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The Olympic Polity and the Management

of Risk: Principals, Agents and Networks

Will Jennings

ESRC Research Fellow, School of Social Sciences, University of Manchester

will.jennings@manchester.ac.uk

First Draft – please request author’s permission before citing.

Paper prepared for the European Consortium for Political Research General Conference

Panel: Regulatory Governance: Regulatory Networks, Authorities and Risk Management

9 – 12 September 2009, Potsdam, Germany

Acknowledgements: the author thanks the ESRC for continued support of the Research Fellowship: ‘Going

for Gold: The Olympics, Risk and Risk Management’ (ESRC Reference RES-063-27-0205).

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Abstract This article analyses the Olympic polity and its management of risk – offering a new theoretical framework to identify the organisations involved in staging the Games and managing risk, as well as to distinguish between different types of risk and different tools of risk management. It then reviews evidence from past Games to demonstrate how risk has been distributed across jurisdictions and how variations in instruments of risk management are observed in different governing contexts: reflecting differences in both state traditions and the risk environment, as well as variation, over time, in preferred instruments of risk management. The Olympic polity is conceptualised as a transnational set of Principal-Agent (P-A) relationships: where authority is delegated to, or claimed by, different organisations for specific functions related to management of risk. The International Olympic Committee (IOC), is located at the centre of this transnational organisational network but is not the sole source of influence and authority. The concept of risk adds an important dimension to political analysis, since it highlights the effect of uncertainty on power relations in determining organisational choice of strategies to mitigate potential gains and losses. To understand how the Games are governed it is necessary to understand, first, how risk is managed.

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“Security and risk management are part of the Olympic package – as well as for almost every national and

international gathering today.” (Richard W. Pound, IOC Vice-President 1996-2000).1

Organisation of the Olympic Games is rather like a game of ten-dimensional chess, entailing

multiple spheres of governance at the transnational, national and sub-national levels, multiple principals and agents, and multiples risks constituted in a variety of threats and hazards. All of this occurs across both time and space, with the lead-in schedules of the Summer and Winter Games overlapping both with one another and with bids and planning for other Olympics. This paper develops an analytical framework for mapping the Olympic polity, establishing its power relations in the form of a Principal-Agent (P-A) model, to determine how risks associated with staging the Games are managed. This builds upon previous analyses of Olympic risk and risk management (Jennings 2008), its association with mega-crises and crisis management (Jennings and Lodge 2010) and potential ‘recipes’ for managing security risks at mega-events such as the Games (Jennings and Lodge 2009). Such an approach is distinct from historical, social, economic and political analyses of the Olympics (e.g. Espy 1979; MacAloon 1981; Hoberman 1986; Roche 1992; 2000; Simson and Jennings 1992; Hill 1997; Young 1996; Senn 1999; Burbank et al 2001; Close et al 2006; Horne and Manzenreiter 2006), which do not tend to consider organisational or operational dimension of staging the Games. Nor do such accounts consider the importance of risk in governing the Games or its relations to wider changes in society, politics and business in the management of risk (e.g. Beck 1992; Breyer 1993; Hood et al 2001; Power 2004; 2007). The Olympics is organised within a transnational environment consisting of non-governmental organisations, national and sub-national governments and agencies, international and domestic regulators, business, intergovernmental organisations/concordats, media and the public. This analysis offers a systematic mapping of that transnational governing context, and the complex jurisdictional boundaries and interorganisational networks involved in organising the Olympics and managing risks. To understand who governs risk and how risk is managed, the paper draws upon the analysis of risk management and regulation (e.g. Hood et al 2001; Power 2004; 2007), Principal-Agent theory (e.g. Stigler 1971; Ross 1973; Peltzmann 1976) and ideas of mimetic and organisational isomorphism (e.g. DiMaggio and Powell 1991) in Olympic management of risk.

The structure of the paper is as follows. It first identifies the basic governing structures of the Olympic polity, in various authorities and jurisdictions of Olympic governance such as the International Olympic Committee (IOC) and the Organizing Committees of the Olympic Games (OCOGs). This analyses both (sub)national and transnational spheres of Olympic governance. Second the paper presents a brief review of the risks associated with organising the Games. In particular it theorises two dimensions of Olympic risk, distinguishing between internal and external risk and between subnational/national and transnational risk. Third it considers the network of Principal-Agent relations involved in management of Olympic risk, the tools of risk management used in different governing contexts, and potential difficulties of learning across Games. This develops understanding of the inter-organisational relations involved in staging the Games and effects of state traditions and broader changes in the practice of risk management through processes of mimetic and organisational isomorphism. Such thinking highlights the importance of state traditions, communities of practice and extreme risk events in shaping risk management at the Games. The concept of risk adds an important new dimension to political analysis, since it highlights the effect of uncertainty on power relations in the Olympic polity, in determining the organisational choice of strategies to mitigate potential gains and losses. To understand how the Games is governed it is necessary to first understand how risk is managed.

1 Accessed online at http://www.business-in-asia.com/inside_olympics.html on 15 August 2005.

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1. Who Governs the Games? The Structure of the Olympic Polity On paper, the governing arrangements for the Olympic Games might seem simple. At the top

of the organisational pyramid sits the patriarchal International Olympic Committee (IOC), under it are the National Olympic Committee (NOC) and Organizing Committee for the Olympic Games (OCOG) responsible for staging each winter and summer Games. The right to stage the Games is awarded through a competitive candidature procedure and secret ballot of the IOC membership. In practice, however, organisation of the Olympics involves a complex transnational network of state and non-state organizations with transnational, national and subnational (i.e. regional and metropolitan) jurisdictions. Relations between these organisations are constituted in a variety of political, economic, sporting, military, and legal powers or authorities. Those powers shape the network of P-A relationships explored in section three.

How can the structure of the Olympic polity be mapped? Who governs the Games? And who,

therefore, is responsible for the management of Olympic risk? Let us first start with a very brief review of those organisations with direct functional responsibility for the Games (in practice the network of organisations with indirect or support roles in staging the Olympics far exceeds the core governing organisations and interests). Some organisations functions are Games-specific (e.g. the host NOC and OCOG), while others are Olympic-specific (e.g. the IOC, its Commissions, other NOCs). Some are (sub)national-level government departments or agencies tasked with the construction of Games infrastructure or delivery of public services. Some are intergovernmental organisations (e.g. NATO) or concordats (e.g. Olympic intelligence exchange centres) addressing a particular aspect of Olympic organisation. Some are international sporting federations (e.g. the International Association of Athletics Federations) or regulators and tribunals (e.g. the Court of Arbitration in Sport, World Anti-Doping Agency) that are part of a wider web of governance and regulation of professional sport. Others are firms (e.g. broadcasters, sponsors, contractors) with a commercial interest in the Games. The Olympic polity therefore encompasses both the public and private spheres and the subnational, national and transnational levels.

The IOC and Olympic movement

Founded in 1894, the IOC is the longstanding guardian of the Olympic Games and Olympic movement. It is governed by the Olympic Charter (IOC 2007), the set of rules and guidelines first adopted in 1908 by the IOC that codified organization of the Games and wider governance of the Olympic movement. The Charter defines the rights and obligations of the main constituents of the Olympic movement: the IOC, the International Sports Federations (IFs) and NOCs. The most prominent mission of the IOC is “to ensure the regular celebration of the Olympic Games” (IOC 2007: p. 14). The IOC is the ‘authority of last resort’ (IOC 2007: p. 19) with respect to the Games. It selects the host city through a secret ballot of its members. It also determines which sports are included in the Olympic programme. The IOC operates a system of specialised commissions that exercise oversight and provide guidance on matters such as doping, ethics, preparations for the Games, and juridical matters (amongst others). Led by the IOC President and its Executive Board, new members of the IOC are co-opted by the existing members.

The OCOG and host NOC

Prior to the candidature phase, the local NOC selects the city to participate in the bid phase, and is a stakeholder in the bid to host the Games. The IOC therefore entrusts organisation of the Games to the NOC of the host city as well as to the host city itself. The IOC stipulates that “…The NOC shall be responsible for the establishment, for that purpose, of an Organising Committee (“OCOG”) which, from the time it is constituted, reports directly to the IOC Executive Board.” (Olympic Charter, Rule #36, IOC 2007: p. 75). The specific terms and conditions that the IOC sets for the OCOG and the host NOC are specified in the Host City Contract (e.g. IOC 2005), and its technical manuals, while it is also bound by its promises in the Bid Book and those made during

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the candidature phase. The OCOG is a quasi-private organisation with independent legal status from government. The IOC requires that the OCOG Board includes representation from the host NOC and IOC members from the host country.

