Message from event hosting market to rights-holders: reform or die

Brazil Rio
Monday, 14 April 2014

With evidence that the appetite for hosting major sports events may be waning at a time of increasing demand for transparency in public expenditure, Rowland Jack, Founder of I Trust Sport, argues that better governance is essential for safeguarding sport’s future. He cites examples of the types of reforms which may be needed and sees encouraging signs in recent developments.

The allocation of host countries for major sports events over a number of years has articulated a powerful message about globalisation. In this article the author argues that there is now a new message emerging, a message that is a stark warning to sports rights-holders: reform or die. While a range of changes are required, many of them fall under the category of “better governance”.

Since the start of the century, there has been a trend for sporting mega events to be hosted in emerging markets. Three of the four BRIC countries (Brazil, Russia and China) will have hosted the Olympic and Paralympic Games between 2008 and 2016, and the FIFA World Cup is heading to Brazil, Russia and Qatar after South Africa in 2010. Formula 1 has similarly been looking to new markets recently with races in Singapore, Abu Dhabi, India and, perhaps in 2016, in Azerbaijan.

After 10 years or more, there are early signs that the trend may be shifting. It was notable that the 2020 Olympic and Paralympic Games were awarded to Tokyo rather than to Istanbul (or Madrid) and London beat Doha in the race for the 2017 IAAF World Championships in Athletics. I’m being selective, and there are counter-examples, but a narrative has developed about a preference for “safe” options1. In addition, some events have struggled to attract as many bids as hoped, such as the 2020 UEFA EURO, for which the original policy to host the event in a single country has now changed. The Winter and Summer Universiades in 2019 were left with a single bid each after other contenders dropped out.2


What lies behind this shift?

The evidence indicates that any preference for “safe” options on the part of rights-holders, if it exists, is only part of the story.

In Brazil, all levels of government have been increasingly willing to challenge FIFA on requirements including the scope of temporary facilities in host cities, particularly since the outbreak of civil unrest in June 2013 (for example, city authorities in Recife said that they were no longer willing to pay for the Fan Fest3).

Meanwhile, the government in Turkey in 2012 refused to subsidise the country’s Formula 1 race4 and the Korean government made a similar decision last year5.

And there is more. While five cities are competing to host the 2022 Olympic and Paralympic Winter Games6, potential bids from Germany, Switzerland and Sweden did not progress due to limited public and political support7. Perhaps wary of public opinion, politicians in Oslo in March challenged the International Olympic Committee (IOC) on the cost of accommodation, among other things8.

Governments across the world seem to be coming to the conclusion that the demands and risks of hosting some sporting events are just too great to justify the investment.

In addition, the author suggests that other global trends are exacerbating the situation.

A sizeable civil society movement is encouraging governments to provide open data (see, for example, the Open Government Partnership9). The open data movement is at the same time an enabler and a consequence of increased scrutiny of public spending. In Brazil, there are both official10 and unofficial11 sites listing government expenditure data. In the context of mass street protests, it is not surprising that the Brazilian federal, state and city governments have been looking for ways to cut expenditure on the FIFA World Cup.

A separate issue is the decline in television audiences for many sports events, a consequence of the digital television revolution. Rights fees are under pressure as advertising values drop in line with the loss of eyeballs. Despite rapid growth in online and social media consumption, advertising revenue from these new sources has generally disappointed so far12. In sport, as with music and literary publishing, the global online audience has rewarded a handful of superstars handsomely while apparently reducing the earning potential of everyone else13.

In sporting terms, the winners are the mega-events that can still bring together a family audience in front of the television, or those with a really dedicated fan base. Unfortunately, world championships and calendar events in many Olympic sports, which used to command a decent audience on free to air broadcasters, increasingly find it difficult to reach beyond niche channels, as the rights fee budgets of the public broadcasters are concentrated on a few prize assets14. Of course, there is a corresponding decline in sponsorship value.

It will take a range of measures to address these wider trends affecting sport. However, many of the key steps can be summarised in two words: better governance.


Need for better governance

For sport to flourish and realise its potential as a force for good, resources must be managed effectively, efficiently and honestly. As newly elected IOC President, Thomas Bach, pointed out in a speech at the United Nations15, good governance is also a prerequisite if sport is to maintain its autonomy. In this instance, good governance encompasses such aspects of the running of organisations as financial management, board structure, controls on authority and representation of stakeholders.

