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Olympic Games make and spend massive amounts of money

By   /   Monday, February 26th, 2018  /   Comments Off on Olympic Games make and spend massive amounts of money

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Anna Kwong

By Anna Kwong

The 2018 Olympic Winter Games in Pyeongchang, South Korea just ended, which raises the question of how the massive operation behind the Olympics makes and spends its money.

The first modern Olympic Games were hosted in 1896 at their original birthplace in Athens. The ceremony hosted 241 participants representing 14 nations and all were men. In the time since, it has evolved significantly. By 2008 in Beijing and 2012 in London, more than 200 nations participated with an estimated 11,000 athletes.

The event is by far one of the most significant international business operations in the world, one that secures billions of dollars, a steadfast global prestige and a great deal of national pride.

Today, the Olympic Games are estimated to have had an annual income of $1.4 billion from 2013 to 2016.

According to public record, the 2012 London Olympic games cost a staggering $14 billion, only a fraction of Beijing’s cost of $44 billion and Sochi’s $51 billion.

Based on the International Olympic Committee’s official website and articles written about the topic, the following is a simplified and approximate breakdown of its finances:

Revenue: The largest source of revenue for the IOC comes from selling the rights to televise the Olympics. Broadcasting agents pay billions of dollars to secure this exclusive right. Case in point, NBCUniversal paid $4.4 billion for 2014-2020 and then, in 2014, extended the contract to 2032 for an additional $7 billion. NBC, in turn, contracted these rights to other broadcasting companies.

The second sizeable source of income is sponsorship. The Olympic Games sponsorship is divided into two main categories: domestic/local sponsorship and larger, multinational financial support. For the former, the local organizing committees manage domestic partnerships and, under this category, they work with local sponsors. With help and guidance from IOC, local organizing committees negotiate their own commercial support that helps pay for their effort in putting the games together. The second category is the long-term partnership with multinational corporations. The IOC is responsible for this arrangement. The top sponsors’ annual fee ranges from $25 million to $50 million, and include corporations such as Panasonic, Coca-Cola, and Visa.

Ticketing and licensing fees for merchandise are yet even more revenue generators for the IOC. Ticketing depends on the popularity and economic buying power of the hosting country. Between 1996 and 2008, Atlanta (host city in 1996) sold the most tickets with over 8 million purchased, while Sydney (2000) and Beijing (2008) sold about 6 million each, and Athens (2004) recorded 3.8 million sold.

In terms of licensing fees, the IOC earns royalties by granting manufacturers the right to use the name of the Olympic Games. Beijing 2008 garnered the most profit out of all the events, with over $160 billion in revenue.

Expenses: IOC member traveling fees, which include hotels and flights and other expenses, end up being approximately $900 per member, per day. IOC President Thomas Bach gets an allowance of $250,000 plus traveling fees for the event’s duration. This accounts for about 10 percent of expenses.

The other 90 percent breaks down like this:

A portion goes to the organizing committees. The IOC does not organize the games; they outsource the endeavor to the cities of the world. For example, London in 2012 was outsourced at a cost of $1.4 billion and Rio 2016 for $1.5 billion.

Another portion goes to the national Olympic committees. For example, the U.S. Olympic Committee received $230 million in 2012. The IOC pays 206 national Olympic committees $500 million for each Olympic Games.

The third portion goes to the international sports federations. There are 35 federations that oversee the sports for the Summer and Winter Olympics. Each federation represents a different sport. An estimated $520 million went to 28 summer sports federations after the London Games, and $199 million went to seven winter sports federations after the Sochi Games.

The Olympic Games are one of the most commercial, political and influential events in the world. It is a massive international operation that commands a hefty amount of financial gain as well as reputational prestige. They serve as one example of financial management on a global scale. Effective or not? It depends who you ask.

• Anna Kwong is chair of the MBA program at Antioch University Santa Barbara.

 

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