Economics of the Olympics
There’s been a lot of press out there about how the current Winter Olympic Games is the most expensive in history. But what does this mean exactly? And if the cost to host the Olympics continues to rise to such epic proportions, why do countries keep bidding against one another for the privilege?
Who Pays?
Credit: Glow Images; The Olympic Games have changed a great deal since the 1896 Games of Athens reintroduced them to the world.
The short answer to who pays? is . . . the International Olympic Committee (IOC) and the host country. The IOC is a nonprofit organization whose purpose is to organize both the summer and winter games. The IOC makes its money in four ways:
- Broadcasting Rights (47 %) – Networks all over the world bid against one another for the exclusive rights to air events. In turn, the networks get money from companies who pay to advertise during the Games.
- Sponsorship (45%) – Corporate sponsorship of the Olympic games is different from advertising on the network. Companies like Visa and Coca-Cola pay for things like training and travel as well as equipment in exchange for the association with that athlete or sport.
- Ticketing (5%) – This is the revenue from ticket sales of the events themselves, which can vary based on the location of the host country.
- Licensing (3%) – Vendors who sell merchandise with the Olympic logo (apparel, and souvenirs, for instance), must purchase a license with the IOC.
The money spent by the host country varies. Some already have facilities like arenas and hotels that only require updating while others must build new ones. Some host countries spend money on improvements to roads and updating public services. Other countries may need to invest in creating major infrastructures from scratch. Most of the Olympic games have been hosted by “economically advanced” countries like England, France, Japan and the United States. Among the exceptions are Mexico (Mexico City, ’68); Yugoslavia (Sarajevo, ’84) and South Korea (Seoul, ’88). But there is a growing trend of “emerging countries” like China, Russia and Brazil who hope that an opportunity on the “world stage” will translate into long-term economic returns.
Is it Worth it?
The $12 billion budget for the 2014 Games in Sochi was wildly exceeded when the actual cost has been estimated at around $51 billion. While the Russian government has been accused of corruption and ineffectual spending, the truth is that the expectations on what it means to host the Olympics has changed over the years.
For example, the 1948 games in London cost the equivalent of $30 million in today’s dollars. When the returned in 2012, the cost was $15 billion. Many host cities make plans to repurpose resources (turning athlete quarters into affordable housing, or moving sports teams into facilities), but the truth is that many of them remain idle or unmaintained. On the other hand, other cities have benefited greatly from the exposure of the games. Atlanta, Georgia (’96) attracted 280 international businesses to relocate to the city due to improvements made to the city’s infrastructure. Sochi is a sea-side resort town hoping to gain more tourists in years to come.
Even though the costs and returns are rarely equal, many countries continue to fiercely compete for the privilege to host. Tokyo most recently won a bid for the 2020 games (after previous losing for 2016). Istanbul has suffered five rejections.