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5 August 2016

Russian sports economics

One of the most inflated bubbles in contemporary Russia 

The 31st Summer Olympic Games open in Rio de Janeiro today. The Russian national team, making an appearance by somewhat of a miracle, is to be represented by a little over 200 athletes. 436 Russian athletes took part in the last Olympic Games in London. The hordes of sports officials who usually accompany the team have thinned out, too. The doping scandal, which has continued unabated for the last few months, has lowered the profile of Russians to a much lower level than before, hence, the the results of competitions will be more interesting. However, today, I would like to consider that which has compelled and continues to compel Russian leaders to take an interest in elite sport – I do not refer here to the oft-cited explanation which concerns “national pride” but a rather more serious matter – money.

In Putin’s Russia, sport has become big business for some, and a huge burden for the state. 832 million rubles was allocated from the federal budget in 2000 whereas, in 2015, as much as 36.9 billion was earmarked for the same purpose. Obviously, this sum does not include contributions from “socially responsible” corporations or one-time “cash injections” for the construction of sports facilities such as Sochi tracks, hotels and stadiums built for the upcoming FIFA World Cup. Of course, it goes without saying that the scale of bribes pocketed by IOC officials in connection with the award of the right to organize the Winter Olympic Games in subtropical Sochi and FIFA officials – in connection with the award of holding the FIFA World Cup – would have been astronomical.

Let us assess the most obvious and compelling moments, since they alone will suffice to evidence that sports economics in contemporary Russia is the largest of all “bubbles”, wholly reflective of the chasm which exists between appearance and reality.

As has been well documented, the Sochi Olympic Games turned out to be the most expensive in history, with $47 billion having been spent (to compare: the 2006 Torino Winter Olympics cost $700 million and the 2010 Vancouver Olympics - $1.7 billion). At the same time, the authorities went to great lengths to try to convince everyone that a significant portion of the expenditure – approximately $14 billion – came from commercial sponsors. However, it later transpired that at least two thirds of this capital was borrowed from state-owned banks. Large construction companies: research-and-industrial company “Mostovik”, “Tonneldorstroy”, “Inzhtrasstroy” and a number of others went bankrupt and the “hole” in Vnesheconombank’s (VEB) finances was calculated at 600 billion rubles. Needless to say, no one was held accountable and the euphoria prompted by the first place finish “achieved” by the team during the Olympics will soon fade away as athletes caught doping are stripped of their medals. Based on the “adjusted” number of Russian gold medals won in Sochi – 10 – and making no further adjustments with respect to the five medals won by Viktor Ahn and Vic Wild who became Russians in the run up to the Olympics, each gold medal won cost Russia $4.7 billion (in the 2010 Winter Olympics in Canada, the cost was a mere $121 million).

Let us shift our attention to the most popular sport – football. I will not even mention the preparation for the upcoming FIFA World Cup here nor that construction works carried out as part of this preparation at the “Zenith” stadium in St Petersburg were suspended last week. The stadium stands every chance of becoming the world’s most expensive sports facility: the estimated cost as of today stands at 43 billion rubles, or $1.1 billion at the exchange rate on the day when the money was allocated. Turning to the achievements of Russian footballers, the national team scored two goals during this summer’s UEFA European Championship, failing to make it out of the group stage. The official annual income of the players (based on the 11 that were selected to start against Slovakia) totaled 1.78 billion rubles ($27.4 million). The cumulative annual salary of the Welsh national team, who scored 9 goals during the championship (3 of which found the back of Russia’s net) on their way to the semi-finals, was ₤12.9 million ($18.7 million). It turns out that according to Russian estimates, the cost per goal was $13.7 million whereas Wales’ goals were far better value for money at $2.1 million. Moreover, Fabio Capello, who was coach of the Russian national team for most of the season preceding the championship, earned $12 million a year – 2.5 times more than any other coach who directly participated in this tournament (let me note that the contract of Fernando Santos – the coach of the champions – Portugal – is estimated to be worth $1.4 million per annum). Similar excessive salaries can be observed in the case of national championships, too.

Motivation of sportsmen is also supported by all available means. Speaking of Olympians, medal winners in Rio are reportedly in line to receive 4 million rubles ($60 thousand) each although this amount may increase in the light of the drama surrounding these games (to compare: the reward in the USA amounts to $25 thousand, $20 thousand in Germany and no such reward system exists at all in the UK). In addition, medalists are offered cars as well as apartments or houses in some regions. Anyway, all of this amounts to peanuts when compared to the way sports officials live in Russia and to the money spent by the Olympic Committee (its budget is not disclosed at all) as well as the richest federations, the majority of which (accidentally, of course, just by coincidence) are headed by the wealthiest and most successful businessmen in the country). Actually, it is precisely comprehensive state and “private” support which keeps Russian sport afloat.

Its uniqueness lies in the fact that – despite constant attention from “the Party and government” – Russian sport has not become a business yet. Comparing the commercial revenues of the hockey clubs Washington Capitals and HC Central Sports Club of the Army (CSKA), that of the former exceeds the income of the latter 8.5-fold. Moreover, the average price of a ticket for a game in Washington is $55 whereas fans only have to stump up 360 rubles ($5.4) on average to see a CSKA home game. Across the country, track-and-field meets attract meager audiences and revenues from ticket sales and broadcasting rights for Continental Hockey League (KHL) matches do not exceed 15% of annual budgets. This revenue does not fall below 70% in the National Hockey League (NHL) in which 15 or 16 clubs are self-sustained.

From an economic point of view, Russian sport is a perfect money-losing enterprise whereas the state projected image, according to which it is a successful and profit generating business sector, constitutes one of the most inflated bubbles of our time. Strictly speaking, herein lies the key to the practice of doping which has emerged in Russia over recent years. It is safe to assume that the Russian leadership was already aware by the early 2010s that investment in sport does not bring about expected results – a trend the “domestic” Olympics in Sochi was going to break. Hence, the order was given to achieve this result at any cost: both through the recruitment of foreigners and through a “doping program” overseen by the Federal Security Service (FSB). The first results of the new policy were visible in London in 2012 as Russia successfully managed to reverse the steady decline in its number of medals won which had continued since 2000. Sochi was seen as an absolute triumph – the team won four times as many “golds” as their predecessors had won in Vancouver before them. “Unsportsmanlike” methods apparently became the norm soon after. Just as the siloviki muscled out business, reducing its ability to influence the government in politics in Russia, medical doping replaced the financial doping in sport.

The scandal which almost led to the Russian team’s outright ban from the Olympic Games might bring the Kremlin to its senses as regards adherence to sports rules and the Olympic Charter. However, this is only going to lead to a situation in which “investments” in sport in Russia will reach an unprecedented level in the coming years with backers investing on the basis that “dough will triumph over evil”. Whether it will work in the country of grandstanding and fraud remains to be seen….

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