Paris Olympics 2024 — A testcase for financially sustainable Games
Can Olympic Games avoid overspend and be hosted in a financially sustainable manner or is that just an optimistic illusion?
Citius, Altius, Fortius — Faster, Higher, Stronger
The Paris 2024 Olympic and Paralympic Games are officially commencing on Friday with an exciting, albeit tradition breaking, opening ceremony on the Seine. Over 10,500 athletes from 206 nations have descended upon Paris and will compete in 329 medal events across the next 17 days for a chance at the coveted medals.
Paris will showcase itself from its best side, with impressive competition venues at iconic locations, such as the Volleyball stadium in front of the Eiffel Tower, or the Equestrian venue in the gardens of Château de Versailles. However, these Games are not just a showcase for Paris and France, but more importantly also for the International Olympic Committee (IOC). These Games are the first in a new era of (hopefully) financially sustainable Games, to make hosting the Games attractive again.
Recent Games (both Summer and Winter) were mired in controversies, many of which related to overspending, leaving behind derelict venues and a local public to foot the bill. With the ballooning cost of hosting the Games, there has been an exodus of potential candidate host cities, who explicitly cited the extravagant costs and cost overruns as the main reason for exiting the bid process. Even public sentiment has turned rather negative towards the Games and the IOC, with locals in Calgary, Sion, Innsbruck and Hamburg rejecting candidatures through public referendums.
Paris 2024 takes on a critical role regarding these challenges the IOC faces to find willing hosts for future Games. They are the first Games that face less stringent hosting requirements from the IOC, resulting in a much greater (re-)use of existing and temporary venues. Many prospective host cities will closely watch how these Games turn out to inform their future desire to host.
With such strong signaling importance, let’s dive into the Paris 2024 Olympics and whether they managed to reverse the trend of gigantism and overspending the Games have become synonymous with.
A spectacle does not come cheap
A recent Oxford study from May of this year has found significant and recurring overspend across both Summer and Winter Olympic Games, which have only escalated in the last decade. Particularly from London 2012 onwards there has been an explosion in overall spend, as can be seen in the chart below, with Sochi 2014 and Rio 2016 being the negative highlights in terms of spend and overspend:
Why is an overrun in costs of such consequence for a host city? Most Olympic host city budgets only account for a minimal profit or in most cases a balanced book with revenues just covering costs. Evidently, any overspend will turn the budget red, which the state will have to cover (through provided host city guarantees), for which in the end the public will have to foot the bill.
The wider economic benefits of hosting such a large-scale event are often used by politicians and organizers to warrant the exorbitant costs, claiming the offset them and even are a net positive. Data from prior Olympic Games and other large-scale events have not supported this statement. Mainly, the boost in employment, tourism and spend are cited as economic benefits. However, most temporary jobs created are in construction and often go to people already employed anyways. The boost in tourism from hosting is only temporary and not sustained long-term and the economic output figures provided are often misleading, as they do not consider the opportunity cost that alternative measures could have generated.
Unsurprisingly, local populations of potential host cities are skeptical of ending with a mountain of debt to pay off. With the recent excesses in spending by host cities, the number of viable and willing hosts is dwindling more and more.
The IOC has recognized the necessity to act, with more and more potential host cities actively rejecting to bid on the games, voicing mainly concerns regarding the excessively ballooned costs of the Games. IOC’s Agenda 2020 and Agenda 2020+5 are a commendable and concerted effort to reverse the overspend and gigantism of recent iterations of the Games, focusing much more on financial sustainability. The main lever to achieve this is a greater willingness and flexibility by the IOC to adjust the Games to the host city and not the other way round. By having less stringent requirements for potential host cities, particularly around the re-use of existing venues, temporary installations, and geographic dispersion of competition venues, the hope is to reduce the overall hosting cost.
Paris 2024 — the first in a new era of Games
The Paris 2024 Games are clearly a result of the looser requirements on host cities, as nearly all competition venues are existing venues (e.g., Roland Garros, Stade de France, Bercy Arena and many more) or temporary installations (all around Paris at iconic landmarks, such as the Eiffel Tower, Pont Alexandre III, Place de la Concorde, Invalides, Château de Versailles and more). The Aquatics Centre (which will become a public pool) is the only new permanent installation built for the Games. This is all in an effort to reduce the capital costs incurred by building competition venues (the cost for investments in urban and transportation infrastructure are not considered, as they are not directly related to the Games only, such as the $1bn+ restoration of the Seine, to make it swimmable again).
The Games are also much less geographically bound as previously, with venues spanning from the greater Paris area, to Lille, Marseille and even as far as Tahiti in French Polynesia (for the surfing competition), all in an effort to re-use as many existing facilities as possible.
Furthermore, the Olympic Village will be turned into local housing and office space, once the Games have concluded, and was planned in such a way. The athletes competing in Tahiti are even experiencing a Games premier, staying on water, using a docked cruise ship as their Village.
Despite all of these efforts though, Paris 2024 is expected to cost around $9.7 billion (with total cost not being fully known until after the Games have concluded). This is well below previous Summer Games, with the pandemic impacted Games of Tokyo 2021 costing $13.0 billion and Rio 2016 an astronomical $23.6 billion (funnily or concerning enough, Rio 2016 has yet to publish full final accounts and costs were estimated on published budgets and accounts from federal and local agencies).
