Big money games
4 Aug 08
Will the huge sums being spent on the 2012 Olympics – and the smaller quantities to be paid for the 2014 Glasgow Commonwealth Games – all go to big business?
by Kenny Kemp
As CA Magazine goes to press, Beijing is poised to start the 2008 Olympics with a spectacular opening ceremony. Thousands of spectators and billions of TV viewers will be gripped by what is arguably the greatest sporting event on Earth. After the end of this month, however, the attention swings to London and the build-up for the 2012 Olympic and Paralympic Games. It’s going to be a truly massive occasion and everyone will want a piece of the action.
For Britain, it is a welcome economic dynamo; a massive injection calculated at around £21 billion that will, it is hoped, counter any prolonged downturn. And this will be followed up in Scotland by the Commonwealth Games in 2014. Sport on this scale can transform fortunes. But whose fortunes?
Lord Coe, the Olympic gold medal legend who led the London bid team to victory in the campaign to host the games, believes there is a far bigger prize for the nation than medals. He talks with passion about a legacy for young people through sport and culture. An essential element is the regeneration of a large tract of derelict London. But how many smaller companies will share the spoils? Nearly 20,000 hopeful businesses have signed up to CompeteFor London 2012, an online brokerage for procurement launched in January. That number could top 100,000 by the end of the year.
The Olympics are more suited to the needs of global business – and there are fears that smaller and medium sized UK firms will be squeezed out. The Olympic Delivery Authority (ODA) and the London Organising Committee (LOGOC) expect to allocate more than £6 billion in forthcoming contracts. And more than 70 per cent of the 650 companies that have won £2 billion of work are classed as smaller firms.
Over the years the Olympics, once driven by an amateur ideal, has become more and more about money. Sponsorship and television deals are it’s true bread and butter. TV rights have been dominated by the Americans, particularly NBC, which has paid a fortune since the Seoul Games in 1988, when it secured the rights with $300m (£150m), rising to $793 (£396m) for Athens in 2004, and $894m (£446m) for Beijing. The London figure is $1.2 billion (£599m).
In the past 20 years, with a worldwide audience of 3.7 billion, more than half the planet’s population, the IOC has concluded international sponsorship agreements worth more than $12 billion (£6 billion). And this is the crux for the Olympics. Those mega-spenders are promised exclusive exposure for their brands and products and the Olympic organisers guard this with incredible zeal.
McDonalds, the hamburger giant, has extended its TOP sponsorship until 2012, joining Coca-Cola, Atos Origin (formerly Schlumberger), General Electric, John Hancock, Kodak, Swatch and Visa as the International Olympic Committee's core backers. Samsung and Panasonic have also renewed their backing, in spite of IOC member Kun-Hee Lee facing problems as chairman of Samsung. The total sponsorship package is worth $866m (£432m) in 2008.
The big question is how should this be spent? It is disbursed to the Olympic associations round the globe to encourage competitors and it is also an insurance policy for the hosts. But the cost of holding the Games has become a major part of the story. Barcelona and Sydney created blueprints for how civic facilities can be reconstructed, but beady-eyed accountants will recall that Montreal took a generation to pay off debts from the 1976 games. Athens is still recovering.
London won its chance by convincing the IOC members that its Games would be “sustainable” and would make a once-in-a-generation contribution to the capital’s future.
The redevelopment and expansion of the decaying inner city area of Stratford in east London remains a key part of the deal – just as the regeneration of Glasgow’s depressed east end is a driver for Scotland’s successful bid, although there will be nothing like the capital expenditure with the Scots relying on modifying and improving existing infrastructure.
In the UK, two quite separate issues have become confused: the operational costs of an Olympic Games; and the exploitation of the Games by central government, its dedicated Olympic executive, and local government, including the Greater London Authority, and the London Mayor's office.
Media speculation that the total bill will exceed £9 billion has tarnished the Olympic ideal, with regional critics asking how they will benefit while budgets for sport and cultural facilities are channelled towards London.
In many respects, support for the Commonwealth Games in Glasgow was a reward for Scotland’s backing for the London bid. LOGOC, chaired by Lord Coe and responsible for staging the events, has resolutely maintained the cost of holding the Games will still be around
£3 billion, with the lion’s share coming through some heavyweight Tier One sponsorships, including BP’s recent £50m to become the official fuel supplier. So far, six companies have forked out for this status including Lloyds TSB, EDF Energy, the French company that owns London Energy, Adidas, British Airways and BT. By July 2008, Olympic chiefs had raised more than half of the £700m target for sponsorship.
The IOC has become embarrassed by the criticism and comparisons with the Millennium Dome, which was viewed as a £1 billion white elephant. Members of the House of Lords have denounced the rising costs as a similar squandering of taxpayers’ cash. In its defence, the ODA, the government-backed agency tasked with ensuring all the facilities are built and run properly, chaired by John Armitt, has admitted the rising construction costs could push the Games' operational budget above £6 billion, with the Olympic stadium accounting for £525m. The ODA’s delivery partner is a consortium called CLM, made up of US programme manager CH2M Hill, construction firm Laing O’Rourke and project management company Mace.
Preparation work on the upper Lea Valley in London is well ahead of schedule. Many major contracts for key Olympic stadiums have been awarded. Construction has started on the £800m Olympic Village though there has been a wrangle about how it will be financed. Balfour Beatty has started work on the land bridge that will be the gateway to the Games, and the tender process is going on for the rowing centre at Eton.