Government, Public Agencies & State-Owned Enterprises

At most Games, a large proportion of infrastructure and services upon which the Olympics is reliant are delivered and coordinated by the state, through central or regional/metropolitan government and other public agencies. The provision of new infrastructure is often a feature of the bid to host the Olympics, but is not the responsibility of the OCOG or the host NOC. Instead, specialist public agencies or state-owned enterprises have been responsible for infrastructure construction and project management at recent Games; e.g. Barcelona 1992 (Barcelona Olympic Holding SA, “HOLSA”), Sydney 2000 (Olympic Coordination Authority), Athens 2004 (General Secretariat for Sports), Beijing 2008 (CITIC, Beijing Municipal Government/Assets Management Company) and London 2012 (Olympic Delivery Authority and London Development Agency). This division of labour tends to lead to a demarcation of infrastructure and operational costs of the Games (see Jennings 2008: p. XX). Other public agencies are also often called upon to deliver an elevated level of service in the lead-up to or during the Games, such as security and policing, emergency services, transport and healthcare.

National Olympic Committees (NOCs)

The domestic NOCs are an important participant in Olympic governance (Olympic Charter, Rule #28, IOC 2007: p. 61), in the constitution, organisation and leadership of their teams. NOCs determine the entrant of athletes as proposed by national sports federations and the media that are to be accredited by the IOC for the Games, as well as managing equipment, transport and accommodation for athletes and officials during the Games. Often national teams provide for specific requirements of their athletes, such as food or technical sports equipment. Each NOC therefore wields considerable influence over national participation in the Games.

International Federations (IFs)

The international federations govern their sport both during and outside the Games. There are presently 35 IOC-recognised IFs for the Summer and Winter Games (e.g. the International Association of Athletics Federations, the International Swimming Federation, the International Ski Federation). The IFs determine the rules and technical regulations for their sport, as well as setting eligibility criteria for entrants at the Games. Due to their technical expertise, IFs are also engaged during the candidature process in appraising aspects of the bids. The technical input of IFs extends to the planning and operational stages, as IFs liaise with organizers on technical facilities and equipment to be used during the Games, as well as validating the schedule of competition for the Games and nominating referees and judges for events. IFs certify results and rankings of events during competition-time.

Commercial Olympic Partners, Contractors & Suppliers

Both the IOC and OCOGs are reliant upon generation of revenue from marketing and other commercial activities to fund both the Games and the Olympic movement. The sums involved are vast, with combined IOC and OCOG marketing revenue between 1993 and 2004 exceeding US$8.5 billion. Commercial Olympic partners are therefore an influential constituent of Olympic governance, across both the national and transnational spheres. The IOC manages relations with broadcasters, the TOP worldwide sponsorship programme and its official supplier and licensing programme, while host OCOGs manage domestic sponsorship, ticketing and licensing. Olympic partners often provide services-in-kind to organisers. Another form of commercial engagement in organisation of the Games involves use of developers or investors in construction projects.

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Transnational Organisations

During the preparation phase and competition time, organisation of the Olympics often also entails participation or input from transnational bodies across a range of domains from defence (e.g. NATO) to sport (e.g. the World Anti-Doping Agency) to public health (e.g. the World Health Organisation). Such entities tend to be regulatory entities, independent of Olympic organisation, but provide expertise or resources that national and Olympic-specific agencies often lack. For example, the NATO alliance provided support for the Athens 2004 Olympics. Such transnational assistance can also be observed in the form of help from foreign states. Ahead of Athens 2004, again, the US financed the International Atomic Energy Agency to purchase $500,000 worth of radiation detectors for use at the Games. The US also sent its Nuclear Emergency Support Team to Beijing due to concern over radiological threats ahead of the 2008 Olympics. Some cross-border entities, such as Olympic intelligence centres, are unique to organisation of the Games. These tend to be rare, however. The Olympic Polity

This analysis talks of the ‘Olympic Polity’ for a number of reasons. Aristotle’s original use of the term ‘polity’ referred to a political system with a mixture of oligarchy and democracy. At the IOC level, the appointment of new members or the IOC president is conducted ‘in-house’ by its existing members. The rule of patriarchal leaders over extended periods (e.g. Avery Brundage 1952-1972 and Juan Antonio Samaranch IOC President 1980-2001) reflects the non-democratic side of the Olympic movement, in the influence of personal coalitions and regional voting blocs on control of the IOC (see Payne 2006). While the IOC and many of the institutions involved in organising the Games are not elected by the general public, there are nevertheless elements of democracy in their decision-making processes. Some of the Olympic stakeholders, such as host cities and host governments, are elected institutions while other Olympic-specific organisations or public agencies operating at the instruction of elected officeholders. Public opinion research is now a standardised element the candidature procedure and questionnaire for prospective host cities. Question 2.11 of the IOC Candidature Procedure and Questionnaire requires bids to “… Provide any evidence of the support of the national, regional and local populations towards your project of hosting the Olympic Games, including possible other localities involved in your project” (IOC 2004, p. 76). Such an assessment recognizes the importance of national and local support to successful preparation and hosting of the Games. Description of Olympic governance as a polity therefore seems highly appropriate in view of its oligarchic tendencies, yet combined with the more deliberative and democratic aspects of its activities.

2. Olympic Risk

Some argue the world has entered a new era of extreme events and risks (e.g. Beck 1992; OECD 2003; Lagadec and Michel-Kerjan 2005; Lagadec 2007); citing examples such as the AIDS epidemic, Chernobyl nuclear disaster in 1986, the Sarin nerve gas attacks on the Tokyo Subway in 1995, September 11, 2001 terror attacks, the major power outages in North America during August 2003, the Asian Tsunami of December 2004, Hurricane Katrina in September 2005, and the Credit Crunch of 2008/2009. This changing risk environment is attributed to processes of globalisation (economic, technological, cultural, environmental), increasing interdependence, urbanisation and technological innovation. Systemic risk is not new, however, and one can cite numerous counter-examples suggest that interdependence, scale and globalisation have been at work for centuries in exposing mankind to risk. Events such as the Bubonic Plague of the 1340s, the Great Fire of London of 1666, the Titanic disaster of 1912, the Spanish Flu outbreak of 1918 and Great Mississippi Flood of 1927 mirror many characteristics of their modern counterparts. Each of those historical events exhibit characteristics of extreme risks and failures of regulation and of risk management. Certainly, extreme risk events today are more accelerated than their

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historical precursors (e.g. the spread of bubonic plague from Asia to Europe transpired over a period of years or decades, carried along trade routes, whereas the recent swine flu pandemic crossed the globe in a matter of weeks). Nevertheless, the processes at work are essentially the same since the differences are a matter of degree rather than causal dynamics.

The Olympics can, however, be theorised as a magnet and amplifier of both organisational

and operational risks. The event itself increases the probability and consequence of hazards and threats, at the same time as generating its own unique set of risks. This is consistent with the difficulties of calculating risks associated with mega-projects (Flyvbjerg et al. 2002; Flyvbjerg et al. 2003; Altshuler and Luberoff 2003). Organisation of the Games is a vast exercise undertaken under the global spotlight. This has been described as “… the world’s largest peacetime event” (Higgins 2007), equivalent to the synchronous staging of thirty-three world championships in the same city. For example, the Beijing 2008 Olympics hosted 28 sports, with 302 events at 37 competition venues over 16 days of competition, bringing together 204 participating NOCs, 11,000 athletes, 5,500 officials and coaches, 2,500 referees and judges, 20,500 media, 70,000 volunteers, and 4 million spectators, with an estimated global television audience of 4.7 billion people.2 The Olympic Games has been transformed in size and complexity from the 241 amateur athletes who competed in nine sports at the Athens 1896 Olympics. The extensive programme of sporting events now run in parallel, dependent upon a large infrastructure network, water and power supplies, accommodation, emergency services, policing and security, ticketing and merchandise, catering, broadcast and media communications, financial transaction networks, procurement and IT systems.

The risks associated bidding for and organisation of the Games include, but are not excluded

to, infrastructure, finance, operations and security, along with contingencies related to natural hazards and manmade hazards or threats. The megalithic proportions of the infrastructure and operations are combined with a rigid schedule of ceremonial and sporting events. The contract between the host city and the IOC includes provision for a postponement of up to three months under certain circumstances,3 although in practice the wider implications of an event capable of prompting outright cancellation would probably be quite catastrophic. Even at the height of the Munich Massacre in 1972, after a one day suspension of events IOC President, Avery Brundage declared ‘the Games must go on’ (see Guttmann 1984). The Games, as a mega-event, is subject to mega costs of critical failures.

