The Corporate Giant Lurking Behind the Winter Olympics

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SEOUL—In late 2009, South Korea’s president pardoned Samsung Chairman Lee Kun-hee from financial wrongdoing convictions and gave him a mission: Get the 2018 Winter Olympics.

South Korea had failed twice before. In a newspaper column, the chairman of Korea’s Olympic Committee said Mr. Lee would provide the “reinforcements of a thousand soldiers and ten thousand horses.”

Mr. Lee spent much of the next 18 months traveling the world, assuring International Olympic Committee voters South Korea could handle the event. It was a compelling pitch, in some cases facilitated by Samsung foreign offices, coming from the head of the country’s biggest business empire. Samsung was also a top-tier Olympics sponsor, paying more than $500 million to support the Games over the years. In July 2011 his work paid off: Pyeongchang’s bid won.

Now the Olympics are here, and Samsung’s name is everywhere. A special company pavilion will showcase the company’s virtual reality-headsets and other gadgets. Athletes will get special-edition Galaxy Note 8 devices.

Even Lee Jae-yong, Mr. Lee’s son and now Samsung’s de facto head, is free to attend after an appeals court unexpectedly released him from prison Monday after a bribery conviction last year.

Never before have an Olympics, a host country and a major company been so closely intertwined. South Korea got the Olympics it wanted, and Samsung stands to reap dividends from its heavy involvement in the Games.

“To put it very simply, it is very uncommon” to see a company—let alone a sponsor—get involved in an Olympic bid, said Michael Payne, a former IOC marketing director, who said he worries sponsor involvement could unduly influence IOC voters. “Samsung was very active making friends.”

So extraordinary is the overlap between Samsung, South Korea and the Pyeongchang Games it is unlikely to be repeated, say IOC members and Olympics experts. Mr. Lee’s lobbying and Samsung’s close involvement are now considered inappropriate by some Olympics experts and voters.

The IOC’s code of ethics, created in 1999, instructs sponsors to “refrain from supporting or promoting” bids.

Olympics organizers want their biggest financial backers to remain neutral, rooting for all nations, instead of using marketing dollars as a backdoor way to secure the Games for a favored location. Sponsors typically oblige because they fear business blowback from countries that field rival bids, or the brand damage from championing a losing effort.

In South Korea, the government has long leaned on its biggest conglomerates, or “chaebols,” to support state goals, including helping with sporting events like the 1988 Summer Olympics and 2002 World Cup.

With an empire spanning smartphones, theme parks and biopharmaceuticals, Samsung is by far the most important company in the country, accounting along with its affiliates for nearly one-third of South Korea’s stock-market value.
South Korea’s approach to winning the 2018 Games was particularly unusual because Mr. Lee was an IOC delegate himself, which effectively shielded him from rules forcing sponsors to the sidelines. Delegates to the IOC group that chooses host countries are allowed to lobby freely, without conflicts of interest, since they normally aren’t linked to sponsors, experts say.

Mr. Lee’s dual role as chairman of a major Olympics sponsor and an IOC member has never occurred before or since, say Olympics voters, historians and bid consultants.

“What Samsung did, and was able to do, I cannot see it happening again,” said Richard Peterkin, an IOC member from Saint Lucia since 2009 who now sits on the group’s marketing commission. Although he doesn’t think Samsung’s links to the bid constituted a clear breach of ethics, he said he doubts the IOC would accept a top-tier sponsor today whose company head served as an IOC member.

No one has accused Samsung of illegal behavior in pursuing the 2018 Games. The company declined to comment. Mr. Lee, 76, is incapacitated after a 2014 heart attack, and a company spokesman said he is unable to comment.

The IOC said Mr. Lee didn’t overstep his role as an IOC member and that the rules make it clear that Samsung, like other major sponsors, should remain impartial. “He had no reason to be reprieved because he was the boss of Samsung,” said Pâquerette Girard Zappelli, the IOC’s chief ethics and compliance officer, who noted that Mr. Lee didn’t vote on the host city decision for 2018 because members from candidate locations must abstain.

After Salt Lake City officials were suspected of making payments to IOC members to help win the 2002 Winter Olympics, the IOC created new rules aimed at removing any hint of influence-peddling. Among other things, they prohibited host nations’ bid committees from going on private roadshows to pitch their cities.

Rules to prevent sponsors from swaying voters remained vaguer, with punishments limited to private warnings such as letters of reprimand, experts say.

“What are they going to do? We’ll throw you out of the [top-tier] sponsors, and here’s all your money back? Not going to happen,” said John MacAloon, an Olympics historian who served on the IOC 2000 Reform Commission created after the Salt Lake City scandal.

Coca-Cola Co. stayed out of the bidding process when its home city, Atlanta, was trying to win the 1996 Summer Olympics, say former executives and people involved with the city’s pitch.

The company feared getting involved could hurt its business in countries fielding competing bids, they said. It mobilized after Atlanta won, building the Coca-Cola Olympic City and assisting with a downtown makeover.

Those who heard Mr. Lee’s Pyeongchang pitch, often accompanied by his son-in-law, a high-ranking executive at a Samsung affiliate who translated for him, say they separated his IOC role from his job leading a major Olympics sponsor.

Gerhard Heiberg, an IOC member from Norway, met with Mr. Lee and his family in October 2010 for a beef dinner in Acapulco, Mexico, where a conference for national Olympic committees was held. Mr. Lee opened up about his health ailments, including a bout with cancer, and said landing the 2018 Games would be one of his life’s biggest achievements.

