The Quest for Olympic Economic Gold

Takeaways

• Massive Economic Investments and Stakes: The 2024 Summer Olympics in Paris involve around 10,500 athletes across 45 sports, costing an estimated $8.2 billion, with substantial investments in infrastructure, including $1.5 billion to clean up the Seine River.

• Debate on Economic Benefits: The International Olympic Committee (IOC) projects significant economic benefits for host cities, citing job creation and increased tourism, though some studies highlight consistent cost overruns and underused infrastructure post-games.

• Historical Context and Challenges: Past experiences, such as Montreal's debt from the 1976 Olympics and Rio de Janeiro's $20 billion cost for the 2016 games, illustrate the economic risks. Reforms in the Olympic Agenda 2020 aim to align investments with long-term planning, but the 2024 Paris Olympics will test their effectiveness.

The eyes of the world are on France as the 2024 Summer Olympics “kicked” off with men’s soccer last week. The stakes are high, not only for the thousands of athletes hoping to take home the gold, but for the capital city and country as well. In this week’s Markets In a Minute, we evaluate the Olympics’ checkered economic past and ask, “Is the economic juice worth the expensive squeeze?”

Paris in focus

The 2024 Summer Olympics will be the biggest event ever organized in France. About 10,500 athletes will compete in 45 sports, across 329 events and spanning 35 venues. The event is expected to draw millions of spectators, and billions of television viewers. Some 20,000 journalists will cover the games.

The projected price tag is equally impressive. The cost of hosting is estimated to be about $8.2 billion, which would make it the sixth most-expensive Olympic games of all time. Of the total projected cost, about $3 billion was spent on infrastructure investments in the Paris urban area and $1.5 billion just to clean up the Seine River alone!

The Big Question

Is that massive investment worth it? Not surprisingly, there are two starkly different perspectives.

By some accounts, France, as well as future host countries, can expect a meaningful economic boost, at least according to the International Olympic Committee (IOC).Citing independent reports commissioned by future host regions, the IOC notes that the economic benefits are projected to far outweigh games-related investments. The economic benefits of upcoming summer games (Paris 2024, Los Angeles 2028 and Brisbane 2032) are projected to be roughly $12 billion, $18 billion and $13 billion respectively, according to the IOC.

The IOC also paints a positive picture of the impact of past Olympic games on labor markets, tourism and other areas. From 2012 to 2017, for instance, about 110,000 jobs were created in six boroughs surrounding Queen Elizabeth Park in East London. The five-year period encompasses the 2012 Summer Olympics in London. The average amount spent by people who visited London for the games was 1,300 pounds (about $1,690 at current exchange rates), double the spend by other types of visitors, the IOC reports.

According to the IOC, the money spent on organizing Olympic games stimulates the economies of host cities and countries through direct impacts (like job creation and purchasing from local suppliers) and indirect impacts (such as increased spending on restaurants and hotels). In theory, government revenues tied to economic impacts help offset public-sector expenses related to organizational costs.

Of course, host cities and regions have often made big capital investments in preparation for hosting the Olympics, pouring millions into sports and conference facilities, transportation infrastructure and other areas. Capital investments are typically funded by both governments and private companies.

Olympic-sized costs

Other studies, however, show a very different picture, one filled with delays, excessive costs and infrastructure that goes unused after the games. A 2024 University of Oxford study argues that the games remain costly and continue to have big cost overruns, threatening their viability. The study, an update of earlier research, estimates that since 1960, the average cost of hosting has been triple the bid price.

The Olympics Have Never Come in Under Budget Going Back to 1988

Estimated cost of hosting the Olympics, constant 2022 dollars

Source: Kestra Investment Management with data from The Council on Foreign Relations, Budzier and Flyvbjerg “The Oxford Olympics Study 2024: Are Cost and Cost Overrun at the Games Coming Down?”

How we got here

For much of the 20th century, hosting the Olympics was a “manageable burden” for host cities, according to a 2024 Council on Foreign Relations (CFR) report. The economic picture grew more complicated in the 1970s as the games grew rapidly in size.

During that period, Montreal, which hosted the 1976 Summer Olympics, became a poster child for the economic risks of hosting. Construction delays and cost overruns left the city with roughly $1.5 billion in debt that took nearly three decades to pay off.

With other potential hosts put off by Montreal’s experience, Los Angeles was the only city to bid for the 1984 Summer Olympics, which, according to the CFR report, allowed it to “negotiate exceptionally favorable terms with the IOC.” The city also held down costs by relying almost entirely on existing stadiums and other infrastructure. In the end, Los Angeles became the only city to turn a profit hosting, according to the CFR report.

Over time, the Los Angeles experience spurred an increase in the number of cities vying to host, from two in 1988 to 12 in 2004, leading bidders to come up with costly, ambitious plans, notes CFR.

Developing countries have used the Olympics as a platform to demonstrate their progress on the world stage, and some have paid a heavy price. Rio de Janeiro, for instance, built about 15,000 hotel rooms and upgraded roads, train lines and other transportation infrastructure in preparation to host the 2016 Summer Olympics. Costs spiraled to $20 billion, and the city required a $900 million bailout from the federal government to cover the cost of policing the games. Like other hosts, Rio was also saddled with abandoned Olympic stadiums and venues after the games.

2017 Olympics Aquatics Stadium, Rio de Janeiro

Source: Buda Mendes/Getty Images

In response to these experiences, the IOC approved a sweeping reform package dubbed the Olympic Agenda 2020, whereby host cities and countries can only make capital investments, including new construction, if they align with long-term planning needs, according to the organization. Many policymakers and economists see the 2024 Summer Olympics as a test of whether recent reforms will help level the cost-benefit equation for host cities and countries.

Conclusion

As history shows, the Olympics may deliver a short-term economic boost to host cities and countries, but the costs can easily swamp any long-term increase in revenue especially after the crowds go home and a host city is left with sizable and often unusable structures.

Interestingly, it’s not just the Olympics that can be an economic gamble for host cities and countries, new research from the University of Surrey finds that it’s winning FIFA World Cup, not hosting, that significantly increases economic growth, primarily through higher global demand for national products and services and a corresponding increase in exports.

The Summer Olympics will no doubt be a symbol of international unity and athletic prowess but what remains to be seen is what kind of an economic symbol it becomes.

 
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Investment Services, LLC, and Bluespring Wealth Partners, LLC. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by any entity for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Investment Services, LLC, and Bluespring Wealth Partners, LLC. Does not offer tax or legal advice.