WSJ What’s News - The Economics of the Olympics: Your Questions Answered

Episode Date: July 21, 2024

The summer Olympics kick off this week in Paris. It’s a major event for international sports, but it’s also a major economic event. From broadcast rights and budgets running in the billions to sponsorships and tourism booms, who – other than the athletes – stands to win big from the Olympic Games? Senior sports reporter Rachel Bachman answers your questions on the economics of the Olympics. Charlotte Gartenberg hosts. Further Reading Can Paris Save the Olympics?  How Do the Olympics Make Money? The Olympics Business Model, Explained  The Newest Event at the 2024 Olympics: Luxury  Learn more about your ad choices. Visit megaphone.fm/adchoices

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It's Sunday, July 21st. I'm Charlotte Gartenberg for The Wall Street Journal. This is What's News Sunday, the show where we tackle the big questions about the biggest stories in the news by reaching out to our colleagues across the newsroom to help explain what's happening in our world. This week, as the opening ceremonies kick off this Friday in Paris, we're looking at the Olympics. But what are the economics of the games? Who pays and who, other than the athletes, stands to win big? Let the questions begin. The Summer Olympics start this week in Paris.

With more than 10,000 athletes competing, over 1 million tickets have already been sold. But will that help them stay within their budget? Recent Olympics have been beleaguered by rumors of inefficiency, conspiracies, and budget overruns. According to a study on Olympics costs, every Olympics since 1960 has run over budget. The total cost of the Paris Games has been widely reported to be around $10 billion, which puts it under London and Rio, with 97% of the budget coming from private funding. Despite the costs, cities still bid to host the Olympics in the hopes that it will stimulate the development of infrastructure, draw tourism

dollars, and boost employment. Meanwhile, host cities aren't the only players who stand to gain or lose from the Games. According to the most recent report from the International Olympic Committee, the organization raked in $2.4 billion in revenue in 2022. Media outlets compete for broadcasting rights, and brands pay hundreds of millions of dollars to be associated with the Olympics. The Olympic Games are big money, but who's winning? Here to talk with me about the economics behind the Olympics is senior sports reporter Rachel Bachman. Rachel, a lot of our listeners wanted to know, where's the money? Where does it come from? Where does it go? Who stands to gain? Who stands to lose? We had a listener call in, Teja Koshar from New York City, who, like me, wants to know the economics of the Olympics from soup to nuts.

So let's start with his question. It'd be great if you could talk through the revenue model, ticket sales, but also the advertising and media rights, and then just the expenses. Okay, so that's a lot. So let's start with who stands to make money from the Olympics? The short answer is probably nobody. If by make money, you mean someone's turning a profit, because as we've seen, these aren't necessarily profit-making ventures. The winning athletes could stand to make bonuses and make more money from endorsements and so on.

The broadcasters who pay for the rights might see a bump if they manage to sell more in advertising than they paid for the rights. But generally this for decades has been really a losing proposition for the organizers at the highest levels. really a losing proposition for the organizers at the highest levels. So the host city isn't going to see a lot of revenue from this necessarily. The International Olympic Committee, media companies, high profile sponsors. To be clear, they will all see revenue. They will absolutely see revenue, billions of it. But the whole games as an operation will unlikely turn a profit in the way that we believe profits are turned by normal businesses. The revenue is similar to

really a pro sports team in that they sell the broadcast rights, sell sponsorships, licensing, ticket sales, things like that to generate money to make the whole thing go. Wait, so what's the difference in revenue model between the Olympics and, say, professional sports? These Olympic entities are non-profit organizations. So while the NFL has a mission to make profits for its team owners, the International Olympic Committee does not. It wants to spread what it calls Olympism and include all these nations in this great international competition. It doesn't necessarily have a profit motive.

It is supposed to return all the money that it makes to athletes, Olympic committees, and so on, or most of it. Let's get to maybe profit. I want to start with broadcast rights, which are sold both by the IOC and by the host country. The broadcast rights are generally the most lucrative piece, and those for a given games go for billions globally. And the broadcast rights are sold in each country or geographic area. So, for instance, in this country, NBCUniversal pays for the rights to broadcast the Olympics in the United States. And every country has its own broadcaster. Yeah. NBC bought those rights back in 2014, and they paid quite a lot too, right? I mean,

they entered a $7.75 billion deal with the IOC to have exclusive broadcasting rights through 2032. Yes, the Olympics is one of the few events that still draws very large audiences. And so it's a very coveted event for broadcasters and NBC has had it for a long time. So it clearly believes that this is an important property to hold on to. So he clearly believes that this is an important property to hold on to. All right. Let's talk about sponsors, since that's one of the ways that the IOC, host cities, and broadcasters make money. These are coveted sponsorships, generally. Companies pay a lot of money for the right to use the Olympic rings in their advertisements.

Oh, that's one of my favorite things, that it seems like you see the Olympic rings everywhere. Why are these sponsorships so coveted? Well, it's a few things. One, Visa, for instance, might gain exclusive rights to be the only credit card you can use at the Olympics, which has been true for a long time. So that's very valuable because people are spending a lot of money when they're there at official Olympic sites. But also, just the association with the rings is enormously valuable. A lot of marketers like when they're advertising on a sporting event, they like it to seem seamless going from a sporting event to the ad that has the event's logo in it. There's some evidence that viewers love that association and they respond better to that product if it's associated with the thing they're already watching and loving.