Nevertheless, the bill for the French taxpayer is likely going to be around $3.3 billion, according to France’s national audit office (which may balloon even further, given significantly increased security measures due to higher terror threat levels, bringing in even foreign police support). And, according to the study conducted by Oxford, the cost overrun in real terms is expected to be at around +115%…ouch. A spokesperson from the Paris 2024 organizing committee refutes this figure and notes a maximum 27% increase between projected and actual budget, which would be in line with inflation in that period, according to them. This is most certainly an underestimate, given it comes from an internal spokesperson, and further, concerningly, inflation should already be considered in the initial budget proposal.
Paris 2024 is not the fully realized vision of a fully financially sustainable endeavor, but it sets the tone and the foundation from which others can learn from and build upon. It shows prospective host cities that there is no need for large-scale venue construction and that the Games can be adapted to their location. The next Games will be the true torch bearers that will ultimately determine how successful this transformation will be.
Is the future of the Olympic Games secured?
The upcoming Games that have been awarded (and have accessible budgets) are Milano-Cortina 2026 (Winter), Los Angeles 2028 (Summer) and Brisbane 2032 (Summer). Additionally, just this Wednesday, Salt Lake City was awarded the 2034 Winter Olympics, with France being conditionally awarded the 2030 Winter Games (pending additional financial guarantees).
The initial project budgets of Milano-Cortina 2026, LA 2028 and Brisbane 2032 are all below previous editions, though both Los Angeles 2028 (from $5.3 billion to $6.9 billion) and Brisbane 2032 ($3.8 billion to $4.7 billion) had to adjust their initial budgets to include inflation provisions (seems to be a recurring theme). With these events so far out still, cost overruns are hard to estimate here, but Milano-Cortina appears to be reaching real term cost overruns of around 78% (on an initial $2.6 billion budget). Not ideal, but an improvement over recent Winter Olympics in Beijing 2022 (+149%) and Sochi (+289%).The new flexibility also shows in the planning of these Games, with Milano and Cortina being geographically dispersed as well (~around 5h car ride between the two), and with LA making good use of all the iconic sport venues it already has, in the Coliseum, SOFI Stadium and the newly built Clippers Basketball arena.
In general, a trend to projected reduced overall spend can be seen across these three upcoming Games. It remains to be seen if this is an effect of the revised requirements for hosting the Games or whether it is based on optimistic budgets that underestimate inflation or scope adjustments, and overestimate the impact of more flexible requirements.
Measures to further reduce the costs and improve the budget forecasting include:
- Avoid “eternal beginner syndrome”: Currently, the system is designed to have a new organizing committee set up nearly everything from scratch and try to host their first big mega event every time. There needs to be a better transfer of knowledge from one host city organizing committee to the next, as well as a centralization of certain operational items that can be re-used across Games (such as ticketing) to avoid duplication costs
- Even more increased flexibility towards Games staging: Ensure maximum re-usability of venues (e.g. can temporary venues/infrastructure be re-assembled in the next host city) and have geographic flexibility if certain venues do not already exist (e.g. Milano-Cortina 2026 spending €120 million for a new bobsleigh track instead of going to St. Moritz or Innsbruck, which seems a bit wasteful)
- More transparent budgeting and realistic assumptions: It may warrant to include more than the usual 5% cost contingencies, given the historic overspend observed. Additionally, please include inflation assumptions from the start and realistic ones as such, especially given the increasingly longer planning periods (Brisbane was awarded in 2021, 11 years before the actual Games)
While Paris 2024 is definitely a step in the right direction, in terms of leaner Games, it is only the first iteration of the Games under the new and less restrictive IOC policy, with still a good way to go. The true impact and the legacy of the changed requirements will only be seen with Milano-Cortina 2026, Los Angeles 2028 and Brisbane 2032.
The Olympic Games are a celebration of excellence and bringing athletes from all over the world together, unlike any other sporting event. However, it should not come at the cost of leaving behind a mountain of debt to burden the host city and its locals. The reversal of the recent gigantism is very much welcome, and brings the Games back closer to its original spirit. Hopefully, Paris 2024 will be a success and the beginning of a turn towards financially sustainable Games.
One random fact
Delta Airlines expects to lose $100million in revenue during the Games, as tourists elect to fly to other destinations and do not want to go to Paris during the Olympics, fearing overcrowding and limited access to the main tourist attractions
Thanks for reading
I hope you enjoyed this breakdown and gained a new-found appreciation for the challenges of hosting Olympic Games and what efforts are being made by the IOC and host cities to reduce the overall financial burden to staging the Games, with the ultimate goal of financially sustainable Games. If you have, please consider sharing it with your friends and subscribing, much appreciated!
The AO, a page dedicated to unveiling the business dynamics behind the sports media industry, aimed at giving context on the strategic considerations behind some of the biggest sporting events and decisions.
If that sounds appealing to you, then feel free to follow The AO, which is completely free and releases every 2 weeks.
