🥇 The Broken Business Model of the Olympics Part 1

Olympic season is upon us so I have a treat for you all.

The two next newsletters will be a 2-part series on the broken business model of The Olympics.

We will look at it from two different stakeholder perspectives:

1. The host nations

2. The athletes themselves

The International Olympic Committee (IOC) has a problem on their hands and I will breakdown how we got here over the next two weeks.

As usual, we start with some fascinating numbers:

This graph shows the number of countries bidding to host The Olympics across the last 9 editions:

What do you notice?

How can the most popular sports tournament on the planet be so undesirable by potential hosts?

How can their be ONE country with their hat in the ring for the 2032 games?

The decline is embarrassing and it’s proving to be a bit of an issue for the IOC. Most of it however, is self-created and as usual, money has a lot to do with it.

This graph shows how over budget each edition of the Winter and Summer Olympics has been between the years of 1992 and 2016:

Sydney, almost double. Athens 24% over. Rio 51% over. It’s wild.

It makes complete sense though. In 2012 London built:

• An Olympic Park

• A brand new stadium

• A velodrome

• An aquatic centre

• A BMX Track

• Lee Valley (for tennis and hockey) and

• The Copper Box Arena (for boxing)

London also massively upgraded buses, several underground stations and re-paved many roads around the Olympic area.

It’s a massive lift and it’s no surprise that these projects come in way over budget for every host.

It doesn’t just end there however. The cost of bidding for the Olympics is very high too.

Planning events, hiring consultants, organising networking panels for delegates and the necessary travel for all parties consistently falls between $50 million and $100 million!

Tokyo famously spent $150 million on its failed bid to win the 2016 games.

It’s no wonder so many cities are withdrawing.

Boston withdrew from consideration for the 2024 games, with its mayor saying that we “refuse to mortgage the future of the city away.”

Hamburg held a referendum in which 51.6% of the citizens voted against a bid for the Olympics. 

Rome withdrew on 21 September 2016 citing fiscal difficulties.

That left Paris and Los Angeles remaining where the IOC announced two hosts at the same time for the first time in history resulting in Paris hosting 2024 and L.A. hosting 2028.

Embarrassing.

So far the barrage has been overwhelmingly negative. The cost to host the Olympics is substantial but as you can expect there are three main benefits…

1. Benefit #1: Job Creation

A study by the European Bank for Reconstruction and Development explained that the jobs created by the construction for the Olympics are often temporary, and unless the host region is suffering from high unemployment, the jobs mostly go to workers who are already employed, blunting the impact on the broader economy. 

An amazing statistic showed only 10 percent of the forty-eight thousand temporary jobs created during the 2012 London Olympics went to previously unemployed people.

The verdict therefore being that this is not much of a benefit in kind.

2. Benefit #2: Tourism

Economists have found that the Olympics' impact on tourism is mixed, given the security, crowding, and higher prices.

London (2012) and Beijing (2008) all saw decreases in tourism the two years following their Olympics!

The verdict again being that this is not a benefit in kind.

3. Benefit #3: Newly built infrastructure

London have done this very well. The Olympic stadium is home to West Ham Football Club. The Copper Box is frequently used for Boxing cards and esports tournaments. The area around the Olympic Park is great. 

However, Sydney’s stadium costs $30 million annually in maintenance. Beijing’s famous “Bird’s Nest” stadium cost $460 million to build, requires $10 million a year to maintain, and has sat mostly unused since the 2008 games. Almost all of the facilities built for the 2004 Athens Olympics, whose costs contributed to the Greek debt crisis, are now derelict.

Challenged by the country’s deep recession, Rio de Janeiro required a $900 million bailout from the federal government to cover the cost of policing the Olympics and was unable to pay all of its public employees.

It’s crazy and many cities have had enough.

Hosting the Olympics is now only viable for smaller cities trying to get their name out there. There is no greater sign of this than the cities hoping to win the 2036 Olympics. They are:

• Istanbul, Turkey 🇹🇷

• Nusantara, Indonesia 🇮🇩

• Santiago, Chile 🇨🇱 

They do not feel like Olympic cities to me.

The IOC has a problem and if they don’t address it. The Olympics is in trouble.

Stay tuned to Part 2 next week where we discuss how little much athletes get paid!

That situation might be worse than this!

Happy Monday.