Since the revival of the modern Games in 1896 by Baron Pierre de Coubertin, the Olympics

and Olympic movement have experienced crises of a financial, security, sporting, reputational and diplomatic nature. Some of these crises threatened the long-term viability of the Games (see Payne 2006). Even the earliest Games (Athens 1896, Paris 1900, St. Louis 1904) were afflicted by difficulties with organization (Young 1996), while the 1908 Olympics were moved to London after the eruption of Mount Vesuvius, indicating the risk of extreme geographical events (British Olympic Council 1908). Difficulties of maintaining financial controls is a longstanding concern in Olympic organisation; with budget overruns experienced, for example, in Athens 1896 and 2004, London 1908 and 2012, Montreal 1976, and Sydney 2000. Allegations over corruption of IOC delegates and Games organizers in the Sydney 2000 and Salt Lake City 2002 bids led to controversy and resignation of numerous officials. The risks associated with governing the Games have therefore been ever-present since its inception. Those risks take numerous forms (e.g. finance, security, construction, transport) and are concentrated in different locations (e.g. main Olympic site, urban centres, commercial districts, transport hubs or networks). However,

2 AGB Nielsen Media Research (www.nielsen.com). 3 Interview with London 2012 Official.

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simply listing the catalogue of risks associated with staging the Games does not provide insight on the changing organisational task of hosting the Games, and managing risk.

This paper theorises Olympic risk along two dimensions: (sub)national/transnational and

internal/external. This framework is a heuristic for analysis rather than indicating the empirical structure or distribution of risk. Risk is fluid across different elements of Olympic organisation and across different political, economic, social and legal jurisdictions. To understand how risk is governed it is necessary, however, to understand both where it originates from and where it is concentrated. The first dimension of Olympic risk distinguishes between the (sub)national and transnational spheres. Some risks emerge or are concentrated in the transnational sphere in the interaction of states, organisations and people across borders. Other risks are a function of local characteristics of the Games itself, due to its size or profile. These sorts of risk tend to lie within the purview of the IOC or the host city and host government. The second dimension of Olympic risk concerns the internal and external risks of organising the Games. This refers to those risks which are created or amplified by the Games and risks that are probabilistically independent of staging of the Games, but nevertheless have implications for its organisation. For example, the scale of the Games is an internal risk, since it determines the resources and expertise involved in organisation and number of decision points susceptible to error. On the other hand, the wider processes of urbanisation, economic recession and climate change are external risks, since those occur regardless of whether or not the Games is held but nevertheless have consequences for its staging. The two dimensions are illustrated in Figure 1, with the first dimension indicated on the y-axis and the second dimension indicated on the x-axis.

- insert Figure 1 about here -

Internal-National

The scale and scope of the modern Olympics is a direct source of internal risks encountered at the subnational/national level by the host city and host government. Growth over time in the number of events, athletes, officials, media and television viewers (for example) has increased the level of resources required to stage the Games. While the risks of scale tend to be assumed at the national level, they are – at least in part – a function of the schedule of sporting events set by the IOC and its long-term expansion of the Olympic programme. The historical upward trend in most of the indicators is illustrated in Figure 2. This increase in scale of the Olympics over time and increases in the revenues and costs of both the Games and the Olympic movement (Preuss 2000; 2004) means that there are greater economic risks attached for the host city and the IOC (i.e. potential losses increase proportional to the potential gains). While operational costs have tended to be offset against commercial revenue at recent Olympics, the costs of infrastructure, policing and other public services typically are underwritten by the host government. The bid, design, organisation and operation of the Games is increasingly complex due to proliferation in the number of variables and decision points that are subject to uncertainty and, therefore, risk. This direct scale-to-risk relationship is present in most organisational and operational risks for the host OCOG and other Olympic-related agencies (e.g. construction, personnel, procurement, event coordination). As the Games grows, so the number of opportunities for, and consequences of, failure also increase. Other local characteristics of the Games can generate project risks. The legacy promises of the London 2012 Olympic programme present a long-term delivery risk, while environmental aspects of the Nagano 1998 and Sydney 2000 Olympics created similar risks for organisers in fulfilling their bid commitments. A sizeable proportion of risks associated with the Games are therefore ‘self-inflicted’ inasmuch as they are inherent to the growth of the event and programme. This growth in scale and global audience also makes the Games an attractive target for (external) terror attacks, eruption of geo-political tensions and other high impact incidents (more of which in due course).

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- insert Figure 2 about here - External-National

At the subnational and national level other local geographical, economic and political factors external to planning for the Games are a potential source of Olympic risks. The geography and urban layout of the host city, along with Olympic infrastructure (e.g. transport networks, venues and stadiums, water/power supplies, accommodation, media facilities), provides the underlying architecture for delivering and staging the Games. The local structure of public transport links and roads has potential consequences for operation of ticket barriers, crowd control, policing, first aid, traffic management, catering, and officiating of events. All of these geographical aspects would structure both the effect and response to incidents such as a stadium fire or terror attack. The efficient functioning of the local transport network is essential for spectator and competitor travel. So too is the resilience of electricity supplies, given the disruptive effect of power outages (U.S.-Canada Power System Outage Task Force 2004). Other unpredictable local events, such as extreme weather conditions (e.g. Klinenberg 2002; Lagadec 2004) also represent potential risks for staging the Games. Such events are possible during or outside competition-time. Weather is a function of the national context, generating different sorts of meteorological risk. In the run-up to the Sydney 2000 and Athens 2004 Olympics, for example, there was concern over health of athletes competing in high temperatures. In contrast, planners for Beijing 2008 were concerned with rainstorms and health impacts of smog/pollution. Such external events are not specific to the Olympics, but are significant because their impact would be amplified during the Games due to their effect upon competition and spectators. It is possible, too, there might be side-effects for local populations during competition time due to the diversion of emergency, disaster relief and public health agencies from their normal operations.

The probability of other risks might be amplified due to the Games. For example, effects of a

pandemic outbreak (e.g. Barry 2004) could be amplified by increased population movements during competition time. The unpredictability of power demand during mega-events such as the Olympics likewise increases the risk of outages, which can have knock-on effects on transport and venues (for example). In the run-up to the Sydney 2000 Olympics, Kingsford Smith Airport suffered a power failure that created a backlog of flights. In July 2004, a power outage across Athens and southern Greece left the Transport Minister, Mihalis Liapis, stranded in the middle of showcasing a new Olympic rail link to the airport. Other subnational/national threats might be on high alert during the hosting of the Olympics. The prominence of the Games can provide a platform for dissidents, civic protests and terror groups (such as Basque separatist incidents prior to Barcelona 1992 and the bombing of Centennial Park during the Atlanta 1996 Olympics). It can also stimulate protest (such as human rights protests about Beijing 2008) and public disorder (such as riots prior to the Mexico City 1968 Olympics). These risks use the Olympics as a target, encouraged by its profile, but in themselves are not created by the event.

Internal-Transnational

The transnational character of organisation of the modern Olympics means it is exposed to risks that cross international boundaries and Games. The demand for raw materials to be used in construction of Olympic venues introduces the risk of fluctuations in commodity prices and in supply volumes. This is a longstanding risk of stadium construction, with the post-war shortage of steel a problem for organisers of the 1948 London Olympics (Cabinet minutes 1947: p. 226). Likewise, the dependence of the IOC and host OCOG upon commercial revenues from broadcast rights adds the risk of exchange rate movements, with the largest share of revenues paid in US$. Fluctuation in value of the Canadian dollar against the US dollar led to a $150 million shortfall in its financing model, with a loss of revenue from broadcast rights and international sponsorship revenues (Auditor-General of British Columbia 2006). Transnational governance of the Olympic movement and international sport also entails risk, such as the effective transfer of knowledge

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between events and problems such as doping and corruption. Some operational risks of the Games, such as the broadcasting of information in real-time to the world through internet and television networks, exist at a transnational level. These risks are not specific to a particular Games but, instead, are part of the wider Olympic risk environment.

