The Cost of Hosting the Games

Sept. 21, 2000 -- The contest to host the Olympic Games has become almost as competitive as the individual rivalries themselves. But, as some cities have found, the honor can come with a hefty price tag.

Past cities have lost millions. The Lake Placid games in 1980 cost that city $11 million. Montreal, host of the 1976 Olympics, is still paying off the billion-dollar debt it fell into more than two decades ago. And Barcelona, which staged the games in 1992, took four years to make up for its losses.

Yet, by applying lessons learned from past fiscal failures and success, economists project Australia stands to gain more than a billion dollars with the Sydney games currently under way.

A Change in Ideology

Los Angeles paved the road to Olympic prosperity in 1984. Despite concerns that the city would turn the games into a glitzy Hollywood-style event, L.A. not only delivered a respectable competition, but the first commercial success for a host city.

One key reason for the success was the city’s innovative partnership with corporate America. The Los Angeles Olympic Organizing Committee — headed by business and sports executive and former commissioner of baseball Peter Ueberroth — approached the games as a business venture. It hired a group of consultants to study past hosts and develop a five-year financial model with the goal of putting on the games debt-free.

Instead of relying on support from the government, the LAOOC saw in the games the quintessential marketing opportunity and decided to pitch the idea to corporate America. Coca-Cola, Anhauser-Busch and nearly 30 other companies hopped on board, paying approximately $126 million to sponsor the games — well above the $116 million projected by the consultants.

Although the city did not need to build many new arenas to accommodate various sports and spectators, the corporate sponsors covered the necessary construction.

Los Angeles also marked the first time television networks paid a fee just to be able to bid on broadcasting rights, a process that ultimately provided the LAOCC with $2.5 million in start-up cash. Overall, 156 countries paid more than $286 million for rights to show the games — three times the revenues collected in the Montreal Olympics just four years prior.

Finally, a ticket-marketing blitz played a key role in the city’s success. The LAOOC, striving to make tickets attractive, priced the average seat at just $10. Revenues from the campaign brought in a total of $155 million, compared to the $20 million brought in by each of the Moscow, Montreal and Munich games.

Overall, the games brought $3.29 billion dollars to Southern California. The city posted a profit of more than $2.29 billion — generated mainly from television rights, tourism and corporate sponsorships — after operating costs.

What Went Wrong in Barcelona?For all of L.A.’s success, the next Olympics showed little improvement over past fiscal failures.

In 1992, International Olympic President Juan Antonio Samaranch brought the XXV Olympiad to his home of Barcelona, Spain. The ancient city seized the Olympics as an opportunity to rebuild and renovate itself.

Unfortunately, the Spanish economy was already suffering from a slowdown, undermined by rising inflation, an unemployment rate of 17 percent, and a widening national debt.

Economists projected the Olympics would be able to counteract those negative economic trends and infuse the country with new funds. Organizers of the Barcelona Games projected the total economic impact on the city could surpass the magnitude of Los Angeles.

But as the Games approached, Barcelona’s organizing committee found the $7.5 billion it had raised through public and private funds was not enough.

A large part of the nearly $20 million loss in revenues can be traced to two critical mistakes. First, Barcelona only managed to interest 60 corporations in sponsoring the games, and the city strictly regulated marketing of the Olympic symbols.

In addition, while Los Angeles revolutionized the broadcast rights process, the Barcelona television commission decided to maximize distribution rather than sell the rights to the highest bidder.

In the end, the cost of the games was an economic drain that deepened a downward economic spiral which took Spain more than four years from which to recover.

The Games Return to AmericaProfitability returned with the 1996 Olympiad hosted by Atlanta, Ga. Billy Payne, head of the Atlanta Olympic Committee, was a Georgia native and prominent attorney-turned banker-turned-high-tech executive who, like his counterparts in Los Angeles, understood the marketing potential in hosting an Olympic game.

Atlanta and the AOC spent approximately $1.4 billion to stage the XXVI Olympiad; the largest Games in history featuring nearly 11,000 competitors. And while Atlanta had its share of problems that summer — a bomb detonating in Centennial Olympic Park and various technical difficulties — the Atlanta games proved to be a winning financial enterprise, bringing nearly $4 billion to the city.

Payne paid close attention to the LAOOC’s business model, going after marketing and sponsorships in a similar way. Spectators bought a record 8.6 million event tickets, while Centennial Olympic Park, built especially for the Olympics, continues to draw crowds of visitors.

And although Payne and the committee, like each prior host, found themselves having to build new facilities, they made sure the stadiums had long-term potential for return on investment.

Next Competitor: Sydney

With the first games of the millennium in Sydney, Australia, organizers are trying a new approach to turning a profit, by pursuing both government and private sponsors. And once again, economists were brought in to provide the city with an impact study for the bid and beyond.

According to accounting firm KPMG Peat Marwick , the Olympics can add $7.3 billion to Australia’s gross domestic product in the period between 1991 to the end of 2000. But while KPMG estimated it would cost Australia $1.7 billion to deliver the games, the cost has now been revised up to somewhere between $3 billion and $5 billion.

Even as estimates rise, the city remains optimistic. A projected 1.5 million visitors are expected to make the trip to Sydney, bringing in more than $2 billion in extra taxes and $3 billion in tourism revenue. Also adding to profits are the television rights which have been sold for over $1 billion, and ticket selling at a rate of 50,000 per day.

Sydney already seems well on its way to become the next healthy beneficiary of the still relatively new corporate-sports relationship. But as more cities seek to capitalize on the value of the Olympic franchise, some critics say the focus of the games is shifting from the athletes to the most successful business plans (see related stories in right column).

It’s still too early to say how Athens, the host of the 2004 games, will handle its finances and funding. But the city is already showing signs it may have problems delivering a positive bottom line. As the games return to their ancient birthplace, its an open question whether Athens will be a financial winner or loser.