Does the value of the Olympics still justify the cost?

A country doesn’t host the Olympic Games to make a profit.

So why do they bother? South Korea held the Seoul Olympics in 1988 to show off its economic miracle. Beijing used 2008 to show the world its enormous economic advancement. At Sochi in 2014, Vladimir Putin wanted to restore Russia’s sporting superpower status with a nostalgic nod to the days of the USSR.

Like all global sport, the Olympics is now about politics and geo-politics. After all, Paris bid for the Olympics immediately after the 2015 terrorist attacks, winning the right after several unsuccessful attempts.

The reasoning went that hosting the Olympics in Paris was a good way to show the strength of the French Republic and its culture after a troubling time  — the 2008 financial crisis, terror attacks and the fragility of Europe post-Brexit.   It was also thought the Olympics could show the strength of France’s multicultural society.

But for all those noble reasons, nations don’t want to saddle citizens with debt.

Bad memories of debt

The Olympic movement has bad memories of Montreal’s 1976 games crippling the city’s finances. But it doesn’t want to emulate the overly corporate money-making Los Angeles games in 1984.

It wants a happy medium. As French President Emmanuel Macron said: “The Games should finance the Games.”

The official budget for the 2024 Olympic and Paralympic Games is estimated to be around $US9.7 billion, a 15 percent increase from the figure when the bid was announced in 2017.

This is primarily down to higher than expected inflation, which cannot be blamed on the Games.

Around half of the budget comes from the public purse, the rest from the private sector.

Half of the public contribution is to create infrastructure with President Macron committing 2 billion euros (US$2.1 billion) to housing, offices and sports facilities, helping 2,000 companies to date.

According to the International Olympic Committee (IOC), the Games are expected to create 181,000 jobs and generate around 5.3 billion euros (US$5.7 billion) in tax and social security revenues to cover the public contribution to the Games.

Growth follows the games

Market economists expect the Paris Games to temporarily support French GDP growth of 0.5 percent over the third quarter, before falling back to 0.1 percent after it ends.

According to official IOC estimates, the hosting of the Games should inject US$12.2bn into the French economy, compared to the estimated US$18.3bn for Los Angeles in 2028 and US$13.4bn for Brisbane 2032.

The IOC will contribute US$1.7bn to Paris which is likely to cover any loss similar to Tokyo 2020 which made a loss of US$800 million but not Rio 2016 which made a loss of US$13.1 billion.

So, it’s likely that if Paris made a small loss, the IOC would cover it although the signs of early ticket sales could even suggest a tiny profit.

The power of branding

Holding an Olympic Games can also be for city or country ‘branding’. Many places which host the event do it get put themselves ‘on the map’ freeing them from political isolation such as Seoul in 1988, and even Beijing 2008.

But everyone knows France, and Paris is never short of tourists. So, the country brand reasons are more about ‘restoring’ brand reputation rather than putting a place on the map.

Paris doesn’t need the Olympics to attract tourists.

The French capital regularly receives more than 50 million visitors a year and the Games will boost this by an expected  2-3 million extra visitors (based on ticket sales).

The IOC predicts a median estimated impact of the Games on the French economy between 2017 and 2034 of US$3.3 billion.

In London 2012, Olympic tourists spent twice as much as the average tourist and in Rio 2016, Brazilian tourism was boosted by 6.2 per cent on the previous year, so the signs are good in terms of numbers and actual spend.

Spinoffs and networking

Another reason is the spinoffs in trade and investment.

Australia did this particularly well at Sydney 2000, establishing a Business Club Australia, a catamaran moored in the city’s Darling Harbour. The vessel allowed foreign business visitors attending the games to meet local Australian exporters and suppliers.

This was ‘the power of schmooze’ in action as Australian businesses made contacts they otherwise may not have.

John Bilmon, a Sydney-based architect with PTW, met the organisers of the Beijing 2008 Olympics at Cathy Freeman’s gold medal 400m race, and later picked up the contract to design the famous ‘Water Cube’ swimming precinct at the Beijing Games.

Between Sydney 2000 and Beijing 2008, Austrade estimated that AU$1.7 billion (US$1.1 billion) in trade and investment deals were done thanks to sports events-related networking.

Paris has the opportunity to engage in some sports-based networking, however, southern hemisphere cities are more likely to benefit from the ‘one off’ visits from the northern hemisphere.

The marginal cost to hold a few networking events in Paris is small, meaning there would be some positive benefits to the city from being the host of the Games.

Ending the bidding wars

But these extra benefits do not negate the fact that it is costly to host the Olympic Games, and not every country or city can do it.

Matt Carroll, CEO of the Australian Olympic Committee (AOC), says the “new norm”  for model candidates aims to prevent bidding countries – especially ones with limited resources – from attempting to outbid each other.

That is why, when Paris and Los Angeles both bid on the Olympics, the IOC negotiated for Paris to hold the 2024 Games and LA the 2028 Games. Brisbane will follow in 2032.

The “new norm” spares countries the waste of bidding and missing out, of building infrastructure that may become obsolete, and of draining economies already struggling to tackle poverty and environmental crises.

“As much as possible, you want the Olympics to be able to be hosted on existing infrastructure,” Carroll said. “That is the benefit of a place like Brisbane that has excellent sporting facilities, especially when you factor in the Gold Coast and Sunshine Coast as well.”

So, it could be that LA and Paris hold the Olympic Games again soon and Brisbane may also be added to the ‘regulars’ list if all goes well in 2032.

Prestige not profit

Hosting the Olympic Games is more about prestige than profit and politics and geopolitics than finance.

As Christophe Lepetit, head of economic studies at the prestigious Centre de droit et d’economie du sport (CDES), says, “we don’t need to host a sporting event to generate economic growth, but for geopolitical and social reasons, to position France internationally.”

Accordingly, Paris will be on alert as a major security breach or social unrest would be a major problem for French pride. They want the Games to go smoothly with some elan (flair), but when it comes to making money out of the Olympic Games, forget Paris.

Professor Tim Harcourt is Chief Economist at the Centre for Sport Business and Society (CSBS) at UTS and the author of  Footynomics and The Business of Sport www.footynomics.com.au

Originally published under Creative Commons by 360info™.