The first priority is to reduce the absolute costs of organising events (and also of bidding, in a few cases). Disentangling the organising budget from longer-term infrastructure investment is often difficult but overall costs can run into billions, even for events below the top tier. For example, the budget for the Universiade in Kazan, Russia in 2013 was over €5bn EUR16. Meanwhile, Tokyo apparently spent $150m USD on the bid for the 2016 Olympic and Paralympic Games17, although their successful campaign four years later was significantly cheaper. The issue of hosting costs has been recognised for some time: the then IOC President Jacques Rogge highlighted the need to reduce the cost and size of the Olympic Games in 200218. In February this year the Commonwealth Games Federation indicated a willingness to reduce the programme from 17 to 10 sports for 2022, acknowledging that the expense of the event might put off potential bidders19.

Next, the sports industry must take more account of market needs. According to interesting research from TSE Consulting20, as few as a quarter of over 100 cities and regions that have hosted major sports events rated the rights-holder’s understanding of their needs as “above average”, with only 6% regarding the understanding as “very good”.

The examples of the Turkish and Korean governments withdrawing support from Formula 1 and the on-going disagreements between FIFA and the Brazilian government demonstrate that the rights-holder / government partnership does not always work. A large part of Formula 1’s business model is based on charging high fees to host races in cities and countries that seek international promotion. Forming a collaborative partnership with the host city is a secondary consideration21. And even FIFA admitted that their sponsor-driven demand for Brazil to change the law to allow the sale of alcohol at football grounds was “a bit arrogant22. While federations can dictate terms more easily when their events are in high demand, it’s not clear that this is a sustainable strategy.

Taking account of market needs also entails reviewing the format and rules of sports competitions, along with the composition of multi-sport events. Tradition is valuable, but fashions change, and it’s better to have fans following a modified version of your sport than to lose them completely.

Transparency is another important factor in the relationship between rights-holders and hosts. In TSE Consulting’s research, almost 70% of over 100 cities and regions said that having a transparent process was a “very important” or “important” consideration when deciding whether to bid for a sports event.

In the open data era, a higher level of transparency is expected than ever before. It does makes sense: if trustworthy accounts from last year’s event are published by the event host, it will enable better decision-making for next year. Just ahead of the final vote to determine the host of the 2017 IAAF World Championships in Athletics, a microphone was accidentally left on allowing journalists to hear part of the evaluation report, which was meant to be confidential23. It would be reasonable to ask why such reports are not published.

Transparency, however, is only one element of good financial management. Appropriate structures and safeguards should be in place, such as an effective board and independent ethics committees. I believe it is time to consider the appointment of independent non-executive directors on boards in international sport. Non-executive directors have a valued place on corporate boards in many parts of the world and they are increasingly being appointed by not-for-profit organisations too24. In the UK, Sport England, UK Sport and the Sport and Recreation Alliance have all advocated the appointment of non-executive directors by national governing bodies in recent years25.

Good financial management is vitally important at all levels of sport, from international to domestic to local regions and clubs. The rights-holders and funding organisations have the leverage to influence compliance at lower levels, should they wish to do so. There is also a potential role for commercial sponsors, although until now they have tended to intervene or comment only in exceptional circumstances.

Last but not least, sports events are unlikely to be successful if the interests of athletes are ignored. Improving governance also involves consulting athletes on important issues such as the competition calendar, anti-doing programmes, and betting integrity procedures.


Encouraging signs

This is a long and challenging list of important topics for international sport to tackle. Fortunately, there is now growing awareness of the need for better governance and action looks set to follow. The sports movement is also aware that both the European Union26 and the Council of Europe27 are taking a much closer interest than was previously the case.

The IOC is embarking on Agenda 202028, with a range of proposals under preparation for a vote in December this year. Significantly, quite a few of the draft measures discussed at the IOC Session in Sochi in February were related to governance.

It has been noticeable that governance has been an election issue in several International Federations in the last 12 months, including FILA29 (wrestling), the UCI30 (cycling), the BWF31 (badminton) and the FIA32 (motor racing). The IOC’s growing interest will surely result in even more focus on these areas in elections to come.

Perhaps the highest profile election will be for the FIFA presidency in 2015. Jérôme Champagne has already declared his candidacy33 with others expected to follow. It is to be hoped that FIFA’s reform programme will gain new impetus as, in the view of American academic Roger Pielke Jr., the organisation has “a long way to go to raise its governance to what experts would judge to be minimally acceptable standards34.

A new Formula 1 season is underway, during which there could well be a change in leadership. It remains to be seen whether the arrival of new faces would result in revolution or evolution.

The message from the event hosting market is clear: improve governance now. Overall, there are encouraging signs that momentum is building for far-reaching reforms. Some difficult decisions lie ahead, which will be critical for safeguarding the future of international sport. Let us hope that sports leaders seize the opportunity.

I trust sport. It’s time to make sure we can all trust sports organisations as well.


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