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Thinking Allowed

Sport might appear to be all about fair play, but it is also all about winning and losing; and some of the rewards for success are rich indeed. Consequently, there are powerful temptations to bend, or even break, the rules to secure the rich prizes that are available to the winners. To some extent sport makes its own rules, although decision making is increasingly subject to public appraisal and the sponsors of sport and its regulatory bodies must abide by the rules of the wider society. Sport has its own governing bodies that regulate the bodies that take part.

Sport is fun and entertainment, but it is also highly competitive and profitable.

Although sport is big business, and constituted by media, sponsorship and commercial networks as well as its practitioners, at all levels, it is also a particular social world, which seems to operate outside the parameters of convention in an uneasy relationship between promoting competition and elite outcomes, at the same time as widening participation and creating greater equality and cohesion. Sport is fun and entertainment, but it is also highly competitive and profitable (for some).

Sport is not outside debates about corruption and unfair, even illegal practices, although what is categorised as corruption in sport often centres on revelations of drug abuse and performance enhancement by individual athletes. Doping and match fixing affect the results of sporting events, which undermine the basic principles of sport, and implicate participants, organising bodies and promoters. Ideals of fair play and amateurism underpinned the Olympic movement; the modern Games were based on a movement with stated ideals, some of which seem less relevant today, like the amateur ideal and requirement that athletes be amateurs and not professionals.

Marc Hodler revealled corruption in the International Olympic Committee
[Image from Wikimedia: available under GNU Free Documentation Licence]

The Games have a long history of corruption, especially in relation to the bidding processes

Ideas about democratic participation and fair play remain a powerful part of Olympic rhetoric and governance, although what counts as social exclusion or social inclusion in sport varies according to time and place. These ideals not only seem incompatible with corruption, they also serve to conceal it; rather like white-collar crime. It’s not what convention leads us to expect, whatever the current furore about bankers and politicians, so it passes unnoticed. The Games have a long history of corruption, especially in relation to the bidding processes that precede success in being the host city. As Andrew Jennings has demonstrated, corrupt practices have been rife within the IOC (International Olympic Committee), and came to a head with the 2002 Games in Salt Lake City, when Marc Hodler, an IOC member, broke ranks and revealed that agents had been bribed to vote for cities bidding for the right to host the Games. This blew the lid on systematic malpractice within the IOC, and an internal enquiry found clear evidence that up to 20 of the 110 IOC members had been bribed to vote for Salt Lake. It didn’t stop in 2002, though, and there continue to be claims of corruption in the bidding process in the lead-up to 2012. 

The 2012 website may be counting off the days, but news stories also show some of the tensions and difficulties that beset the staging of any such mega sporting event and, indeed, sport in general. Like all sporting activities, the Games involve both winning and losing, success and failure, equalities and inequalities. The Olympic democratic ideals, global reach and wide range of sports and participation mean that the Games lend themselves more powerfully to such a politics of inclusion than most other sports, especially those which are dominated by commercial concerns.

Corruption in the Games, as across sport, can be seen as the outcome of a failure of governance as Sunder Katwala has argued. This failure can be seen in part as dependent upon the inequalities that permeate the organisation of sport, and not the more corporeal inequalities or differences in skill and competence that are displayed on the field. Corruption in sport may be primarily economic and financial but it is also social and cultural and draws on social inequalities that are not entirely dependent on athletic competence.

If some of the lessons learned from critiques of white-collar crime mean drawing attention to the privileges of class, gender and ethnicity that can be obscured by ever growing bureaucratic regulatory bodies, then this concept has some purchase in understanding the slow pace of change in the governance of sport.