Since the ‘Munich massacre’ at the 1972 Olympics, during which eleven Israeli athletes and

coaches were murdered by Palestinian terrorists, the Olympic Games have been recognized as a target for transnational security threats. The heightened global attention to the Olympics during the opening and closing ceremonies in particular, means that the Games are a prime target for symbolic attacks or protests. Security planning for the Sydney 2000 Olympics foreshadowed the Al-Qaeda attack on the US on September 11th, 2001, as organizers prepared strategies for the scenario feared by IOC President, Juan Antonio Samaranch: that of a commercial airplane being flown into the opening ceremony (Melbourne Age, 8 July 2005). There are strong transnational elements to security aspects of the Games (e.g. Richards et al 2010). Historically, the Games has also often be vulnerable to diplomatic incidents and geo-politics (see Espy 1979; Hill 1997), such as the Berlin 1936 ‘Nazi Olympics’, Cold War boycotts of the Moscow 1980 and Los Angeles 1984 Olympics, and protests in the run-up to Beijing 2008 over China’s human rights record. These risks are external to the Games itself but nevertheless are an intrinsic part of the Olympic package. The Games therefore faces some risks that are present in all contexts and across international borders.

External-Transnational

Last, there are some events or circumstances with potential consequences for the Olympics that are probabilistically independent of it. The September 11 attacks had significant impact on planning for subsequent Games, inflating the security costs and encouraging the involvement of transnational defence and intelligence organisations such as NATO. Likewise, changes in global economic conditions can impact upon planning for the Games. The Great Depression influenced participation in the Los Angeles 1932 Olympics while post-war austerity affected the design of the London 1948 Olympics. The recent Credit Crunch made real the identified risk of securing of private finance for capital projects for the London 2012 Olympics (NAO 2007: p. 16) as well as increasing the likelihood of insolvency of Olympic suppliers and contractors. Another source of risk external to the Games and Olympic movement is technology, which nevertheless has been associated with dramatic change in the organisation and staging of the Games as well as its broadcasting. Increased technological innovation increases the number of possible things that can go wrong. Extreme events such as war or infectious disease also have potential to interrupt the Games. The World Wars resulted in suspension of the four year cycle of the Olympics, with no Games held in 1916, 1940 or 1944. A global outbreak of infectious disease, such as that feared of avian flu, would likewise have serious repercussions for organisation of the Games in its effects on public health as well as on border controls. Interdependence and Time

Overall, then, Olympic risk can be understood as a function of various factors related to the probability of certain events and the degree of losses associated with those events. The internal dimension of risk indicates that both probabilities and outcomes can be amplified by the Games itself – with the increase in its scale bringing both greater organisational complexity and greater potential losses (as well as gains). External risks are largely independent probabilistically of the Olympics but are again amplified through its scale, like internal risks. Some risks are a function of specific national characteristics of the host city or host government, whereas others reflect broader social, technological political, and economic processes at the transnational level. While it is possible to categorise Olympic risk in this manner to gain a better understanding of where risks emanate from and where they are concentrated, the interaction of these risk dimensions is an important determinant of the impact of both minor and major incidents. Event scale and

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complexity also increase the risk of second order failures or incidents, leading to the sorts of ‘normal accidents’ diagnosed by Perrow (1984). The concentration of a majority of the events (as well as the athlete’s accommodation and press facilities) at the main site for most Olympics in recent times, means a single incident has the potential to have far-reaching effects across both the site and the programme of events. This event design amplifies the effect of any incidents, through the interdependence of operations and infrastructure on the ground. Also, the bespoke Olympic design of infrastructure and facilities, often delivered ‘just-in-time’, limits the number of opportunities for stress-testing and event rehearsals. Whereas there delays with other mega-projects are common (Flyvbjerg et al. 2003), there is little scope for miscalculation of project management in the construction programme for the Games.

The long-lead in time of the Olympics leaves organizers vulnerable to unexpected extreme

events, that can destabilize planning. Take the example of the London 2012 Olympics. One might argue that the genesis of the London bid for 2012 lay in the unsuccessful bids of Manchester for the 2000 and 2004 Olympics (originating in the early 1990s). Since formulation of the initial feasibility studies for a London bid (Luckes 1997; 1998; British Olympic Association 2000), the national and transnational risk environment has undergone fundamental changes such as the increased threat from Al-Qaeda and extremist Islamic terror groups and the degreased threat in the UK from Irish republicanism after the Good Friday Agreement of 1998. Warnings about the threat of an avian flu pandemic and the swine flu pandemic of 2009 also illustrate contingencies that were unanticipated in formulation of the initial bid. Most of all, the Olympic programme has had to respond to the emergence of financial risk due to the global financial crisis and its impact on public sector borrowing along with capital investment and sponsorship from the private sector. While Olympics risk can therefore be identified on these dimensions, it is in a constant state of evolution.

3. Principals, Agents and Networks of Risk Management The Principal-Agent (P-A) problem is a classic control dilemma noted in legal, political and

economic analysis (Stigler 1971; Ross 1973). The P-A relationship is said to arise “between two (or more) parties when one, designated as the agent, acts for, on behalf of, or as representative for the other, designated the principal, in a particular domain of decision problems” (Ross 1973: p. 134). It identifies the difficulties involved in the transfer of decision-making authority from a principal to an agent, contracted to work on the principal’s behalf. This delegation of power can be problematic due to conflicting preferences, incomplete contracts, information asymmetries, shirking, and moral hazard (e.g. Stigler 1971; Ross 1973; Rees 1985a; 1985b). Such a framing of the problem is popular with game theorists due to the idea that the principal design the rules of the game in order to provide incentives for the agent to act in accordance with the preference of the principal rather than in their own self-interest. Studies of principal-agent relations consider control relationships both in the economic world (e.g. Arrow 1985; Pratt and Zeckhauser 1985) and in political institutions such as government bureaucracies and regulators (e.g. Stigler 1971; Posner 1974; Peltzman 1976; Weingast and Moran 1983; Moe 1984; Weingast 1984; McCubbins 1985; McCubbins et al 1987; 1989). It is argued that principal-agent problems, and information asymmetries in particular, are a source of optimism bias in planning and construction of mega-projects (see Flyvbjerg and Cowi 2004). In the context of risk, such a perspective considers both the transfer of risk from principal to agent, under conditions of uncertainty, and behaviour of the agent in management of risk to mitigate potential gains and losses.

The structure of the Olympic polity and wide range of functional responsibilities involved in

organisation of a mega-event the size of the Games tends to lead to the delegation of decision-making and delivery responsibilities, either between or within transnational and (sub)national spheres. This creates a transnational network of principals and agents involved in governing the

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Games and managing risk. It also creates potential for control problems, due to underestimation of risk, information asymmetries, conflicts in preferences (“shirking”), and the vague definition of organisational goals (“incomplete contracts”). There are multiple principals and multiple agents engaged in organisation of the Games, in a decentralised structure of delegation. This set of P-A relationships is best understood as a network of organisational functions. This is not a hierarchical system of governance. Multiple prospective host cities submit bids for the Games to the IOC to review, are selected by a vote of its membership, and then assume the benefits and risks of staging the Games. In most instances, the host government acts as backer of last resort for the Games, while subnational and/or national government take on responsibility for some aspects of delivering the Games and required infrastructures, while the host OCOG takes on the operational responsibilities. Other local services such as policing and healthcare are provided through existing capacities. This organisation occurs within the host political and legal context, though often with certain concessions to IOC requests (such as legal protection of the Olympic logo). Other transnational organisations then become involved in preparations for the Games, such as international sports federations, anti-doping agencies and national security agencies from other governments (e.g. the US provided intelligence guidance to Greece in the run up to the Athens 2004 Olympics).

Theorising this set of principal-agent connections as a network therefore enables analysis of

the diverse set of provisions for risk management in organisation of the Games. The remainder of this analysis highlights the most critical transfers of risk between principals and agents in the network of Olympic governance and identifies specific instruments of risk management used in organisation of past Games, noting the effect both of state traditions and broader trends in the practice of risk governance and administration of the Olympics. Who delegates authority to who in organisation of the Games? And what implications does this have for the management of risk?

The matrix of principals and agents illustrated in Figure 3 uses a “X” to denote a substantive delegation of responsibility and risk from the organisation named in the column heading to the organisation named in the row heading (of course, delegation of lesser organisational functions occurs that is not represented in the matrix here, but those X’s indicated represent essential or critical responsibilities of interest to this analysis). Some of these are considered in detail below, while the remainder are discussed in the concluding analysis.

