In this two-part feature film about the economics of the Olympic Games, Global Finance delves into the financial strategies and innovations that brought about the 2024 Games in Paris.which runs from July 26 to August 11, implement to avoid the pitfalls of previous host cities. Part one examines the historical context of the Olympic costs and the steps the Paris Games Organizing Committee is taking to ensure fiscal responsibility. Part two examines the revenue generation and economic legacy of the Games, providing a detailed overview of how the 2024 Summer Olympics could set a new standard for future host cities.
The income from the Olympic Games is mainly generated by two main players: the local organizing committee, this time Paris 2024, and the IOC. Each also has clearly defined responsibilities.
For the most recent Summer Games in Tokyo, the IOC received a total of $7.6 billion between 2017 and 2020/2021 (planned for 2020, these games were postponed for a year due to the Covid pandemic). Media broadcast rights accounted for 61% of revenue and the corporate sponsorship program The Olympic Partner (TOP) for 30%.
Broadcast fees have more than quadrupled since the 1990s, to $4.5 billion for Tokyo. TOP revenues rose from less than $300 million to $2.3 billion over the same period.
The TOP program was launched in the 1980s with five partners and was gradually expanded to the current fifteen. The number of sponsors reflects changes in recent economic history. The original group included Kodak and Xerox. Current members include Atos, Airbnb, Alibaba and Intel. It also reflects the growing interest in the games. “We put a lot of effort into securing sponsors in the beginning,” said Chris Renner, Global Head of Consulting at rEvolution, a Chicago-based sports marketing agency and founder of TOP. Now the four-year contacts have been replaced by eight-year contacts.
The main sources of revenue for local committees, such as the Paris 2024 Games, are domestic sponsorship, ticket sales, host country licensing, hospitality and merchandising. As IOC revenues rise, local organizers also get more of that pot. Paris will receive $1.7 billion for this edition, while the 2028 Los Angeles Games and the 2032 Brisbane Games have been allocated $1.8 billion each. Christophe Dubi, IOC director of the Olympic Games, said: “We deserve more, everyone deserves more.”
Each of the 206 National Olympic Committees (NOCs) around the world and the dozens of International Federations (IF) for specific sports also generate their own revenue. The best known of the latter are probably FIFA for football and FIBA for basketball, but the list also includes the World Archery Federation, the World Badminton Federation and more.
The IOC spends 10% of its revenue on internal operations and distributes the rest through what it calls a solidarity program among local organizing committees, the NOCs, IFs and other relevant sports promotion initiatives. This revenue sharing system is considered essential for the survival of some modalities. “This is very important for smaller sports such as rowing, archery and fencing,” says Renner. “I don’t know if they could have gotten themselves through Covid without the solidarity program.”
The local committee is expected to handle venue operations, staffing, technology and games services. Local government officials control security and other essential public services. Capital expenditures, often but not always in the form of public-private partnerships, can include sports venues, improved or expanded public transportation networks, housing (such as the Olympic Village), and more. Budget-busting cost overruns typically fall into the capital expenditure category. “The operating budget usually produces a small profit,” says Renner.
Whether they formally make a profit or not, proponents argue that the games still leave a positive economic legacy. An independent study touted by the IOC concluded that the Paris Games will generate between $7.3 billion and $12.1 billion for the city and the surrounding Île de France region between 2018 and 2034. The major profits come from tourism, construction and the organization of the games, according to the report published by the Center for freedom and economics of sport (CDES) from the University of Limoges. The $3.3 billion in government spending will generate a multiplier effect of three, the study said.
Not everyone agrees with this, of course. In Paris, already one of the top tourist destinations in the world, there is a lot of talk about sports tourists crowding out others who would normally visit. Local press reports have highlighted sectors such as luxury retailers who are concerned that they will sell fewer handbags than normal. The emblematic bouquinistes, the second-hand booksellers that line the banks of the Seine, have successfully fought off attempts by local officials to remove their stalls to make more room for the opening ceremony along the river. Taxi drivers complain about traffic restrictions.
“A common feature of the economics of large-scale sporting events is that our expectations of them are more optimistic than what we make of them once they have taken place,” wrote Ivan Savin, associate professor of quantitative analysis at the ICTA-UAB ESCP. Business School in Spain and co-author of an article he outlined on The Conversation, a website that encourages the dissemination of scientific studies to the general public. Savin and two colleagues conducted an econometric study between 1995 and 2019 on the effects of major sporting events on tourism. “Typically, expenses tend to exceed the initial budget, while indicators on the revenue side (such as the number of visitors) are rarely achieved.”
Dubi accepts the concept of crowding out, but argues that the phenomenon has already been included in studies showing broader benefits. He also emphasized that the IOC is open to outside scrutiny, saying it “forces everyone to ask the right questions.”
Ultimately, the financial side is only part of the process, everyone agrees. As for the local committee breaking even or making a profit, “I think it’s a good result,” says Anaïs Guillemané Mootoosamy, director general of strategy at Conran Design Group, a London-based brand and design consultancy that works to the 2024 strategy. Paris Games. “But the Olympic Games are not intended to be an ATM. It is pushing the values.”
– Read part 1 of Paris 2024 Games: Can the Olympics finally claim a financial victory?