Find out more

• OpenLearn: Influences on corporate governance – free learning material from The Open University
• The great Olympic illusion

Further reading

• 'Embodied Sporting Practices: Regulating and Regulatory Bodies', by Kath Woodward, Palgrave Macmillan
• 'Dishonored Games: Corruption, Money and Greed at the Olympics', by Viv Simpson and Andrew Jennings, SPI Books (US)

About the author

Kath Woodward is Profesor of Sociology at the Open University, focusing on gendered identities. She has recently completed research into anti-racist organisations in sport.

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The Bottom Line

Evan Davis gets to the heart of the big finance stories at The Bottom Line.

Prices for many everyday goods such as clothing and groceries have dropped radically, in real terms, over the past 20 years. Globalisation and more open trade have led to efficient commodity and product sourcing. The effect of this has been multiplied by improved logistics and comparatively cheap fuel for moving ships and goods around the world and within countries.

The proportion of unskilled jobs has dropped in Europe and the number of 'knowledge workers' with higher salaries has increased. New hotels and flights to foreign destinations have opened up to supply the demand as people find themselves having to pay less for the basic necessities and more for leisure. But what was once a satisfying situation of supply and demand for businesses has now become a problem of over-supply and falling consumer discretionary spending.

In this world of over-supply and rising unemployment, it is not surprising that prices should drop. The theory of price elasticity teaches that by lowering your price you will make more sales. However there is a limit to what the market can absorb. The idea of competitive advantage contains within it the idea that any price advantage one business holds over another will eventually be whittled down to zero by competition and some businesses will then cannibalise their capital base to stay in business. Customers realise that many retailers, airlines and hotel companies have their backs to the wall and they want the feeling that they are getting a fair deal.

Until the middle of the 19th century in France and the advent of the department store, as described by Zola in his novel Au Bonheur des Dames, prices weren’t displayed. The norm was to bargain for everything you bought, as in the markets of many developing countries today. In the UK, it was the Quakers who introduced the idea of the fixed price as part of their rule to ensure honesty and fairness in business dealings.

"there has always been a consumer segment that needs a hefty 'deal' before it makes a purchase"

Consumers in Western Europe and in the United States, by challenging the 'normal price' are reverting to type and doing what most other parts of the world have always done. David Roche, the President of Hotels.com said on the programme that there has always been a consumer segment that needs a hefty 'deal' before it makes a purchase. That percentage used to be 20 per cent and it is now above 50 per cent.

So, how should businesses react to this situation, in which there is no such a thing as “the normal price” but more than half the market wants an obvious fair deal?

In some areas of purchase, prices remain fairly constant. Nobody would accept to pay £5 for a box of 100 teabags one day, and £15 for the same teabags the next day, or even £15 one day and £5 the next. They would feel that they were being diddled. Yet we accept the fact that if we buy an economy class airline ticket for Spain four months before a trip we will probably pay £50 and if we wait right up until the last minute we will pay £250 or more. The way in which airlines and hotel companies have introduced revenue management and yield management has accustomed customers to the fact that prices will vary according to the time of year they make the purchase or the date of their holiday.

But other industries cannot use yield management. They have to lower their prices but avoid the perception that they are 'conning' their clients.

Expensive restaurants will do everything to maintain the usual price in a downturn, but the restaurateur will probably offer you a free bottle of wine to go with your meal. If he maintains his prices and doesn’t throw in an obvious gesture of good will, you will feel that he is not giving you a fair deal in a time of recession. This does not apply to places where there is a lot of pass-through traffic and no attempt to keep your loyalty. On a recent trip to Budapest, I saw that many restaurants in the tourist areas were displaying price cuts of 30-40 per cent in their windows.

With regard to the luxury goods industry, even in a downturn everything is done to maintain the price, the perceived integrity of the vendor and the value of the brand. If one customer remembers proudly paying £15,000 for a watch two years ago and meets a friend who paid only £5,000 for the same watch last week, he will feel cheated and vent his wrath on the seller of the item or on his own foolishness, never to visit that shop again. The well-known luxury goods providers will do anything to avoid a drop in price and accept a decrease in sales for quite a long period in the effort to maintain their reputation and the promise of their brand.