- insert Figure 3 about here -

International Olympic Committee → Host City, Host NOC, OCOG and Host Government

While the IOC is guardian of the Games, it delegates the task of organisation and staging of them to the host city, and in particular the host NOC, the OCOG and host government. There are three main phases in its delegation of responsibility and exercise of control over the host and its organisation of the Games (aside from its tacit influence and control through informal channels and communications): (1) bid evaluation and standard-setting during the candidature phase, (2) legal specification of obligations and liabilities of the host city and host government through the host city contract, and (3) post-award evaluation and oversight of progress of preparations. This model of Olympic delegation corresponds to the classic model of regulation consisting of phases of standard-setting, monitoring and behaviour modification (see Baldwin et al. 1998). The candidatures procedure is now highly standardised, with the IOC providing a template and questionnaire for bids in its IOC Candidature Procedure and Questionnaire (e.g. IOC 2004). This provides detailed specification of organizing strategies, and is supported through assessments of the IOC Evaluation Commission which report on the risks associated with each bid. Design of the Olympic Games therefore hardwires a large number of the risk parameters well in advance (though there remain opportunities for subsequent shirking of course).

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The Host City Contract is the core legal foundation of delegation of organising responsibility, and transfer of risk, from principal (i.e. the IOC) to agent (i.e. the host city). This requires legal commitment from the host government that it will act in compliance with the Olympic Charter (Rule #34.1, IOC 2007: p. 72). It also sets the strict directive that “…[public] authorities and the NOC must guarantee that the Olympic Games will be organised to the satisfaction of and under the conditions required by the IOC.” (Rule #34.1.2, IOC 2007: p. 73). The IOC therefore imposes clear rules of the game in its transfer of responsibilities and obligations to the host in return for the right to stage the Games. These terms and conditions are not made public in all governing contexts. While the contract for the London 2012 Olympics was published (though the technical manuals were not), the contract for the Beijing 2008 Olympics was kept secret by the IOC and Chinese government. The IOC’s exercise of control over the host city does not, therefore, always occur in public and therefore varies somewhat according to political context.

While this contract specifies the delegation organisational responsibilities, it also transfers

risk to the host. It makes the host city, host NOC, and OCOG liable for commitments concerning organisation and staging of the Games. The IOC assumes “no financial responsibility whatsoever in respect of the organisation and staging of the Olympic Games” (Rule #37.1, IOC 2007: p. 76). This transfer of financial risk to the host for the cost of infrastructure, facilities and operations has left a number of cities with considerable post-Games deficits. The famous example is the $1 billion debt incurred at the Montreal 1976 Olympics, which was only paid off thirty years later through a tax surcharge on local residents. The public sector contribution to the Sydney 2000 Olympics turned out to be six times greater than the original bid (NSW Audit Office 1999; Select Committee on Culture, Media and Sport 2003) while the total cost of the Athens 2004 Olympics escalated from £3.2 billion to £6.3 billion (House of Commons Library Research Paper 2005: p. 37). One notable exception to the requirement of government to provide guarantees of financial support was the Los Angeles 1984 Olympics. In 1978 the city of Los Angeles passed a voter-approved measure – Charter Amendment “N” – that prohibited expenditure of municipal funds on staging of the Olympics without the guarantee of reimbursement. Special dispensation from the IOC enabled the Los Angeles Organizing Committee to run the Olympics as a commercial venture, generating a budget surplus of $215 million through commercial revenue and fund-raising.4

Optimism bias observed in the candidature procedure (e.g. Pound 2004) is consistent with

principal-agent problems observed more widely in the bidding for mega-projects (Flyvbjerg and Cowi 2004: p. 49). This generates several preference conflicts and information asymmetries in the initial estimation of costs and risks, due to the desire of the host city to win the Games, the limited resources available to candidate cities in design of proposals (with political commitment tending to be low while the right to stage the Games is not guaranteed), and reliance upon bid templates rather than planning from first principles which tends to produce generic bids rather than encourage systematic challenging of planning assumptions. Emphasis on ‘bid documents’ (Luckes 1998) and a ‘specimen bid’ (ARUP 2002) during formulation of the London bid for the 2012 Games are typical of the discounting of risk by host stages during the candidature phase, and relative weakness of the IOC to prevent budget inflation given the extended lag time of the planning process. The IOC nevertheless conducts regular checks on the progress of host cities through visits and reports of its Coordination Commission.

Host NOC → OCOG & Host Government

Under the Olympic Charter, NOC’s possess ‘exclusive authority’ to select and designate which city applies to the IOC to organise the Games. The host NOC and host city are joint stakeholders

4 See LA84 Foundation, http://www.la84foundation.org/20thAnniversary.pdf.

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in the bid (in most instances along with metropolitan, regional or national government). As such the host NOC and host city set the organising agenda, in bid design, before creation of the OCOG after the award of the right to stage the Games. The NOC is also responsible for establishment of the OCOG, while the Olympic Charter requires that both its President and Secretary-General sit on the executive board of the OCOG. The NOC is therefore able to exert influence over planning for the Games, while transferring the responsibility and risk of operations to the OCOG. It selects the host city, is a stakeholder in the application and provides domestic management and control of commercial exploitation of Olympic trademarks and symbols such as the five rings. While the NOC tends to be removed from direct organisational responsibilities, its control over marketing rights and other aspects of Olympic governance gives it considerable power over the OCOG and host government. During the organisation of the Sydney 2000 Olympics, the Australian Olympic Committee (AOC) had to be paid off A$90 million by the New South Wales Government in return for giving up its veto rights, due to a clause in the host city contract, over the Sydney Organizing Committee (SOCOG) budget. The veto rights of the AOC over the Olympic budget were described as hanging like a “sword of Damocles over everyone’s head” by SOCOG board member Graham Richardson (Richardson 2001). Under the new deal negotiated by AOC President, John Coates, it retained veto power over ‘sports decisions’. There is, however, national variation in influence of the host NOC (as the principal) over the OCOG and host government (as agents). In contrast to the hard bargain driven by its Australian counterpart, the British Olympic Association (BOA) sold domestic rights to marketing the Olympics to the London Organizing Committee (LOCOG) for just £2 million, despite itself suffering from a financial deficit (Scott 2009).

Host City, Host NOC and OCOG ← → Host Government

While the host NOC and OCOG assume most sporting and operational responsibilities for the Games, responsibilities for construction of the infrastructure and facilities for the Games tend to be passed to the host government. Specialist public bodies are often created to handle the task of project delivery. For the Sydney 2000 Olympics, the Olympic Coordination Authority (OCA), a statutory authority answerable to the New South Wales Minister for the Olympics, was charged with coordination of the ‘whole-of-government’ response within the state. Some functions were later transferred from SOCOG to the OCA due to problems with preparations for the Games, with the NSW State Government reasserting control over Olympic planning. The responsibility for delivery of venues, infrastructure and legacy for the London 2012 Olympics was delegated to a statutory corporation, the Olympic Delivery Authority (ODA), which introduced its own systems of project/risk management in partnership with commercial partners (the ‘CLM consortium’). The balance of power in this principal-agent relationship between host cities and OCOGs and the host government is not unidirectional. As backer of last resort, the host government assumes a large proportion of the financial risk of staging the Games but also holds ultimate veto power through control of the purse strings. It also, as in the Australian case of SOCOG, has the power to assume responsibility for some organisational functions.

Even though the OCOG is the principal in terms of operational responsibilities for the Games

it remains reliant upon cooperation and support from the host government. At the Sydney 2000 Olympics the Australian Treasury assumed the Games’ foreign currency risk by guaranteeing up to US$737 million of revenues receivable from broadcast rights and sponsorship, with SOCOG made responsible for hedging the remaining $100 million (NSW Audit Office 1999). Other host governments have activated contingencies to offset cost over-runs on Olympic projects. OCOGs are therefore often dependent upon the host government assuming most of the financial risks of the Olympics, in particular those associated with extreme events or fundamental changes in the business model. Security costs outside the main Olympic site are also absorbed by government, with changes in the global security context leading to heightened risk management. For example the OCOG for the Salt Lake City 2002 Winter Olympics received $300 million extra from the US federal government to cover its extra costs after the terror attacks of September 11th, while the

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Athens 2004 security costs also increased from €515 to €970 million in response to the change in the international environment. There is a general bias towards underestimation of security costs at recent Games, with the budget for Vancouver 2010 increasing from $175 million to $900 million, and from £190 million in the London bid to £600 million in later estimates. The host government tends to finance management of security risks, which emerge external to the Games (as noted in Table 1). These costs would otherwise cause massive deficits for the OCOG and host city. As far as principal-agent relationships are concerned, once the host government has committed itself as guarantor of the Games it is subject to a number of obligations that it is unable to shirk from without high exit costs (i.e. there would be legal costs for cancellation of the host city contract with the IOC, not to mention the reputational damage). This can leave the host government exposed to national and transnational risks that on paper it is not liable to, or were unexpected.