Okay. The big question. Who's paying the tab? This was a follow-up question that Teja Kachar sent. He wanted to know, is it the International Olympic Committee? Is it the host city? Is it the host country? Who's paying? Generally speaking, it is the host countries. And so the International Olympic Committee does provide some funds, but it's not anywhere near what the Olympics in recent years have cost to put on. So for instance, Tokyo 2021, whose costs increased partly because they were held during the pandemic, cost between $13 and about $15 billion based on various estimates. And the Olympic Committee paid less than a billion dollars of that cost. So Tokyo organizers were really left to raise the rest from ticket sales, national sponsorships,

any other way they could within the limits of their contract, and try to recoup as much of that as they could. Well, when we come back, we're going to Paris. Just kidding. Only Rachel gets to go to Paris. But we are going to talk host cities and how they make money from the Olympics and how they don't. Stay with us. Introducing Tim's new Infuser Energy Beverages, made with natural caffeine.

They come in two refreshing flavors, blackberry yuzu and mango starfruit. Try them today. All right, Rachel, why would a city want to host the Olympics? We got a question from Ian McLean of Atlanta, Georgia, and he asks. The Olympics seem to be only able to be hosted by fewer cities now due to the great infrastructure costs. Why are cities still hosting it? Is it still profitable? And why aren't more new ones also hosting it? What are the incentives for a host city to host the Olympics? The Olympics have almost never been profitable. Only really in 1984, the Los Angeles Games,

which were unusual for a number of reasons, those did turn a profit. But most of the other ones have lost money in some billions of dollars or have not at least turned a profit. I think if you look at countries like China and Russia, it's very clear that these are national sort of bragging rights. They're hosting the world. It's really almost a geopolitical tool to show their might, that they're a player on the world stage and so on. And those countries both have spent many billions of dollars to put on the Olympics they've hosted in recent years. It's a little bit less logical why a country like France would host the Olympics. One could say, Paris doesn't really need to advertise.

People are already traveling there. It's already an extremely popular tourist destination. Right, because part of the reason it seems or the part of the reason that is given for hosting the Olympics is because it helps tourism. It makes the city more visible or the country more visible. And so people will want to go there. Yeah, and it is true. You know, 1992 games in Barcelona turned on a lot of the world to how gorgeous that city is and did spur some interest in traveling there. Again, I don't think people on in most countries have

not heard of Paris or have not heard of Los Angeles. So from the host country's perspective, you know, there's still some ego involved. So when the cities host an Olympics, Fair. billion on just one high-speed train line to connect two parts of the Olympics. And it's not clear how much that train's being used at all anymore. More recently, countries have really emphasized using existing infrastructure and venues. What is Paris now spending money on to host the Olympics? They're using mostly existing venues. So I think they're kind of, they are hewing to the spirit of the IOC Olympics of the future. They have also taken advantage of the IOC's liberalized rules about where events can be held. And one of the most extreme examples of this is the surfing competition is taking place in Tahiti. So that of course is nowhere near France, but it's under French rule. That is

something that didn't used to be allowed, but now is welcomed because it's another facility that France didn't have to erect or build itself. There is some surfing in France, but that's also an advertisement for Tahiti. In the end, Paris will probably spend at least $10 billion putting this on, and that's not at all cheap. So it does sort of raise the question of which cities in the future will be able to host the Olympics. Next on the docket is Los Angeles. And as we've said, Los Angeles already has a lot of the infrastructure that it needs. Listener Max Mickelson from Sioux Falls, South Dakota, sent us this question about what's going to happen for future possible Olympic cities. Is there a way that cities could host and not lose money? Or is it inevitable unless they have the same host city at the Olympics? Rachel, does Max Mickelson have a point? Is it going to be in the same city every year?

I mean, how does this get sustainable? There is a dilemma that the IOC faces. It wants this to be a truly international event, right? A truly global event. But there's never been an Olympics in Africa, for instance. India and Indonesia have expressed interest in hosting the Games. they'll likely have to build a significant number of facilities. So he's right that there only are a handful of countries right now that have all those facilities existing and wouldn't have to spend much to update them. There's a real dilemma. Keep going to the same, you know, generally Western wealthier countries over and over again? Or do you try to spread things around knowing that these countries will probably need a lot of investment help, or they'll have to invest themselves in billions and billions in infrastructure to

meet the IOC's requirements? Well, we'll find out. For now, we're going to Paris. Fantastic. I can't wait. That was Rachel Bachman, senior sports reporter. Thanks. I can't wait. That was Rachel Bachman, senior sports reporter. Thanks, Rachel. Thank you. And that's it for What's News Sunday for July 21st. Today's show was produced by me, Charlotte Gartenberg, with supervising producer Michael Kosmides.

We got help from deputy editors Scott Salloway and Chris Zinsley. I'm Charlotte Gartenberg. We'll be back on Monday morning with a new show. Thanks for listening.