The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.

A Cry for Help

With the conclusion of the most recent Winter Olympics, the world’s attention has turned to the Games and its governing body, the International Olympic Committee (IOC). Declining youth viewership and large municipal infrastructure expenditures have plagued the IOC and brought into question the sustainability of the Games if they fail to improve.

The newly elected IOC President, Thomas Bach, recently addressed these issues by advocating for the “consider[ation] [of] incorporating new forms of sport,” possibly with greater flexibility to lead to “a more universal approach with regard to the Olympic program”. Further, Bach intends to reform the bidding process in two ways: greater accommodation for a more diverse range of cities and increased flexibility in the choice of sports included in the Olympics to attract a larger youth audience.

Borrowing From History

Over the past two decades, in order to appeal to younger audiences, the IOC introduced X Games events and sports celebrities, which have proven to capture far larger and younger audiences than traditional sports. Riding on an established youth following of celebrities and action-oriented sports, the 2010 Winter Olympics saw a 48% increase in 18 to 24-year-old viewership over the 2006 Games. Although this rise in viewership was impressive, room to grow still remains.

E-Sports: The New Frontier

The E-Sports phenomenon brings together the world’s top video game players to compete for monetary compensation and notoriety. These games typically feature real-time strategy (RTS), first-person shooter (FPS), or multiplayer online battle arena (MOBA) format games. The most popular game currently being played is League of Legends (LoL), a MOBA pitting two opposing teams of five players against each other. Moreover, there is significant interest from viewers. Last year, the LoL World Championship finals attracted over 32 million viewers, more than the 2013 Stanley Cup Finals, or Game 7 of the 2013 NBA Finals. Furthermore, E-Sports viewership numbers easily rival those of the X Games when other popular titles such as Starcraft 2 are included.

Given the cultural relevance of E-Sports in South Korea, an opportunity exists to include E-Sports as either an event or a demonstration sport at the 2018 Winter Olympics in Pyeongchang. However, given the short time frame and IOC’s reluctance to reintroduce demonstration sports, an alternative might be to replicate what the International Wushu (Chinese Martial Arts) Federation did in Beijing: running a parallel tournament during the Olympics. Although running the event in parallel to the Games would allow the IOC to objectively measure youth interest, the tournament might cannibalize viewership, and would restrict E-Sports’ access to Olympic venues. Staggering the air times to host the E-Sports after the Olympics, much like the Paralympics, would bring tremendous value to all stakeholders: broadcasters, host cities, E-Sports players and the IOC itself.

Appeasing the Broadcasters

In 2011, NBC Universal (owned by Comcast) agreed to pay $4.4 billion for the US media rights to the four Olympics between 2014 and 2020, a billion dollars higher than the next highest bid from Fox. From the beginning, it was apparent that attracting younger viewers was essential, with NBC unleashing a $40 million Olympics promotional campaign – the largest ever – dedicated to attracting younger viewers.

The youth market segment, between the ages of 12 and 17, is particularly attractive to sponsors that advertise on broadcast networks because of its substantial life-time value. As consumers age and become attached to a certain brand, the acquisition cost per consumer increases. Consequently, the impressionable youth demographic represents the ideal entry point for sponsors to build brand loyalty. Advertising spending trends emphasize the value of younger demographics, as youth hold a large portion of spending power and are expected to outspend Baby Boomers by 2017. A global benchmark study on millennials found that youth not only have significant spending power, but also heavily influence purchase decisions of other market segments, particularly their Baby Boomer parents._

Gamer Growth

While E-Sports offer similar viewership demographics to the X Games, they are growing at a much faster clip, with more highly-engaged viewers. Due to the recent increase in app-related games on tablets and mobile devices, studies now claim that 91% of all 2-17 year-olds in the US play video games. While this compares to only 58% of adults who have been playing for 13 years, it suggests that gamers continue to be engaged by the medium, even as content evolves. This justifiability results in a premium for E-Sports ads versus traditional sports ads, since E-Sports is able to access the more valuable youth demographic.

