The CEO Game

The second of two articles on the Connection between Rio, the Olympics and cultural and financial prosperity.

do the games bring benefits to make up for the constant rising prices? Some do and some just don’t work out as well as planned, like described in part 1. The Olympic games brought a fresh breeze of regeneration to Barcelona, allowing authorities to use the games as an excuse to rebuild the coastline making Barcelona a worldwide popular travel destination and they gave Sydney a status of a “world class city”- live and kicking. The problem is that you can’t precisely put a figure on rebranding and giving a makeover to a city and a country. “This is the most emotional day in my life”, said Brazilian President Luiz Inacio Lula da Silva and he should be excited according to the next figures. The current cost estimations for the Rio games stand at $15bn while predicted profits are around $50bn, a worthy investment, but remember what happened to Greece’s first estimations. The Brazilians also claim that the games will create 120 thousands jobs a year for the following years. The IOC announced that the games will bring up the quality of life for the city’s residents, but in order to make it possible, Brazil’s leaders will have to step up, invest and upgrade infrastructures, fight the sky high crime rates and corruption. The same things were heard six years ago, when China was chosen to host the games, so that brings us to the next question.

The Olympic Games printed money for Beijing will it do the same for Rio?

What did the games do for Beijing? The Olympics committee’s people said that choosing Beijing will increase China’s involvement in western politics and economics and will help improve issues regarding human rights in the country. The result was kind of controversial. The diligent Chinese were efficient as usual and built mega structures who now decorate National Geographics’ magazines, in no time. It also had such pervasive influence both on national pride and on the economy that it even made China temporarily replace the images of Mao Zedong on their paper bills to the ones of the Olympic stadiums like the “Bird’s nest”. But, aside from these organizational and construction related achievements, it raised the inflation (partly due to the new demand for Yuan) and the horror stories about the relocation of thousands of people, some who lost their homes entirely because of the location of Olympic facilities, are still remembered. It did nothing to address the regional and ethnical inequality in China, a problem that Brazil faces every day. Finally, when the Olympic delegations returned to their home countries, Beijing resunk in its totalitarian routine.

In conclusion, the most important competition, in the Olympic Games, is neither the marathon nor the 100 meter swim in the glittering Olympic pool; instead it is the race for profit. The problem is that the staging costs can’t be calculated at the beginning, the same goes for estimating the benefits of placing your city as the host of the games. While, the short term effects are pretty obvious, no one can predict accurately what will happen in the long run. Issues like this, really concern us here in the CEO game and we believe that by using the simulation, and the ideas and theories you will encounter while using it you can assess such financial impacts to get a better view of the bigger picture. As for the question of how significant the Olympics will be? The answer is that Brazil is far from being a dark dictatorial country like China, but only time will tell whether the Olympics will actually change the problematic face of Rio for good and make it a pleasant, progressive city or will the corruption and crime return to rule the streets as soon as the games end like the pollution and tyranny in Beijing.

Omer Shachnai.

The CEO Game.

The crowd went wild and the media sensation was noticeable as Rio was officially crowned as the host of the 2016 Olympic Games. Rio de Janeiro, one of Brazil’s major tourism attractions and a poverty and crime struck city; rode a wave of Olympic Committee Sympathy to beat Michelle Obama’s Chicago and Madrid and bring the Olympics to South America for the first time in history. Subsequent to the announcement, the streets and the famous Copa Cabana beach were rightfully painted yellow and green, carnival style and the wild sensation was captured and broadcasted live to millions worldwide. That kind of exposure, is exactly what, the local organizers are hoping that will help the region’s economy. So, will the Olympic Games be a long time financial success story or a another event in history?

Obama - Lost With Chicago

This media’s zealous interest (which you can’t get anywhere else) in the hosting cities, is one of the reasons why cities across the globe, compete so hard to host the games. The Olympics are proven money makers for the hosting cities; generally, the loads of tourists that come a knocking, and the increased economic investment are supposed to cover and then some, the billions of dollars that are needed in order to put on the Olympic gig. Private revenue mostly made from advertising in all media platforms and television broadcasting rights is also something that makes the venue’s planners to drool at night. The Los Angeles 1984’s run for the money, was a great success as American television networks and big time corporate sponsors were psyched to pay a lot of money to place their names in the track lights. The size of the city also meant that not much of building was needed to be done as the city’s resources already could accommodate the events. The games also represent an opportunity for the common people such as renting their homes, providing light entertainment, souvenirs and food.

However, some fear that it is just not enough. Those commercially rosy days are long gone, there has been somewhat of a backlash against commercialism and advertising and many TV companies go all out against charges for rights. Also, in the last few Olympic Games, security and politics related expenditures alone have escalated to the sum that once represented the entire cost of hosting the games. Considering these issues and prior examples, the games might help Rio only to a minimal extent, over the long. Take the case of Salt Lake City (host of the Olympic Winter Games in 2002), which reports now show that the games’ economic influence on the city has been somewhat limited, or Canada, where smokers still pay taxes, on their cigarettes, to finance the games that were held there nearly three decades ago. A big concern, is that usually a large portion of the Olympic revenues, goes to maintaining the sport facilities, which were specially set up for the games and are not so commercially appealing after the Olympic closing ceremony. Moreover, as Greece found out, the staging costs cannot be fully accounted for, at the early time of discussing the Olympic Boosters. The final cost of the Olympics in Athens had risen by nearly 13 billion dollars from their first estimation of $1.3bn. Financial advisers also claim that another issue that needs to be taken into account is the fact that the IOC, or International Olympic Committee and sponsors are there, first and foremost in order to provide for themselves and promote their products and not to support the community. Many also fear that it’s only a temporary boost. Don’t forget that the games last for 17 days only and then fade into memory.

Rio Olympics: Will the Games be a Financial Success Story?

Choosing Rio, the poor city infested with crime and unemployment over the other more glamorous cities serves the organizers’ publicity, but worldwide investors didn’t need the IOC’s announcement in order to focus their attention on Brazil’s economy, they have already noticed it in the midst of the economic crisis. Brazilian bear bonds gave a nice yearly profit of nearly 10%, and Brazil’s economy is considered amongst the only markets whose production hasn’t declined this year. The games will increase tourism in Rio and throughout Brazil, this will be a short term effect but it will help increase spending in the economy, but might as well provide a long term boost in repetitive tourism. This could be very meaningful since Rio’s tourism is partly undeveloped today. The increased investment in transport links will probably have effect in increasing the productive capacity and will boost Aggregate Demand and economic growth. However, the increased spending will only represent a relatively small percentage of the GDP. Another issue revolving the Olympics is national pride and prestige, which really concerns Brazilian authorities. Take a look at London which begun its marketing campaign in the locking ceremony in Beijing.

So the required question is do the games bring benefits to make up for the constant rising prices? I’ll try to answer this question tomorrow in part 2.

Omer Shachnai.

The CEO Game.