher during the Olympic business cycle. As a result, countries can give the impulse to the economy through the Games organizing. The payback of the Games and Mid Run-Long Run economic growth in host country depends on the model of administration and financing which was chosen for Games organizing. 48

Conclusion (2) There are 3 main models of Olympic Games administration and financing: - Model of public administration and financing - Model of private administration and financing - Mixed model of administration and financing The effectiveness of the Olympic Games can be understood in a narrow (direct payback of the Games) and a wide (due to the Games set the stage for long-term and sustainable economic development) sense of the word. If private management model and financing payback of the Games means success for the organizers and investors. The population of the Olympic Games, with high probability, slightly felt the economic impact of this event. If the model of governance and financing - Games organizing is the way to improve infrastructure, to stimulate demand and improve the quality and standard of living. 49

Thank you for your attention! 50