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Sports - Risk Management for the Olympics

Source: Asia Insurance Review | Aug 2016

With the Rio Olympics happening this month, Mr James Walton of Deloitte Southeast Asia discusses the risks faced by organisers of the Olympics Games. These include financial risks; logistics and infrastructure risks; geopolitical risks and terrorism; environmental and health risks and reputation risk. 
 
 
2016 is an Olympic year and no major international sporting event can happen nowadays without months and even years of media coverage of the trials and tribulations of hosting. 
 
   Brazil 2016 has been no different, and has possibly experienced one of the most disrupted preparations for any Games or World Cup in recent memory. The same kind of developing nation infrastructure challenges that affected the 2010 South Africa World Cup or the 2014 Sochi Winter Olympics have been compounded by political instability in Brazil and the sudden spread of the Zika virus across South America. 
 
   As an event organiser, there are some obstacles you can prepare for – labour issues, construction delays and financing challenges are nothing new for Brazil, which went through similar strife for the 2014 World Cup. However the scale of political upheaval and social unrest that has engulfed the country and the impact of a previously obscure virus means that no one can be quite sure how the Rio Olympics will turn out, with a group of 150 health experts even writing to the World Health Organisation recently to propose that the Games should be postponed. 
 
Risk challenges a norm for the hosting of the Olympics
Risk is not a new phenomenon for the Olympics. While recent major sporting events in Asia – which include the Sydney and Beijing Olympics, the Japan/Korea World Cup, the Singapore and Nanjing Youth Olympics and many more regional events like the Asian Games and SEA Games in the last 15 years alone – have all ultimately passed quite smoothly, they have all faced their own challenges. 
 
   With Pyeongchang and Tokyo hosting the next Winter and Summer Olympics respectively, the focus will shift back to Asia. Even at this early stage, as Tokyo prepares for 2020, a corruption scandal is threatening to distract the organisers from their main task at hand. 
 
   Eventually, the potential risks are almost limitless as so much can change in the period between bidding and hosting the event, that the concept of “known unknowns” and being prepared for anything underpin all planning aspects. 
 
Financial risks
A large part of the social unrest in Brazil has stemmed from the Government’s expenditure of US$3 billion on the sports-related costs alone of the Olympics during a time of severe austerity and economic crisis, with recent reports suggesting the Games are already running a further $1.6 billion over budget. 
 
   The 2022 Winter Olympics bidding process was hit by the withdrawal of Oslo, Lviv, Krakow and Stockholm due to financial concerns – leaving only two cities for the final decision, which was awarded to Beijing over Almaty. 
Given the cost involved in hosting these events, governments often seek to justify the spending by citing increased tourism, raising the global profile or creating a legacy. 
 
   While these can all be achieved, governments need to be clear on what they are trying to achieve. A sporting event can accelerate regeneration of the city or district, as with London or Barcelona. 
 
Logistics & infrastructure risks
Amidst the news cycle of May 2015 was an announcement that two of the Brazil World Cup stadiums were now complete: the Itaquerao Stadium in Sao Paulo and the Arena da Baixada in Curitiba were now finished to their original designs. Unfortunately, the World Cup had already been hosted 10 months before. 
 
   The Rio Olympics has suffered similar problems, with the announcement on 31 May of this year that the City Government had cancelled the contract for the construction of the Olympic Velodrome, just two months before the Games, due to the financial status of the construction company. 
 
   Managing multiple construction projects with very tight schedules, together with numerous transport, accommodation and logistics contracts for both athletes/administrators and tourists alike, is an incredibly complex task that in many cases has never been faced by the host city before. 
 
Geopolitical risks & terrorism
The 1996 Atlanta Olympics were the last major sporting event to suffer a terrorist attack during the Games – but this is not because the threat has diminished, but rather because the security and awareness has drastically heightened. 
 
   Even during the European Championships in France this summer, there were a number of terrorism-related arrests and threats. Geopolitical risks have been considerations before, most famously in the Moscow and Los Angeles Olympics of 1980 and 1984 respectively but more recently with the Sochi Winter Olympics. 
 
   Terrorism is not just about physical threats – cyber terrorism is an increasing concern as hackers could potentially infiltrate Games systems to disrupt everything from ticketing to communications. 
 
Environmental & health risks
Zika is just the latest health issue to hit the Rio Olympics, with numerous reports over recent years focusing on the appalling water quality of the areas that will be used for sailing and other water sports. 
 
   In the past the SARS outbreak caused concerns to Asian tournaments and while there has been no major disease instances at the last four Summer Olympics, Zika is a major area of focus. 
 
   In the case of the Olympics, the arrival of athletes and spectators from over 200 nations presents a double threat – firstly because many of those attending come from areas where the incidence of infectious diseases is higher than in the host country; but secondly because when they return home they may carry viruses with them that have not previously been common in that country. 
 
Reputational risk
Reputational risk is another factor to consider, as whether or not you meet your commitments and deliver what you promised will ultimately go down in history as your stamp on the event. 
 
   The 2010 Commonwealth Games in India tarnished the country’s reputation initially because of corruption allegations, but ultimately that will not be the lasting memory for the administrators of the sporting bodies and athletes involved as the athletes’ accommodation, food and transport were heavily criticised. The reputational impact in the sporting community focuses on other areas as the athletes’ needs come first. If the athletes have a poor experience then they would not deliver the memorable moments of the Games, and the organiser can get all the wrong kind of publicity: the event that was supposed to put you on the map may now serve as a deterrent to the international community coming to your country in future.
 
The immense complexity of the Olympics Games
While the scale and challenges of hosting tournaments such as the Olympics or a SEA Games may be poles apart, many of the risk factors involved in staging a major sporting event are consistent regardless of size. 
 
   According to the Deloitte team that supported the London 2012 Olympics, the single biggest challenge is often bringing the public and private sectors together to deliver the event. Getting the right sort of structures in place that can drive through to delivery is key; effective communication with the sport’s governing body (ie FIFA, the IOC etc.) is critical and the organisers must put in place regular and rigorous checks throughout the programme.
 
   For insurance companies, the wide range of risks and huge numbers of people involved in the events present great opportunities as long as there is confidence that the risk management is being appropriately orchestrated. 
 
   Many brokers and carriers have experience with sporting events and the coverage categories required are quite standard, but the sheer scale of an event like the Olympics – lasting for up to a month with multiple venues and thousands of participants – drastically increases complexity and there will undoubtedly be numerous claims just in the general course of the event ranging from financial matters to personal injury. 
 
   Ultimately, risk management will play a critical role in hosting any event – whether it be an Olympic Games or just a national business conference. Assessing strategic risks, planning a delivery programme and detailing out operational risks are critical steps in the process. Beyond that though, the organisers have to ensure that they are providing assurance and increasing confidence to gain momentum.
 
 
Mr James Walton heads Deloitte Southeast Asia’s Sports Business service line. 
 
Over the years, Deloitte has accumulated a wealth of experience in supporting major sporting events by providing professional services and expertise to the organisers of the London 2012 Olympics, Vancouver 2010 Winter Olympics, the inaugural 2010 Singapore Youth Olympic Games and the 2015 SEA Games and ASEAN Para Games.
 
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