Host Government → State-Owned Enterprises, Public-Private Partnerships & Private Enterprise

While OCOGs typically pass responsibility for infrastructure and legacy planning to the host government, government in turn often delegates delivery functions to state-owned enterprises and private enterprise. This is consistent with general trends of new public management (Hood 1991) and rise of the ‘regulatory state’ (Majone 1994; Moran 2003) and its transfer, in theory, of project risks from the public to quasi-private or private sector. State-owned enterprises have been delegated responsibility for construction of infrastructure and facilities in organisation of recent Olympics. For example, the government-owned Barcelona Olympic Holding SA (HOLSA) constructed the main venues, new road infrastructure and the Olympic Village for the Barcelona 1992 Olympics, on behalf of the national and city government, with a mix of public and private financing. The ‘Birds Nest’ stadium for Beijing 2008 was developed by the China International Trust and Investment Corporation (CITIC) consortium and the Beijing Municipal Government’s Beijing State-owned Assets Management company (BSAM). Other public bodies such as London 2012’s ODA contract commercial partners to assume partial responsibility for delivery (i.e. the CLM Consortium). This leads to decentralisation of management of (internal) project risks, such as in procurement and cost management, and the transfer of risk. In practice, however, while project delivery might be transferred, the political costs of non-delivery tend to remain with the host government.

Host Government → Public Services

The delivery and staging of the Olympics is reliant upon the cooperation of a range of public services such as the police, transport, healthcare, meteorological agencies, environmental health and emergency services. These organisations tend to be coordinated by the host government via existing political institutions. The functional coordination of government agencies for Olympics organised in federal systems is therefore distinct from under unitary government. For example, during the planning for the Salt Lake City 2002 Winter Olympics, a consortium of state, local and federal agencies (the “Utah Olympic Public Safety Command”) was delegated responsibility for management of all public safety activities. In 1999, however, the US Office of Homeland Security designated the Games a National Special Security Event to require the US Secret Service to take charge of security and make the FBI responsible for law enforcement. The security operations involved around 11,000 security personnel from more than 60 federal, state and local agencies such as the National Park Service (Rigg 2002). In contrast, security planning in a unitary system like the UK for London 2012 entails fewer inter-organisational relationships and delegations to other government agencies.

Another feature of this delegation of management of project and operational risk to existing

public services is the dependence of agents upon resources and expertise to undertake the task assigned to them by the host government. The scale of the Olympics, first of all, often presents an exceptional task in comparison to the routine operations and functions of most agencies. This

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can exert unusual pressure on organisational budgets and personnel (such as restrictions on the scheduling of leave for staff). Second, cooperation of agencies in delivering and supporting the Games has the potential to create risk externalities through diversion of resources from existing functions to Olympic-related operations. For example, higher concentration of police manpower around the main Olympic site might lead to reductions in policing elsewhere in the host city and host country. Olympic organisation is therefore dependent upon the capacity of domestic police and intelligence services to meet increased demand for management of risk during competition time. The risk environment at some Games, at times of extreme security threats or instabilities, also prompts use of armed forces as well as civilian policing. Military deployments for policing Games venues and facilities also reflect differences in political context, with this more common under non-democratic states, such as Mexico (Mexico City 1968), U.S.S.R. (Moscow 1984), South Korea (Seoul 1988) and China (Beijing 2008), than under democratic governments.

The dependence of the host government on public services can also expose existing frailties

or vulnerabilities to external and transnational risks. At the Munich 1972 Olympics, the lack of a specialist anti-terrorism unit of the host West German government has been attributed as one of the causes of the mismanagement of the rescue of the Israeli hostages, and the escape of several of the Palestinian terrorists (Reeve 2000). The authorities were not prepared for handling such a crisis because of the post-war constitutional limits on armed forces operating inside Germany during peacetime and because the Munich police and Barvarian authorities were not trained to hostage crisis operations and had no specialist backup (see Groussard 1975; Schreiber 1972). The delegation of risk management to government agencies can be susceptible to ‘slippage’, due to the finite resources available to public services and continued requirement for them to fulfil routine operational commitments.

International Olympic Committee & OCOG → International Federations & NOCs

Another important aspect of delegation, from the bid phase right up to staging of the Games, is the transfer of responsibilities from the IOC and OCOG to international sports federations and NOCs. The organisations have specialist expertise required for staging of the Games, so are often delegated responsibility for decisions on technical facilities, equipment, competition scheduling and nomination of referees for events. Likewise, NOCs are responsible for management of their teams. While the IOC holds the power to determine which sports are included in the programme and which NOCs are recognised, these agents posses a monopoly of information over their sport and national sporting context. The delegation of operational functions of sports management to these organisations is essential to running of the Games. The responsibilities and risk associated with staging of particular sports therefore tend to be transferred to IFs (with risk assessments the most common instrument of risk management used by IFs). However, this creates potential for preference conflicts, since inclusion in the Olympic programme is essential for the economic survival of some sports, and might lead to inaccurate reporting of risk information by IFs (and NOCs) to the IOC.

International Olympic Committee & OCOG → The Market

An growing trend in organisation of the Games and governance of the Olympic movement is the transfer of risk from the IOC and host OCOG to the market and the increasing use of complex financial instruments. This is consistent with accounts of new regulatory paradigms (e.g. Majone 1994; Moran 2003) and the wider shift of responsibilities from the public to the private sector. Because the host government is required by the IOC to provide a guarantee of financing for the Games, Olympic organizers have not tended to take out insurance (though the organizers of Salt Lake City 2002 purchased cancellation cover from Lloyd’s of London even prior to the events of September 11th, 2001). Commercial revenues associated with the Games are the main source of income for the IOC, however, leading it to purchase insurance for cancellation, due to terrorism or natural disaster, for recent Games. It first purchased insurance for the Athens 2004 Olympics,

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with $170 million cover at a premium reported to be $6.8 million (Buck 2004), as well as for the Beijing 2008 Olympics, with $415 million cover at a premium of $9.38 million (Boop 2008). The IOC is highly vulnerable to interruption of its cyclical revenue stream and therefore attempts to transfer risk.

In recent times, OCOGs have also started to transfer risk to financial services through use of

financial instruments. A large proportion of revenue for OCOGs is received in foreign currencies, due to the income from broadcasting rights and corporate sponsorship. The London Organising Committee has taken out hedging contracts to protect its foreign currency revenues. This led it to write off £27 million on paper in its 2008 Annual Report due to the differential between the hedged rate and spot rate – though further fluctuation in foreign exchange rates could improve or worsen this situation before 2012 (LOCOG 2008: p. 15). Organizers of Vancouver 2010 were criticised by the Auditor-General of British Columbia (2006) for failure to implement plans for a hedging strategy, which resulted in a loss of around $150 million in broadcast and international sponsorship revenues as the strength of the Canadian dollar declined. The transfer of risk to the market can itself bring risk, however. Increased requirements for public contribution to funding of the London 2012 Olympics was, in part, a consequence of shortfalls in expected revenue from the private sector. The search for private equity and debt funding by the developer for London’s Olympic village, Lend Lease, coincided with the height of the global financial crisis. This meant it was unable to raise its £650 million contribution and instead required a £225 million loan from the European Investment Bank to resolve the deficit. The Sydney 2000 Olympics encountered a similar problem with a projected shortfall of more than A$100 million in ticket and sponsorship revenue (NSW Parliament 2000), requiring contingency funding and prompting the New South Wales state government to assume responsibility for operational programs and budgets (with a few exceptions) through the Olympic Coordination Authority.

