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News Article - Olympics and Accounting - mrbourgase

By Raymond Evans,2014-07-11 19:50
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News Article - Olympics and Accounting - mrbourgase

    02/19/10

    BAF3M • Mr. Bourgase

    NAME:

    Does the Olympic brand provide a good return on investment?

    thFriday, February 19, 2010 Harvey Enchin

    http://www.vancouversun.com/business/Does+Olympic+brand+provide+good+return+investment/2554476/story.html

    ‘Hosting the Olympic Games is the biggest branding opportunity a nation ever gets," federal Liberal leader Michael Ignatieff wrote in his New York Times article last week. Modern nations compete by branding their identities rather than waging war, he said, adding that the 2010 Winter Olympic Games are not only branding Canada to the world but to Canadians as well. But branding comes at a price, and some would argue the price of the Olympic brand is too high.

    A recent Vancouver Sun tally of Olympic spending by all levels of government, including Crown corporation sponsorships and mega-projects such as the Canada Line, Vancouver Convention Centre and Sea to Sky Highway improvements, came to $6 billion. It could be convincingly argued that infrastructure spending planned before Vancouver won the bid should not be included in Olympic costs, which would slash the total by more than half. Even so, a forecast based on low to medium levels of tourism put the economic impact of the Games at just $2 billion to $2.4 billion between 2008 and 2014-15, and that would suggest a negative return on capital employed.

Obviously, adding up this particular column of figures doesn’t reveal what the Olympic

    brand is worth. A glance at the financial statements of the International Olympic Committee isn’t much help either. There are no balance sheet items labelled intellectual property, intangibles or brand equity. Statements prepared using generally accepted accounting principles tend not to record them. What the IOC’s accounts do tell us is that most of the $1.6 billion US in assets at Dec. 31, 2008, was in cash or financial assets and that the lion’s share of its $2.4 billion in revenue that year was from television broadcasting rights.

    "The accounting profession may be uncomfortable including brand value in the preparation of financial statements," said David Dunne, adjunct professor of marketing at the Rotman School of Business at the University of Toronto and a former brand manager, "but there are lots of good reasons to say it’s worth something."

    In fact, Interbrand does that every year with its list of top 100 global brands, to which it ascribes monetary values. For 2009, Coca-Cola secured first place with brand value of $68 billion, followed by IBM, $60 billion; Microsoft, $56.6 billion; General Electric, $47.7 billion; and Nokia, $34.8 billion. Canada’s BlackBerry, the only Canadian entry, ranks 63rd, with a brand value of $5.1 billion.

    Consider, for example, brand managers at Coca-Cola. Dunne said they could determine what proportion of the business is driven by the brand, estimate what sales would be without the brand, interview customers (and non-customers) and learn how much more consumers would be willing to pay for the branded product over a generic one, establishing the price premium for the brand. They could also measure customer loyalty, recognizing that a lifelong customer is a revenue stream, and also consider the ability to spin off products from the brand, such as Diet Coke, Coke Zero, Vanilla Coke, New Coke and Coke Classic, although perhaps the last three are best forgotten.

    In order to establish the value of the brand, then, we need to compare it with a competing brand or the no-name version of the product or service. Shih-Fen Chen, the William Shurniak

    Does the Olympic brand provide a good return on investment?

    Page 2

    Professor of International Business at Richard Ivey School of Business at the University of Western Ontario, draws an analogy with Mcdonald’s. How much more valuable would a local fast-food restaurant be if it sported the golden arches? The franchise costs give a clue: committed investment of $950,00 to $1.8 million, 12.5 per cent annual royalty and an initial $45,000 franchise fee over a 20-year agreement.

    "Canada wants to hold a sports event, but without the Olympic brand name it does not have the credibility to attract sponsors and spectators, while the IOC has the recognized brand name but not the capability to stage the event," Chen explained. Recall that for the 1984 Summer Olympics in Los Angeles, the Warsaw Pact countries, along with Libya and Iran, boycotted the Games and held a rival event, the Friendship Games. The IOC-sanctioned L.A. Games became the most financially successful ever, while the Friendship Games sank into oblivion.

    Chen described the Olympic Games as a franchising event every four years and each time the IOC finds a different franchisee.

    Once licensed, the franchisee has the responsibility to protect the Olympic brand. A survey in 2001 found the Olympic rings to be the most recognized symbol in the world, which may explain why the IOC sees ambush marketing as such a serious threat and why it and local Olympic organizing committees protect the brand so vigorously. Unauthorized use of the Olympic brand, the IOC maintains, undermines the rights of companies that have invested large amounts of money to become sponsors.

    While Lululemon’s guerrilla marketing of a new clothing line called Cool Sporting Event That Takes Place in British Columbia between 2009 and 2011 Edition, may have raised a smile or two, it’s understandable why it also raised the ire of Vanoc, and the Bay, the retailer that paid handsomely for the right to be the official supplier of Olympic garb.

    In 2007, Forbes magazine compiled a list of the 10 most valuable sports brands by taking the sum of broadcasting rights fees, sponsorship revenue, ticket receipts and licensing revenue. The NFL’s Super Bowl topped the list, at $379 million, followed by the Summer Olympic Games, at $176 million. The Olympics rakes in more money than any football game, of course, but its total revenue is divided by 17 days of competition. The Winter Olympics ranked seventh, with a value of $82 million.

    Corporate number crunchers can determine brand value by calculating the net present value (NPV) of discounted brand earnings, but it involves arduous arithmetic, and the IOC, a non-profit NGO with a complicated organizational structure, provides insufficient publicly available financial data to deliver an accurate result.

    It’s probably just a coincidence that if we take the $6 billion cost of staging the 2010 Winter Olympic Games and assume $1 billion in cash flows going forward, with an arbitrary discount rate of 10 per cent, we end up with an NPV of $144.6 million, not too far off the Forbes figure.

Maybe the value of the Olympic brand can’t be measured by conventional methods.

    Michel Guay, who served as executive vice-president of the organizing committee of the Montreal Olympics in 1976, said the most profound impacts of hosting the Games are mainly social and cultural.

    "The Games bring a broader exposure of the nation to the world community, strengthen its sense of community, heighten civic spirit and invigorate the national economy," he said. For the IOC, however, the brand is everything. It’s all it has to offer.

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