Find out more

• Watch Evan Davis on market prices
• Watch Evan Davis on market power
• Sharpen your management skills with The Open University Business School

About the author

John Gaynard is a management consultant and associate lecturer with The Open University Business School. He is based in France and tutors on the Creativity, Innovation and Change course in Brussels. He also does some teaching on the Master's programme at the ESIEE School of Engineers in Paris.

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It’s easy to show that size impacts profitability but, in practice, managers frequently can only make decisions that affect size in the medium to long term. In the short term they are highly constrained by their existing set-up, always limited by demand in the market place.

A container lorry.
[image by 28481k, some rights reserved]

All businesses have two types of cost: fixed costs (that do not vary with output) and variable costs (that increase as output increases). To illustrate with a simple example, suppose you had a heavy goods driving licence and wanted to run a trucking service. You buy a truck for £100,000 and you can use it for five years. Before you drive a kilometre, you have a fixed cost of £20,000 a year to pay for the basic equipment. Items such as annual insurance and road tax raise the fixed costs to £25,000. Leaving aside your salary, every kilometre you drive costs (say) £1 in diesel, servicing, tyres and so on. So you have fixed costs of £25,000 and variable costs of £1 per kilometre. In the short term you have to work within those constraints.

The size of your business is critical. If you can sell transport at £6 per kilometre travelled, you need to sell at least 5,000 kilometres to break even:

Suppose the physical limitations are that you can drive a maximum of 75,000 kilometres a year. You can see that your profitability will vary according to the amount of work you do. Below 5,000 kilometres a year, you have no salary and are making a loss. Between 5,001 and 75,000 kilometres a year, every extra kilometre adds £5 to your earnings (£6 price less £1 variable cost) so your earnings rise uniformly to £350,000.

However, the moment you increase your activity beyond 75,000 kilometres, you have to acquire a second truck and hire a driver, so profits would then decrease as size increases. You’re either too big or not big enough at that level of activity.

There is also the issue of whether there is enough business available so that you can expand without limit. Often this is not the case and, as you look to boost business, you have to reduce prices. In an ideal world you would maintain your basic price of £6 for some business and offer special deals to gain extra business. As long as you were getting more than £1 and you were already covering fixed costs, you should increase earnings. However, it is difficult to reduce price in a limited way and you may find that existing business moves down from £6 to perhaps £4, so your increase in size reduces the value of your sales while increasing your variable costs – you’ve got too big.

The effects of size can be both beneficial and damaging.

Size matters at the individual business unit level but it also matters in the multi-unit business. The effects of size can be both beneficial and damaging. On the positive side, a multi-unit business can spread its risks better. A costly, failed business initiative can wipe out a single unit business instantly, whereas a multi-unit business can more easily bear the risk of expansion. Also, a multi-unit business can afford to have in-house specialists who bring extra expertise to aspects of management of the business.

On the negative side, key decisions are usually made remotely from the business unit. Normally the group operates with business budgets that must be agreed the year before and then adhered to. This can build in inflexibility because there is usually resistance to departing from the budget to take advantage of an opportunity that presents itself. Equally, central management will be concerned at managing risk across the group, and may turn down an expansion possibility in one unit because it prefers to take a risk in another. The group will probably establish standard procedures that sometimes do not make sense at unit level.

The bigger a group is, the more remote central decision-makers are from front line businesses and so the more controls the group needs in place to monitor what is happening at the unit level. These added layers add costs and not profits, they cause delays in seizing opportunities and often end up making front line staff feel frustrated and unappreciated. Big can be stifling.

Find out more

Get to grips with the big business questions: visit The Open University Business School

Watch Evan Davis discuss the right size for companies

About the author

Professor Peter Walton is a member of the Accounting & Finance Unit at the Open University Business School. His research interests are in comparative international accounting and financial reporting in an international context.

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