Olympic Sponsors & Broadcasters → Markets

Commercial Olympic partners, such as sponsors and broadcasters also tend to transfer risk to the market, in the form of financial instruments, to manage risk much like the IOC and OCOGs. Protection of commercial interests in staging of the Games has been a concern for broadcasters since the 1970s and 1980s. This was a period during which the commercial value of the Games started to rocket, and in which the possibility of extreme events, such as the terror attack at the Munich 1972 Olympics and the Cold War Boycotts of the Moscow 1980 and Los Angeles 1984 Olympics were recognised. US broadcasters have invested heavily in broadcasting of the Games since the 1970s, with NBC paying $894 million for the rights to the Beijing 2008 Olympics and $2.2 billion for the Vancouver 2010 and London 2012 Olympics. This has led, consistent with normal business practice, to the taking out of insurance policies to protect against unexpected loss of revenue. The one-off nature of the Games means that a disruption or cancellation would have severe consequences for revenue streams and the incurring of costs. Although the US-led boycott of the Moscow 1980 Olympics forced the US broadcaster NBC to cancel its coverage of the Games at a loss of $30 million, it was able to recoup some of the expenses from its insurance cover with Lloyds of London. This has become standard practice for Olympic broadcasters exposed to increased financial risk due to the growth of their advertising revenue. NBC again purchased insurance cover for the Beijing 2008 Olympics. IOC, OCOG & Host Government → Foreign Governments & Transnational Organisations

IOC and host government are often reliant upon assistance from foreign governments and transnational organisations to redress limits of resources or expertise. Exchange agreements in intelligence have been a feature of Olympics since the 1990s, such as the Olympic Intelligence Centres established at Atlanta 1996, Sydney 2000 and Athens 2004. This delegation of security functions has become particularly acute since the events of September 11, 2001. For the Athens 2004 Olympics, the Greek government received guidance and support from the US Government

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and the NATO Alliance. Ahead of Beijing 2008, the US sent its Nuclear Emergency Support Team to provide assistance, despite the absence of prior defence collaboration between the US and Chinese governments. This is not just a recent phenomenon. Ten days before the Mexico City 1968 Olympics, the Mexican government launched a crackdown of urban protesters, leaving a considerable death toll. Noting the weakness of the host nation, the US Central Intelligence Agency which had been monitoring the unrest, sent the Mexican government military radios, weapons, ammunition and riot control training before and during the Games (Doyle 2003). The dependence of the IOC, OCOG and host government on transnational organisations further adds to the geo-political dimension of organisation of the Games and its management of risks that are external to the Games, in particular those that cross international borders and jurisdictions. The exceptional security situation associated with staging of the Games tends to cause governments encounter information and resource shortages even when these are global superpowers such as the US and China, leading to transnational cooperation and risk-sharing.

This increasing influence of transnational bodies is also observed outside the defence and

security domain, in relation to matters such as doping and regulation of sport. The World Anti-Doping Agency (WADA) was established to regulate the abuse of drugs in international sport in November 1999 as an initiative of the IOC and, although an independent foundation, receives funding from the IOC and governments. The World Anti-Doping Code was implemented by sports organisations prior to the Athens 2004 Olympics and harmonizes rules and regulations concerning doping across all sports and countries. This regulatory regime covers more than 500 sports organisations, including IFs, the IOC and NOCs, that have adopted the code. The code is subject to ongoing transnational consultation and revision, with the most recent version taking effect on 1 January 2009. The code has been implemented through governments' ratification of the UNESCO International Treaty Against Doping in Sport, adopted by 191 governments in 2005 (effective February 2007). This depends upon sports organisations to enforce the code within their own jurisdiction outside Games time. An earlier transnational agreement in the regulation of doping was the Anti-Doping Convention of the Council of Europe in Strasbourg, established in 1989 which, like the WADA code, sought harmonisation of standards and regulations related to doping and testing. While such transnational regimes standardise management of doping risks, inequities in the monitoring resources available to national federations or in sports with low revenue streams creates potential for principal-agent ‘slippage’ in the enforcement of doping controls.

IOC & Host OCOG → Suppliers & Contractors

The last principal-agent relationship considered here refers to the relationship between the IOC and OCOG and their suppliers and contractors, with major transnational corporations often being contracted to provide essential services related to project management and delivery. This ‘small world’ of Olympic partner firms and consultants is integral to organisation of the Games, and enable a degree of continuity between Games. These transnational firms provide services in relation to functions such as IT and communications, finance, engineering and planning, project management and security. This gives rise to a closed network of Olympic organisation, where an elite group of firms and individuals are frequently contracted to multiple Games. It also reflects the small global pool of firms possessing the capacity and expertise to support an event as large and complex as the Olympics. For example, considerable technological functions are entailed in staging of the Games, in particular provision of support to results, information feeds and media facilities. Both the IOC and the OCOG have insufficient expertise and organisational capacity to deliver these ‘in house’. At Beijing 2008, ATOS Origin, the IOC’s Worldwide IT Partner for the Olympic Games, managed an IT Team of 4,500 personnel, supporting 10,000 computers, 1,000 servers, 200,000 accreditations, 4,800 result system terminals and 4,000 printers. Its services were operational 24/7, including implementation of a large scale IT testing program. ATOS also led technological project management for Salt Lake 2002 (then as SchlumbergerSema), Athens

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2004, Turin 2006, Beijing 2008, Vancouver 2010 and London 2012. A similar pattern of transfer of organisational responsibilities to corporate firms and consultants is observed for delivery of venues and infrastructure at Olympic Games since the 1990s. Arup (www.arup.com) – a global firm of consulting engineers, designers, planners and technical specialists – was contracted to provide transport planning for the Sydney Olympic Park, compiled analysis of the parameters of a 'specimen bid' for the London 2012 Olympics (Arup 2002), and was a member of consortiums responsible for delivering the Birds Nest stadium and National Aquatics Center for Beijing 2008. Likewise, the CLM consortium (consisting of Laing O’Rourke, Mace and CH2M Hill) is contracted as delivery partner for London’s Olympic Delivery Authority. Of those firms, CH2M Hill provided programme management for preparations for the Atlanta 1996, Sydney 2000 and Beijing 2008 Olympics.

These sorts of longstanding commercial relationship between the Olympic principals and corporate agents have the potential benefit of enabling knowledge transfer between Games in management of operational risks, but at the same time provides grounds for the monopolisation of claims to expertise and contacts (‘social networks’) within the Olympic movement and host and bidding cities. This has the potential for creating information asymmetries between the IOC and OCOGs (the principals) and corporate firms (the agents), since the latter control much of the information about functional requirements of Olympic project management and the pricing of services and materials, as well as creating a barrier to entry for other firms. The principal-agent control problem is acute in the realm of Olympic finance, where the same transnational firms that provide budget estimates and cost reviews, also often are engaged to provide audit or other Olympic consulting services. Some Olympic partner firms are official sponsors of the Games, and provide services and staff on secondment as payment-in-kind. For London 2012, partners from financial services firms have been seconded to work for the London bid, LOCOG and ODA, while firms have also been contracted to provide services to Olympic organisers. While the transfer of project management risks to transnational firms therefore provides an instrument for the mitigation of Olympic risk, the delegation of authority has the potential for long-term slippage in the distance between preferences of Olympic organizers and profit-seeking corporate firms.

Conclusion

Who governs the Games? Who delegates responsibilities for organisation and operations to who? And what sorts of instruments and institutions are used to manage risk?

To understand organisation of the Olympics it is first necessary to understand the different

kinds of risks that emerge, internal and external to the Games and in the subnational/national and transnational spheres. It is also essential to understand who manages those risks on behalf of who and the instruments of risk management that are used to mitigate the probability and/or impact of such eventualities. The principal-agent framework offers an appropriate approach for diagnosing the nature of risk and responsibility within the wider Olympic polity, since it reveals who governs the Games, which functional responsibilities are delegated from one organisation to another, and how these risks are transferred and managed (or not managed as the case may be) with the goal of a successful Games. The transnational dimensions is a critical part of this analysis, both due to the boundary-crossing nature of some threats and hazards and those risks that emerge external to the Games but can have significant effects upon their organisation. It also reveals the decentralised network of Olympic and sporting organisations, governments, regulators, corporations and markets that share and manage the risks associated with staging the Games. Risks that are concentrated at the national and subnational level tend to fall within the jurisdiction of host OCOGs and host governments. Those with more general consequences for the Olympic movement, sport and foreign countries tend to be addressed by transnational organisations and inter-organisational cooperation. The management of risk is, therefore, a

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direct function of the risk environment and characteristics of different types of organisational and operational risk. At the same time, the instruments used to manage risk vary according both to the different principals and agents involved – such as Olympic-specific bodies, governments and corporate firms. There is further variation due to the different political and organisational structures of Olympic organisation. Under capitalist democratic systems, a large proportion of organisational responsibility and risk is transferred to the private sector, through contracting, hedging, insurance and other mechanisms. The host government remains the backer of last resort, but risks are often mitigated through market-based mechanisms. This is symptomatic of the rise of the regulatory state and hollowing out of the state in these political systems (Majone 1994; Rhodes 1994; Moran 2003). Under non-democratic or developing regimes, mechanisms of risk transfer tend to lie with the state. Some delivery responsibilities are contracted out, such as facilities construction at Beijing 2008, but the state assumes much of the responsibility for project management and delivery and the absorption of risk.