Major League Gaming (MLG) (the E-Sports equivalent of traditional sports leagues) reported 1551% growth in video hours played since 2010, representing 38.5 million hours. Even more important for broadcasters, the average viewer of MLG E-Sports has twice the click-through rate on advertisements, and has a 91% ad completion rate compared to the industry average for online sports streaming of 74%. If E-Sports were to be included in the Olympics, this would be a significant opportunity for broadcasters to not only increase the engagement of today’s youth, but also capture an active audience. For Sochi 2014, NBC had broadcasting rights totaling 1,539 hours of content, and aired 539 hours, 35%, on TV. With 11,000 ads, the Sochi Olympics had a ratio of 22 ads per hour of TV content aired. Considering that the 2013 LoL World Championships had approximately 100 hours of content, if LoL were offered as an event, this would imply 35 hours of televised content and 770 ads. A doubled click-through rate could value these ads at double the $95,000 traditional sports ad. E-Sports could then generate incremental ad revenue of $146 million for NBC._

Attracting Host Cities

The IOC aims to bring the Olympic Games to as many cities as possible, but increasingly high costs are deterring cities from bidding. Massive losses from three consecutive Winter Olympics during 1992 to 1998 brought significant repercussions to the host cities, leading to a significant decline in bidding cities for future events. Notably, Nagano, which hosted the Winter Olympics in 1998, is to this day dealing with the financial burdens of hosting and does not expect to achieve breakeven until 2015. Going forward, the IOC must improve the financial appeal of hosting the Games if it wishes to ensure an adequate number of attractive bids from top cities.

Fortunately, the only incremental cost of offering E-Sports is computer equipment, which is relatively small in comparison to the arenas often required for other Olympic events. For example, Brazil built an additional stadium hall for wrestling in preparation for 2016, estimated to cost $50 million, whereas E-Sports can use any existing facility following the traditional Olympic Games. The largest outlay would be display costs, typically totaling $150,000, which would be significantly offset by sponsorship. Moreover, cities constantly face post-event utilization problems for venues. However, by utilizing the infrastructure that was developed for the Olympics preceding the E-Sports tournament, cities could ensure additional revenue to pay for the considerable upfront costs. Additionally, with E-Sports, the versatility of computer systems will ensure that hardware investment costs can be recuperated through the large array of uses and a liquid resale market. Lastly, the flexible nature of the sport means cities incur very little incremental cost for switching E-Sport games and disciplines, should a newer version be developed or circumstances change.

Providing Legitimacy to a New Sport

E-Sports is quickly becoming accepted as a mainstream sport by the millennial generation. The US already issues the same type of visas for professional E-Sport athletes as they do for NBA athletes, and millennials growing up in this environment may see no difference between the two sports. Since the Olympics are hosted every four years, with preparation beginning well in advance, it is crucial for the IOC to take a long-term perspective when evaluating this opportunity to proactively engage this new emerging audience. Riot Games, the company behind LoL, will likely be in the strongest advocate position. It has previously put in extensive efforts to push LoL towards mainstream acceptance, which included persuading US Customs to issue P1-A visas for its professional players._

Strengthening the IOC

Regarding the IOC’s Evaluation Criteria, E-Sports has the ability to achieve all items set forth, particularly, the heavy and specific emphasis on youth and social media appeal – both themes that dovetail perfectly with the advantages of E-Sports. The average age of US viewers during Sochi 2014 reached an all-time high of 55 years old, considerably higher than the average age of 42 during Atlanta 1996. By providing a new product for future content bidders to consider, the IOC ensures that broadcasting remains a lucrative opportunity. Further, by reducing the significant capital risk burden borne by host cities through additional revenue opportunities, the IOC opens a larger potential pool of future applicants to host the games. Finally, by bringing legitimacy to a thriving novel sport, and adhering to its core principles of advocating for sports, the IOC effectively embodies its stated mandate.

The IOC’s strategy and growth should not be hobbled by its limited definitions of sport. E-Sports is growing and the IOC can either ignore this opportunity or acknowledge changing cultures by capitalizing on the financial and social potential of E-Sports in the Olympics.

In the past, the style of the Olympics and its focus has been heavily influenced by the vision of the President of the IOC. In this new era spearheaded by Thomas Bach, a strong advocate for reform and change, E-Sports can be the first leap into a more well-rounded, innovative Olympics.

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