Paris Olympics – will it be a cost overrun like most?

The Paris Olympics is now over and one has to say what a great event it was with huge crowds, great sporting achievements and spectacular backdrops – the marathon, beach volleyball and many more. However, do the Olympics make money?

The 1976 games in Montreal was the start of the financial issues for host cities – the blowout of $1.5 billion was paid by city’s rate payers and it wasn’t until December 2006 that the final payment was made. The projected cost of $124 million was billions below the actual cost. The 1980 Olympics was held in Moscow under the communist system but in 1984 the first real commercial games in Los Angeles took place. Because of the cost overruns in Montreal there was little interest in hosting the games in 1984 and therefore Los Angeles were able to negotiate favourable terms with the International Olympic Committee (IOC). With a lot of the infrastructure already in place and an increase TV rights – $34.9m Montreal 1976 to $286.9m Los Angeles 1984 – the latter was the only city to make a profit from hosting the Olympics – $215 million. Rio de Janeiro in 2016 had major short falls in funding and for a city with a lot of poverty one questioned their motive for hosting.

The Tokyo games (2021) cost $13bn to host according to a Japanese independent government agency – more than double the projections when they won the hosting rights in 2013. Costs rose significantly due to the following:

• the omission of spectators – loss of approx $800m income in ticket sales and add to that hotel cancellations, tourist activities etc.

• Tokyo had to invest heavily in infrastructure – estimated $3bn

Economists say the games’ so-called implicit costs must also be considered. These include the opportunity costs of public spending that could have been spent on other priorities. Servicing the debt that is left over after hosting the games can burden public budgets for decades – see graph below for cost overrun.

Source: Council on Foreign Relations – July 18th 2024

Paris Games – multiplier of 3?

From an independent study by the Centre de droit et d’économie du sport (CDES) of the University of Limoges, the IOC have indicated that the Paris Games should end up generating $7.3bn to $12.1bn for the city and the country between 2018-2034. This is mainly due to tourism, construction and the organisation. The study stated that the multiplier value should be around a value of 3 – $3.3bn in public spending generating approximately $9.9n of revenue.

The value of the multiplier can be found by the equation ­1 ÷ (1-MPC)You can also use the following formula which represents a four sector economy1 ÷ MPS+MRT+MPM

The benefits of hosting events like the Olympics are usually overly optimistic and governments argue that it will create jobs, attract tourist dollars, develop infrastructure and boost overall economic output. Typically the costs never remain on budget and the revenue is rarely achieved – see graph showing estimated costs. But as one consultant said “the Olympics aren’t meant to be a cash machine. It is to push the values.”

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