“It’s now or never,” Mr. Heiberg recalls Mr. Lee telling him.

Mr. Heiberg, who oversaw the IOC’s global marketing commission from 2001 to 2013, said he doesn’t support corporate sponsors having representation among IOC ranks. “I think this was an exception with Samsung and Chairman Lee,” Mr. Heiberg said.

A blunt-talking man of few words, Mr. Lee had a fascination with the Olympics before becoming an IOC member in 1996.
Anita DeFrantz, a former U.S. rower, recalls how the day after she was elected to the IOC in 1986, an exotic bouquet of flowers arrived at her Switzerland hotel room. The congratulatory note was signed: “Compliments from Lee Kun-hee.” She had never met him before, Ms. DeFrantz said.

After becoming Samsung chairman in 1987, Mr. Lee set about trying to make Samsung a global brand like Coke or McDonald’s Corp. , instead of a maker of cheap electronics as it was known at the time. He saw linking up with the Olympics as a way to advance its brand renaissance and pushed the company to ink a top-tier sponsorship deal in 1997.

“He had conviction, and there wasn’t much debate,” said Eric B. Kim, Samsung’s chief global marketing officer from 1999 to 2004, who spearheaded the early Olympics strategy.

Samsung, the world’s largest smartphone maker, now boasts the world’s sixth-most-valuable brand, according to Interbrand, up from No. 43 in 2000.

South Korea’s Olympics fortunes weren’t as fruitful. Pyeongchang failed in bids for the 2010 and 2014 Winter Olympics.

In August 2009, Mr. Lee was sentenced to three years in prison and five years of probation for breach of trust and tax evasion, just as the nation began mounting its third attempt for the Olympics.

Local business and sports leaders begged for his release. Mr. Lee’s involvement was “desperately needed,” said Korean Air chairman Cho Yang-ho, who headed the Pyeongchang bid committee, at a news conference.

The pardon—described by Korean media as the “Christmas Special Pardoning” since it occurred on Dec. 29—marked the first time an individual had received such judicial leniency, and it drew criticism.
“You cannot trade the corporate wrongdoings you have done for helping the country win the Olympics. They are separate things,” said Kim Woo-chan, a Korea University professor who has argued for greater openness by the country’s chaebols.

Over the next 18 months, Mr. Lee spent 170 days on 11 separate trips marketing Pyeongchang to IOC voters, according to South Korean media. Samsung doesn’t dispute the tally, said a company spokeswoman.

Mr. Lee paid for excursions himself, according to a person familiar with the Pyeongchang bid.

He ended up connecting, over meals or coffee, with about half the roughly 100 IOC members at the time, the person said. At the IOC’s 2010 annual meeting in Vancouver, Mr. Lee chatted with Sir Craig Reedie of Great Britain, an IOC member, during a coffee break.

“Trust us to do it,” Sir Craig recalls Mr. Lee telling him during a brief exchange.

Some meetings during a trip to Switzerland, Italy and elsewhere were arranged with the help of Europe-based Samsung staff and conducted at the company’s local offices, according to people familiar with the matter.

A Samsung advertising affiliate was chosen by the Pyeongchang bid group, over South Korean rivals, to work on the pitch presentation. A Samsung mega-tablet with a map of Pyeongchang was set up at the “Korea House” venue at the Vancouver 2010 Games, said Stratos Safioleas, a Greek bid consultant who helped Pyeongchang on its final two bids.

“Samsung played an enormous role, but this never felt awkward or strange or wrong,” he said.
Ser Miang Ng, an IOC member from Singapore since 1998, met with Mr. Lee three times ahead of the 2011 vote in Durban, South Africa.

“His role as chairman of Samsung—we are aware of it,” Mr. Ng said. “But when he was supporting the bid of Pyeongchang, he was supporting it as an IOC member, as a colleague, as a friend.”

Others believe the timing was right for Pyeongchang, after two failed attempts, and that Mr. Lee’s outreach to IOC members played a secondary role in defeating the other finalists, Munich and Annecy, France.

Annecy had leadership turnover and the IOC disliked its initial vision, according to people familiar with the 2018 bid race. The Germans had weaker local enthusiasm and IOC voters were excited to expand the Winter Games outside of traditional host countries, those people say.

“Pyeongchang learned the lessons of their prior bids and they kept their promises,” said Charlie Battle, an Atlanta-based consultant who worked on the 2018 Pyeongchang bid. He disagrees that Samsung dramatically influenced the outcome.

When the 2018 Games winner was announced in Durban, Mr. Lee had a front-row view, two seats away from the South Korean president who pardoned him. After Pyeongchang won in a landslide, receiving two-thirds of the 95 cast votes, Mr. Lee teared up and clapped softly.

That day in Durban marked the apex for Mr. Lee’s 2018 Olympics journey. In September, at his family’s request, Mr. Lee didn’t stand for re-election, and the IOC made him one of the group’s 41 nonvoting “honorary” members.

At the Pyeongchang Games, Samsung has built nine “Olympics Showcase” pavilions stuffed with the company’s gadgetry. Virtual-reality headsets have snowboarding simulations. People can catch a “Smart Home” demo. One exhibit flaunts three decades of Samsung mobile phones.

The main venue is a two-story building about the size of a Best Buy store. It features a dedicated section telling the history of the Olympics—and Samsung’s involvement.