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Heavy losses in World Athletics 2018 accounts but little light shed on Dentsu renegotiation

Olympic pole vault champion Katerina Stefanidi will sit on the working group for World Athletics' relief fund (Photo by Michael Steele/Getty Images)

A leaked copy of World Athletics’ 2018 financial accounts has shed more light on the constrained financial picture for the federation and referenced its attempts to renegotiate some of the controversial commercial contracts agreed by its former president Lamine Diack.

The accounts, seen by The Sports Examiner, shows the organisation, formerly called the IAAF, made a loss of $19.33m (£15.36m /€17.77m) in 2018, having generated $47.51m in revenues against operating expenses of $66.84m. SportBusiness has not seen the statements but the governing body has confirmed the publication’s reporting of the figures to be accurate.

The loss will have been worrying for the organisation, even though, like most Olympic federations, it operates on a four-year break-even cycle.

A global federation would expect to balance the books in major event years but the organisation is also reported to have incurred a $20.3m loss in 2017, the year the World Athletics Championships were held in London.

SportBusiness understands the federation has historically aimed to never to exceed a $10m loss in any financial year, the equivalent of the amount it receives each year in funding from the International Olympic Committee ($40m every quadrennial).

World Athletics also looks set to have to wait 12 months to receive its share of Olympic monies from the IOC. The sum is usually paid shortly after a summer Olympic Games but, like other summer international federations, it faces a payment deferral because of the postponement of the Tokyo 2020 Olympics.

The financial statements indicate the 2018 loss left the federation with total assets of $59.52m and reserves of $45.25m as of 31 December, 2018. This was a significant decrease from 2017 when it declared $77.79m in assets and $64.8m in reserves.

The commercial picture becomes even more troubling given there are few avenues open for the organisation to exploit its rights more profitably.

The global media and marketing rights to the organisation’s World Athletics Series, a group of events that includes its most lucrative event, the World Athletics Championships, are tied into a controversial 10-year global media and marketing rights partnership with Japanese marketing agency Dentsu from 2020-29.

As reported by SportBusiness last August, the organisation has already had to renegotiate parts of the long-term deal, agreed unilaterally by former president Lamine Diack shortly before he left the organisation in 2014.

The original contract was understood to be the reason Olivier Gers resigned as chief executive in March 2018, just 18 months after joining the organisation, complaining of its ‘pre-existing commercial framework’, and is referenced in Diack’s ongoing trial for corruption in Paris.

Read this: IAAF tries to draw a line under Diack legacy

The Sports Examiner report sheds little light on the renegotiation but it appears the organisation has secured few major improvements in the terms of the deal.

The statement indicates the new agreement calls for Dentsu to pay a minimum guarantee of $130m over the ten-year period. But this appears to be the same as the figure promised by Dentsu for the World Athletics’ global media and marketing rights – excluding Japan and Europe – in the original 10-year agreement seen by SportBusiness.

The accounts said: “During the year, an amendment was made to the agreement for the period of 2020-2029 was signed. The new agreement calls for a minimum guarantee over the 10-year period of US$130m.”

The organisation told SportBusiness last year that it had also made changes to the way Dentsu accounted for costs in the contract, the level of collaboration between the agency and the rights-holder, and amendments to a controversial profit share mechanism – the source of some consternation among senior figures at the organisation.

In a written exchange with a French judge investigating the previous regime, the federation’s own lawyer Régis Bergonzi complained that the money accruing to the global federation was calculated “solely on the money actually received by Dentsu” and there was effectively nothing in the contract to prevent the agency from declaring whatever it wanted when calculating the profit share.

The Sports Examiner story reveals that World Athletics made a total of $11m from sponsorship in 2018 although it didn’t specify how Dentsu arrived at this figure. It also received an estimated $5.6 million in value-in-kind sponsorships, for which it paid commissions of $779,283 (13.9 per cent).

The organisation made a further $25.23m from its media rights during the same period.

SportBusiness understands this figure includes around $14m per year from its latest deal with the European Broadcasting Union, the consortium of European free-to-air broadcasters, and the ESPN Media Distribution agency for its media rights in Europe and sub-Saharan Africa.

The organisation would have derived a further $7m annually for its media rights in Japan at this stage owing to an agreement with broadcaster Tokyo Broadcast Systems from 2010-19 worth $70m overall. The remaining media revenues are thought to include around $350,000 a year from a deal with NBCUniversal covering its rights in the US market and a handful of smaller deals negotiated by Dentsu in other markets.

The incomplete picture provided by the leaked accounts could increase pressure on World Athletics to improve the transparency of its financial reporting.

However, World Athletics’ Audit and Finance Commission, chaired by former London 2012 Olympic Games chief executive Lord Deighton, recently commended the organisation for making the work of auditors Ernst & Young “much more straightforward” and noted “major improvements in the relationship with Dentsu.”

World Athletics statement

SportBusiness approached World Athletics for comment and replied with the following statement: “World Athletics, like many other Olympic sports, works on a four-year business planning cycle balancing expenditure with only committed revenues to reach a ‘break even’ situation at the end of the four year period as our role as an International Federation is to distribute the grants, funds, sponsorship and broadcast revenues back into the running and development of the sport, which we do.

“Our revenue is reported in the year it is received with some years receiving greater revenues than others due to the events we host and when we receive grant and commercial revenues.

“We have a lot of rigour in our expenditure processes which we even out over the four-year cycle.

“Managing our expenditure in a transparent and robust way was a core pillar in the reforms we introduced a couple of years ago which is why our congresses are open to the media who are able to listen to and report on all discussions that take place, including the reports from the commissions, such as the audit and finance commission as well as the treasurers report.

“Through Dentsu we have recently secured 10-year renewals with ASICS, Seiko and TDK, a 5-year renewal with Mondo all on improved commercial terms of at least a 10 per-cent increase and extended a number of key broadcast partnerships which is a strong position for the sport.

“This, coupled with the programme of reforms carried out across the sport has renewed confidence of the sports market and brands in World Athletics’ new direction which is further demonstrated by the signing last year of the biggest commercial partnership in the history of World Athletics, a 10-year title sponsorship deal with Wanda Group for the Diamond League as well as a 5-year media rights deal to sell the television rights of the Wanda Diamond League.

“We are managing our expenditure even more rigorously in the current climate by offsetting costs into next year where we can, furloughing staff which we have done (60 per-cent of staff have been furloughed) and focussing on new revenue as well as looking at ways to make our money work harder for us through new partnerships and match funding.

“The recently announced partnership with Pinsent Masons and last year’s Wanda Group partnership are just two examples.

“These strong long-term partnerships give us the financial stability to weather the economic storm caused by the pandemic, and the subsequent suspension of global sport, and, together with our robust management of our costs, we are confident we will emerged in better financial shape than many other sports organisations.

“We will be publishing our 2019 accounts this summer under the International Financial Reporting Standards (IFRS) rules.

“These rules have required us to review and align all our accounting methods and processes to the standards for both 2019 and the previous year.

“This large piece of work has now been completed together with our auditors and we will be able to show more clearly when and how revenues come into the organisation and how we assign them over the four year cycle.”