its bid to $401 million; its rivals had increased theirs by a token few million. Conditional
on its winning the bidding (and given its competitors’ much more pessimistic assessments),
NBC should have realized that its estimate and bid were grossly overoptimistic.^20
Finally, how have the organizers done in marshalling the bidding competition to
their advantage? Very well, it would appear. They have used multiple bidding rounds to
encourage higher bids. (Recall that the English auction is superior to the sealed-bid auc-
tions if common-value elements are important.) The organizers also repeatedly have set
minimum reserve prices to elevate bids. This was particularly effective in bidding for the
1994 Lillehammer games. CBS paid the $300 million reserve that the other networks
refused to meet; thus, CBS was forced to pay a higher price than would have been forth-
coming in an open ascending auction without a reserve. For the Seoul games, organizers
experimented with a revenue-sharing arrangement: NBC paid $300 million plus two-
thirds of any advertising revenue earned in excess of $600 million. As noted earlier, when
bidders are risk averse, revenue sharing serves to elevate values and bids by spreading risk
across the contracting parties. (Inexplicably, organizers rejected the networks’ revenue-
sharing bids for the Barcelona games, insisting on fixed prices.) In sum, Olympics organ-
izers have adeptly crafted the bidding institutions to increase their revenue.
In 1995, NBC added a new wrinkle to the network competition. A month before the
bidding was to begin, it delivered a secret preemptive offer for the 2000 summer games
in Sydney and the 2002 winter games in Salt Lake City. The prices were 54 percent and
48 percent greater than the previous summer and winter record bids but came with the
proviso that the offers would be immediately withdrawn if the Olympic Committee
approached other bidders. Believing that the price was more than it could expect at auc-
tion (something we will now never know), the Olympic Committee accepted NBC’s terms.
Industry observers at the time judged that NBC was paying close to full value. (As noted
earlier, NBC profited in both Olympics, mainly due to unexpectedly strong revenues.)
Later in 1995, NBC took an even greater risk. It made a second preemptive bid for the
2004, 2006, and 2008 games at still higher prices even before the sites had been deter-
mined. In addition, the network agreed to revenue sharing once advertising revenues
reached a sufficient threshold. With the final returns in, NBC managed to earn a small
combined profit (in the neighborhood of $70 million to $80 million) on the three games.
(Whether it would have paid a lower or higher price at auction will never be known.)
In June 2003, the Olympic Committee returned to competitive bidding offering broad-
cast rights (plus Internet, video-on-demand, and pay-per-view rights) for the 2010 and 2012
games with the sites still to be determined. This time the winner would be determined by
sealed bids. Before the final bidding, CBS and AOL Time Warner dropped out of the com-
petition. Again NBC was the winner, beating ABC and Fox and paying some $2 billion in
total for the two games. In 2011, NBC (now owned by Comcast) submitted the winning
sealed bid of $2 billion for the television rights to the 2014 and 2016 games in Russia and
Brazil, beating the $1.5 billion and $1.4 billion bids by Fox Sports and ESPN, respectively.696 Chapter 16 Auctions and Competitive Bidding(^20) After making the winning bid for the 1996 games, Dick Ebersol, the president of NBC Sports,
guaranteed a profit on the deal, saying his past predictions were 100 percent correct. He neglected
to say that he had “passed” on making a prediction for the Barcelona games.
c16AuctionsandCompetitiveBidding.qxd 9/26/11 1:09 PM Page 696