Typically, the direct risks associated with organisation of the Games tend to fall to the host government, which acts as guarantor to the IOC. This is despite its separation of responsibilities with the NOC and OCOG, both of which have certain powers to set the Olympic planning agenda. Once the host government has agreed to support the bid for the Games, it assumes a large share of risk – even though the Games are non-political and the OCOG is independent of government. Its foremost modes of risk management relate to the financing of the Games, the delivery of infrastructure and facilities, and the provision of security and policing. The host government therefore is responsible for most major risks, despite the responsibility of the OCOG to operate the Games and the public prominence given to its role in staging the Games. In contrast, the IOC manages its own financial risk through insurance policies, maintaining its own regulatory regime of bid/Games audit and evaluation, and delegating most responsibilities for the Games to other subnational, national and transnational organisations in both the public and the private sectors. Likewise, OCOGs tend to delegate core delivery functions of infrastructure and facilities to government and public-private consortia drawn from the network of Olympic partners and commercial firms. Perhaps the most important concordats in structuring the Olympic polity and its management of risk are the Olympic Charter, which defines the rights and responsibilities of different organisations, and the Host City Contract, which specifies the terms of the award of the Olympic to the host city and expectations regarding its management of Olympic risk such as those concerning operations, security, infrastructure, facilities, finance and so forth. These also structure the power relations between those organisations involved in Olympic governance. Importantly, though, the concept of risk highlights the uncertain nature of organisational delegation. With risk, they say, also comes opportunity. The contingent nature of some risks associated with hosting the Games can make it unclear who the winners and losers are in terms of political or commercial interest, until the incident of an extreme event after which it is too late. This uncertainty also creates incentives for shirking by agents, since low investment in the management of risk might go unpunished if threats or hazards do not materialise. Differences in the risk appetites of principals and agents therefore needs to be considered further.

For a principal, the dilemma is whether to delegate responsibilities, and if so how to fix the rules of the Game so that the agent mitigates those risks that affect the principal. The IOC wants the OCOG and host government to protect the Olympic brand and to ensure a successful Games. It has little interest in whether the Games run to budget (aside from the potential for negative publicity). The OCOG is concerned with smooth operation of the Games, rather than the expense of venues and infrastructure. So long as these are delivered ‘on time’, management of finances and other Olympic projects by the host government and its commercial partners is not of direct importance. Some corporate firms, on the other hand, have direct commercial interests in the management of risk, while others are engaged in the task of risk management itself extracting revenue from the IOC, OCOG and host government to do so. The closed network of Olympic consultants and contractors suggests that information asymmetries are possible, and that there

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is a closed market in Olympic expertise and consulting. This trend in the structure of the Olympic polity seems to have sharpened around the time of the Sydney 2000 Olympics, though perhaps reflects wider trends in corporate governance and society.

Some of the differences in forms of risk management reflect differences in the Olympic risk environment over time. The post-September 11 security environment has observed an increase in reliance upon transnational cooperation, as well as increased security costs of the Games. The increasing use of risk management for budgeting reflects a general shift in business practices (e.g. Power 2004; 2007) rather than fundamental change in the Olympic budgeting model, with the problem of Olympic budget overruns a longstanding control problem. Increased emphasis on management of the Games budget does, however, reflect increased costs since the Montreal 1976 Olympics, which left the host city a deficit of $1 billion. The transnational organisations involved in the Games are concerned with transnational risks, whether these are internal to the Games (e.g. doping) or external (e.g. terrorism). This is the most flexible and adaptive aspect of Olympic governance. Transnational organisations are not necessarily concerned, per se, with the Olympics itself – but rather how the event itself acts as a focus for other threats or hazards. For example, the elevated level of security activities, such as policing and intelligence, recognise the target that the Olympic represents to dissidents and terror groups.

This paper's introduction of the concept of the Olympic polity serves a number of purposes.

It first provides a conceptual template for understanding the complex structures of governance and government involved in organisation and operation of the Games. This recognises the wide scope of organisational settings for Olympic organisers. This occurs under both democratic and non-democratic states, is shared between the public and private spheres, consisting of a diverse decentralised network of stakeholders, with variation in the local and global risk environment in which the Games are organised – across space and time. In particular it provides an analytical approach that integrates the delegation of organisational responsibilities and risk management between different sorts of organisation. These include state and non-state entities, national and transnational organisations, and the Olympic movement or sports federations and governments or other organisations with general functions. The analysis also indicates that there is growing formalisation of standards and rules governing both Olympic competition and organisation. This change in styles of governing the Olympic polity, and its management of risk, are consistent with broader social, political and economic changes: such as new public management and its marketisation and contractualisation of public services (Hood 1991), the spread of regulation and control regimes (Majone 1994; Hood et al 2001; Moran 2003), and the growth of risk management practices in the public and private sectors (Power 2004; 2007). Such patterns are essential to understanding both the structure and character of organisation of the modern Olympics, yet are altogether absent from existing studies. Indeed, theories of public or corporate management are rare in analyses of the Games. Risk and its management are central to the functional priorities of Olympic organizers, and practices of risk management and regulation exhibit processes of standardisation, monitoring and enforcement that correspond to classic models of regulation (Baldwin et al 1998). The IOC requires bids to host the Games adhere to a standardised template, evaluates bids with its Evaluation Commission, and conducts regular audits of progress of host cities through its Coordination Commission. This has coincided with trends in contemporary governance towards increased regulation. Since the 1970s, the Olympic movement has drawn an increasing share of its funding from commercial revenue, in particular broadcasting rights and sponsorship deals, further increasing its regulation of organisation of the Games and its reliance upon market-based mechanisms of risk management to protect its revenue streams.

The addition of the principal-agent framework to the Olympic polity highlights further the

possibility for shirking, in differences in the preferences of organisers and contracted/delegated agencies, and for slippage, in inefficiencies, failures or oversights in risk management. It also

22

highlights the delegated nature of Olympic governance, where organisational and operational functions for a single event are dispersed among a large number of organisations at the national and transnational level. The network of Olympic principals and agents reveals how management of Olympic risk often crosses international jurisdictions as well as different Games. Overall, the most general delegations of authority tend to relate to transfer of responsibilities. As one moves further away from the centre of the Olympic organisational network, principal-agent relations become more technical and risk-related. These reflect functional differences, as well as state traditions, across the Olympic programme. To understand the nature of Olympic power and administration it is necessary to understand the governance of risk.

23

Figure 1. Two dimensions of Olympic risk – internal/external and national/transnational risk

Internal External

Subnational/National (Host)

� Project management

� Construction

� Spectator flows

� Completion deadlines

� Revenue

� Public support

� Urbanisation

� Domestic terrorism and public disorder

� Random events (e.g. weather, breakdowns)

� Water and power supplies

� Transport networks

Transnational

� Inter-Games Learning

� Geo-Politics

� Doping

� Exchange Rates

� Commodity prices

� Governance of the Olympic movement and international sport

� International terrorism and cyber-terrorism

� Technological change

� Global economic conditions (e.g. Credit Crunch)

� Infectious diseases (e.g. avian flu)

� War

24

Figure 2. Trajectories of Olympic Organisation – Athletes, Events, Costs and TV Revenues

25

Figure 3. Matrix of Principals and Agents of Olympic Risk Management

Principal

Agent IOC IFs

Foreign

Governments

&

Transnational

Organisations

Commercial

Olympic

Partners

Corporate

Suppliers &

Contractors

NOCs Host NOC OCOG Host

Government

Public

Services

State-Owned

Enterprises

& Public-

Private

Consortia

Private Finance

& Financial

Services

International Olympic

Committee (IOC) -

International Sports

Federations (IFs) X - X

Foreign Governments &

Transnational

Organisations

X - X X

Commercial Olympic

Partners X - X

Corporate Suppliers &

Contractors X - X

National Olympic

Committees (NOCs) X X - X

Host NOC X -

OCOG X X -

Host Government X X X -

Public Services X X X -

State-Owned Enterprises

& Public-Private

Consortia

X X X -

Private Finance &

Financial Services X X X X -

26

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