Olympic Bids: Making the Deal

Olympic Bids: Making the Deal

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Before the Sochi Winter Games had even started, the bidding process for the 2022 Olympics was under way. The International Olympic Committee (IOC) has revealed the 6 cities bidding for the 2022 Winter Olympics, after the deadline for applications closed in November. The cities vying for the spot include Almaty (Kazakhstan); Beijing (China); Krakow (Poland); Lviv (Ukraine); Oslo (Norway); and Stockholm (Sweden). The winner will be announced in 2015. Between now and then, each city will need to pass through several stages of the Olympic bidding process.

Bidding for the Olympics isn’t all that different to the deal-making process. The IOC (seller) receives nominations from multiple cities (buyers), all bidding for the same deal (Olympics). It needs to assess each offer in great detail before a decision can be reached. However, unlike most M&A deals, it takes two years, and once the deal is closed the Olympics doesn’t take place for another seven!

Phase 1: Applicant City Phase

The first phase of the Olympic bidding journey is called the Applicant City Phase. Applicant cities are required to answer a questionnaire (known as The Application File) and submit it to the IOC. The Application File is then reviewed by an IOC-appointed Working Group, which includes representatives from various Olympic stakeholders. These individuals carry out a detailed risk assessment report, which is submitted to the IOC Executive Board. The board members then select the cities that will advance to the Candidature Phase.

Phase 2: Candidature Phase

During the Candidate Phase, each candidate city provides a detailed plan to the IOC outlining its blueprint for the Olympic Games. This is called the Candidature File, which is accompanied by a substantial number of legally binding guarantee letters.

These two phases of the Olympic bidding process have similarities to the due diligence process during a deal. Numerous Olympic officials have to evaluate the information provided by applicant cities, just like M&A advisors, lawyers, accountants, and other stakeholders have to during a merger or acquisition.

Phase 3: City visits & election

Upon reviewing the Candidature File, the IOC Evaluation Commission then visits each city and produces a final risk assessment report, highlighting the strengths and weaknesses of all cities. This is then provided to each IOC member in preparation for the election of the host city.

Cost of bidding: Is it worth it?

A lot of time, resources, and money go into the Olympic bidding process, which can cost anywhere from $50-$100 million for each candidate. Since 2000, Istanbul has made 5 bids for the Olympic Summer Games, spending more than $200 million, but have yet to host. They made it as far the final election for the 2020 Summer Games, but were ultimately beaten by Tokyo, which won the Olympic bid for the third time.

While unsuccessful bids can be costly, surely there’s significant ROI for the winning city?

Not necessarily, according to some research. Allen Sanderson, an economist from the University of Chicago, compared the tourism, construction, and tax revenues from Olympic host cities to similar cities during the same time. They looked at Charlotte, which is close to Atlanta, and Melbourne, close to Sydney, and did not find any significant difference in the revenue between the Olympic host cities and the cities that were not.

It seems hard to believe considering the amount of revenue that is generated through broadcasting rights, sponsorships, and tourism during the 17 days of the Olympic games. However, if you consider the huge financial burden that comes with hosting the Olympics, as well as the cut taken by the IOC, the opportunity to turn a profit reduces significantly.

According to Stephen Dubner, co-author of Freakonomics, bidding alone can do wonders for a city. It helps them gain international recognition, without the financial burden of hosting the games, as was demonstrated by Melbourne, which made an unsuccessful bid for the 1996 Summer Games.

Sure, an unsuccessful bid doesn’t bring the Olympic games to your city, or boost the morale of your citizens, but in terms of the economics, making the bid — not winning it — seems to be the best deal of all.