2021 WEC - Thinking and Innovation

World Economics Cup
Business Model for the Olympic Games
The International Olympic Committee is in trouble. Over the past decades, the IOC has seen many cities drop out
of bidding for the Olympics in mid-race. They are scared off by the size or cost of the Olympic Games, or strong
opposition from local populations. The situation has become so severe that the 2032 Olympics has only one bidder:
Brisbane of Australia.
The cost of hosting the Olympic Games is increasingly intimidating. A study in 2016 from the University of
Oxford’s Saïd Business School found that from 1960-2016 (when data were available), the average cost overrun of
hosting the games was 156%, the highest of any megaproject. 2020 Tokyo Olympics has become the most
expensive yet, costing more than 30 billion U.S. dollars, four times the
original estimate.
The Olympics are still relatively popular. Sponsors and television

broadcasters are still willing to pay fat sums to affiliate themselves with the
Olympic brand. Broadcasters are still making the bet that live sports will
continue to fascinate TV audiences. Comcast, the parent company of NBC
Universal, an American television company, paid a whopping $7.75bn for
exclusive broadcast rights to the games from 2022-2032. But the IOC is
charging a larger and larger share of this revenue and leave less to the
hosting cities. Today, it gives less than 30% of television revenues to the host
city. In 1992, by contrast, it gave Barcelona 69% of the broadcast revenue.
The business model of the Olympics seems to be getting increasingly unsustainable. But the IOC has been here
before. In the 1970s, terrorist attacks, crippling debt, and boycotts have made the interests in hosting the game so
low that Los Angeles was the sole bidder for the 1984 event. However, Peter Ueberroth, the businessman heading
its bid, imposed spartan conditions to reduce the cost, such as housing athletes in university dormitories. The games
turned a profit for the city, of $215m.
Could similar measures save the day again? In 2014 the IOC passed Agenda 2020, changes that try to make the
games more affordable. They have made little difference. The IOC believed that politics were to blame, and further
adjustments to the bidding process need to be made since the current procedure produces too many losers,
preventing risk-averse cities to bid.
One radical solution would be to designate one or a few permanent host cities so that the Olympics sports
infrastructure has a life beyond the Olympic Games. Christine Lagarde, managing director of the International
Monetary Fund, favors this idea. Other people are talking about the idea of hosting different sports in different
cities across the world. Thomas Bach, the IOC’s president, may not have the luxury of delaying the reform much
longer.
World Economics Cup
Free-Response Questions
Please answer the following questions in the presentation video.
[Short Answer] 15p
1. One of the arguments for countries to host Olympic Games is that it will be a big boost to local economy.
This argument is supported by many macroeconomic theories, such as the AS-AD model. Use AS-AD
model to argue why hosting Olympic Games will be a boost to local economy.
[Short Answer] 15p
2. To hold an Olympic Game, a city needs to apply to the IOC and compete with some other cities. The
winner gets the privilege of holding an Olympic game. So here the Olympic game can be seen as a
Monopolistic market and IOC is the Monopolist. This partially explains why cities are proposing high
spending and promising high share of broadcasting revenue to the IOC. Please first draw a diagram
showing the demand curve model for an Oligopoly Market, and then using the model of Monopoly,
analyze what will happen to Olympics spending in the future if cities competing for Olympics keep
decreasing. Explain your answer.
[Short Answer] 15p
3. Tokyo Olympic games were the least watched in decades. In America just 15.5m people tuned in each night,
the fewest since NBC began covering the event in 1988. Viewership was 42% lower than at the Rio games in
2016. Broadcasters in Europe recorded similar falls. The collapse in viewership wasn’t a one-off. Tokyo’s
opening ceremony was watched by 36% fewer Americans on the day than watched Rio get under way in 2016.
Rio’s audience in turn was 35% lower than London’s in 2012. Based on theory of consumer choice in
Microeconomics, what determines the quantity of consumers’ consumption of a good? Which of those
reasons explains that fewer people are watching Olympic Games? Please explain.
[Problem-Solving] 100p
4. In materials above, you now understand that the Olympic Game is in trouble. Less people are watching it, the
cost is high, and less cities are interested in hosting it. Conduct a research on the reason behind the current
difficulties. Using your knowledge on Economics, propose three reasonable solutions to IOC to make the
Olympic Games more sustainable. Provide details about those solutions, and Economics theory or data
to persuade IOC that those solutions work.

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World Economics Cup

Business Model for the Olympic Games

The Olympics are still relatively popular. Sponsors and television

Please answer the following questions in the presentation video.

[Short Answer] 15p

[Short Answer] 15p

[Short Answer] 15p

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