Meanwhile, Glasgow is progressing well with its early planning with lessons learned from Manchester’s highly successful 2002 Commonwealth Games. John Scott, appointed in April, will lead the organising company, the body responsible for delivering the Games.
Scott’s tasks as chief executive include delivering the programme, monitoring development of new and improved infrastructure, managing staff of the company which will rise to several hundred people by 2014, and recruiting and training the 15,000 Games volunteers.
The decision to use existing venues, such as Hampden Park, the Scottish Exhibition and Conference Centre (SECC) on the banks of the Clyde for the boxing and the Tollcross aquatic centre will save costs, but there will be substantially fewer opportunities for smaller business than with London 2012.
John Sharkey, group chief executive of SECC, says: “The economic impact the Commonwealth Games will have on the city will be tremendous. Not only will businesses benefit from the spend of visitors during the games, Glasgow will be broadcast worldwide, raising our profile and attracting even more visitors long after the games.”
Before 2014, with the London Games beginning on 27 July 2012 and the Paralympics on 29 August 2012, there are likely to be amazing opportunities for UK businesses. But there is a fundamental question over whether they will go to smaller businesses, because despite the enthusiastic interest by businesses, LOGOC and ODA do not really have to bother much.
Indeed some feel their attitude to smaller businesses is not only patronising but discouraging. Robert Kerr, managing partner of accountancy firm French Duncan, summed it up: “One of my clients is a security fencing business with a world-leading product. They are very keen to get involved with the Olympics but they have no idea if they are getting through to the right people.”
All UK companies interested in working for the Olympics must sign up for CompeteFor, which will determine whether a business meets the minimum requirements. Then contractors will be teamed up with subcontractors. Those signed up will have a regular alerts on contracts in their field. The ODA is bound by strict European Union rules on bidding for projects, so businesses can expect no favours if they are from Bolton rather than Bordeaux.
Kerr says it is all very well spending time filling in online applications, but small businesses need to be able to speak to someone who can give them a steer on whether they have a realistic chance.
While the ODA likes to talk about CompeteFor as a “dating agency”, it gives no guarantees about a long and meaningful relationship.
Businesses working for London 2012 cannot claim any reflected kudos unless they part with a lot of money. Only Tier One official sponsors can use the London 2012 logos and those awarded contracts by the ODA must sign a “no marketing” clause. So small businesses can forget about using the Olympic logo on websites. They will be restricted to a simple factual statement about the work they are being paid for.
Lloyds TSB, an official partner, has done much to stimulate activity, organising events to encourage businesses to get fit.
Lisa Stephenson, the director of marketing and wealth management for Lloyds TSB Scotland, told delegates at a recent event in Glasgow: "We see our flagship sponsorship with London 2012 Olympic and Paralympic as an exciting proposition for our business which complements our branding of ‘For the Journey’. What we want to do is help our business customers prepare for the Olympic and Paralympic Games journey.
“We can see there are some fantastic opportunities for all kinds of businesses in the UK. The first step is to sign up and provide as much relevant information about your business as you can.”
Lloyds TSB has produced a handbook for those wishing to seize the business opportunities. It advises smaller companies with no experience of working on such a major project to consider arranging e-payments, they might have to upgrade financial systems to provide more detailed management information, formalise terms and conditions and buy project management software.
What kind of help can business offer the Olympics? Trevor Hatton, managing director for Accenture Scotland, says the Olympic companies do not have time to grow slowly or organically, they need to scale up from the very beginning, requiring business systems of industrial strength.
“Putting in place the practical processes and back office management systems is a critical task and integral to ensuring a games makes money. A finance system, for instance, needs to be able to manage everything from ticket sales, merchandising and sponsorship right through to paying the salaries of the thousands of people.”
Accenture, which has sporting associations, including with Tiger Woods, ATT, Williams Formula One and Skandia Team GBR (the British Olympic sailing team), is increasingly involved in such international events.
“Everyone is now aware that sport is big business,” says Hatton. “Sporting success is closely linked to commercial success, yet sporting organisations haven’t necessarily had access to the business expertise that is now essential.
“They will have a huge bank of knowledge about their sport, but it takes a different kind of investment to generate winning performances. And yet, it is only winning performances that will secure public funding or attract the major sponsors.
This needs a different type of thinking. Money is essential to sports bodies, but it’s not everything. Businesses have so much more to offer.”
For the 2012 Games, the British Olympic Association has set up a framework for major UK businesses to facilitate an exchange of expertise with its FTSE-BOA initiative. Each participating company will provide skill and knowledge transfer to a particular governing body of Olympic sport to accelerate their organisational development.
“The Royal Yachting Association was a natural partner for Accenture and we are currently working with Skandia Team GBR,” says Hatton.
Richard Mould, head of procurement at LOGOC, said the London 2012 Business Network is a huge step forward in creating transparency about supply opportunities and a shop window for those wishing to get involved.
“Over the next few years we anticipate the number of opportunities posted on the system may reach between 10,000 and 20,000.”
Perhaps the question for UK businesses is whether they can afford not to try. They might just come away with Olympic gold. n
KENNY KEMP is a freelance business journalist.s