Olympics and the business of sport

Thursday, July 26, 2012 | Posted by: Fiona Cullinan
Categories: Thought leadership | Tags: business, investment, survey, IBR, International business report, benefits, London 2012, cost, sport, sports, Nigel Davies, Olympic, events, Olympics

With the London 2012 Olympic Games opening ceremony tomorrow, we ask why do countries host such costly sporting events? What exactly is the business and investment advantage? And is there a difference between emerging and developed economies when it comes to value? Grant Thornton’s latest International Business Survey (IBR) surveyed 3,000 business leaders on the business aspects of sport to find out…

Our graphic – click on the image to view at a larger size – shows how important different countries believe hosting a major sporting event to be in relation to attracting investment.

Grant Thornton’s IBR surveyed 3,000 businesses, both listed and privately held, from all industry sectors across 40 economies in May/June 2012.

Business value of hosting a major event
Findings show that businesses in emerging markets value the ability of big sporting events to attract investment to their economies more than their counterparts in developed economies. In Latin America, for example, almost three quarters (74%) of business leaders believe major sporting events are important for inward investment (54% across the BRIC nations). By contrast, only 42% hold this view in the EU and 44% in North America.

‘A global shop window’ for the host country
Stephen Gifford, Chief Economist at Grant Thornton UK, explained:

“Holding a major sporting event gives an emerging economy a global shop window, allowing it to present and market what it has to offer to a massive worldwide audience. For more established economies, international sporting competitions are still a great opportunity, but appear to be just one element of a much bigger offensive to attract investment.

“It’s also more often the case that developed economies will have the venues, transport and technology infrastructure already in place for any major event. Capital investment to build new infrastructure is therefore much more limited in these economies, compared with the level of investment required in emerging markets such as China and Brazil”

Upbeat UK expects £6 billion FDI
With the 2012 Olympic Games starting in London tomorrow, businesses in the UK are far more enthusiastic than their G7 counterparts – 61% say big sporting events are important for attracting investment.

Indeed, the UK government anticipates that the London Olympics will bring £13 billion of economic benefits over the next four years (although other reports suggest the Olympic effect will be more of a statistical blip) –  with £6 billion in the form of foreign direct investment (FDI).

Measuring the cost
This must be balanced against the bill, of course. In June, The Guardian compiled a breakdown of Olympic costs, which had been declared ‘on time and under budget’. The overall public sector funding package (PSFP) at that point was £9.298 billion (as estimated in 2011). But it also noted that “security for the park was the item most under budget – at £10 million less than expected in 2011”. With 1200 extra troops being called in after security provider G4S admitted it was short of staff, costs are set to rise.

How UK businesses expect to benefit
It is difficult to assess the full economic impact of hosting the world’s biggest sports event but with the 2012 Olympic Games opening in London tomorrow, let us delve deeper into the specifics of how the UK expects to benefit.

IBR data shows that UK businesses are involved in sport for the following reasons:

• 22% – sponsorship/advertising to generate goodwill in local community
• 21% – corporate hospitality to build relationships with existing clients/customers
• 19% – corporate hospitality to win new clients/customers/business
• 14% – sponsorship/advertising to boost brand awareness
• 8% – as part of staff incentives/benefits schemes
• 7% – to boost staff health and wellbeing
• 6% – as a team-building tool

[54% responded that they were either not involved in sport or not for the above purposes.]

Bullish despite the bill
IBR research also indicates that business leaders in economies which have recently held, or are soon to hold, major sporting events are more bullish about the investment they bring (the exception is China, where the legacy of the 2008 Olympic Games in Beijing remains unclear).

Back to our graphic, business leaders in Brazil – host of both the 2014 FIFA World Cup and 2016 Olympic Games – show the greatest faith in sport’s ability to deliver investment (83%).

Business leaders in Poland (82%) – host of this year’s European Championships – and South Africa (78%), which held the FIFA World Cup 2010, are also positive in this regard.

Further information and meet our Olympic torchbearer
For more information, visit our International Business Report site.

And finally…

The benefits of hosting an event such as the Olympics go beyond the financial to a sense of national pride, cultural unity and promoting healthy living. In that respect, we’d like to give an honourable mention to Nigel Davies, an associate director with Grant Thornton International, who recently ran as one of the Olympic torchbearers in Kingston Upon Thames.

Nigel and his wife have been rowing champions in Sweden and Bulgaria, and Nigel still competes in rowing events in the UK. Here he is pictured on the right in the Olympic torch relay. We’ll also be interviewing Nigel as part of our Meet our experts series shortly.

You might also find these links useful:

* Read more IBR survey posts
* Emerging markets drive business investment in Q2
* Football Transfer Tracker: what’s the final score? Football economics from 2011…