🏊 A 10m High-Dive into the Olympics

Logistically, putting on the Olympic Games is nothing short of remarkable, but from a business perspective, turbulence is expected.

The Olympic Games are always so fascinating. We barely know any of the athletes, unless they’re considered megastars (shout out Simone Biles, Katie Ledecky, Sha'Carri Richardson). Or we’re introduced to newer stars as they storm onto the big stage (shout out Noah Lyles, Sunisa Lee, and Trinity Rodman). But god damn do we get so pumped to watch these games and have no idea the intricacies and details that go into these sports. And it makes sense, because the majority of us watch these sports every 4 years (lol). But, while the Olympians are the ones who truly make the Games entertaining and fascinating to watch, let’s go over how they’re truly run. What does the process look like to bid for the Olympics? How is business conducted to hold these multi-week events in one country? Are we able to tell if the Games are truly succeeding?

Let’s get after it…

What’s the background of the Olympic Games?

• For plenty of reasons, we’ll start by talking about the Paris Games (mainly because the first written evidence of the Games dates back to 776 BC and we don’t feel like covering thousands of years of history…we hope you understand).

• The International Olympic Committee (IOC) is a not-for-profit, nongovernmental body based in Switzerland where they are responsible for organizing and overseeing the Olympic Games. Within those parameters, they technically establish the rules and regulations of the Games, selecting host cities, and securing broadcasting rights.

• They generate ~91% of income from selling broadcast rights (61%) and sponsorships (30%).

  • Income for the latest four-year cycle of Winter and Summer Games ending with the Tokyo Olympics in 2021 was $7.6B.

• Because they are a not-for-profit, the IOC returns ~90% of its income back into sports, with the athletes only getting a small slice of that pie.

• To give you an idea, the Paris Olympics involve about 10.5K athletes from 200 countries/regions.

What’s the breakdown from the business side of the Olympics?

• Broadcast Rights. In 2011, NBCUniversal agreed to a $4.4B contract with the IOC to broadcast the Olympics through 2020. 

  • In 2021, NBC paid ~$7.7B to renew its broadcast rights deal through 2032, the largest deal in the world for the games.

• Sponsorships. NBC is set to surpass $1.25B in ad revenue for the Paris Olympics, a record for the network which has held the rights to the Summer Olympics since 1988.

  • Prime-time viewership over the first four days of the Games averaged 33.8M (+77% from the Tokyo Olympics in 2021).

  • And ad sales continue to thrive…back in April, the NBC sold $1.2B worth of ad time.

    • About 25% of ad revenue was from ads for digital platforms — which ends up being more than double Tokyo’s sales + a new record for Olympic viewing.

• According to NBCU Chair of Global Advertising and Partnerships Mark Marshall, that share should grow to 35% to 40% by the Los Angeles Games in 2028.

• NBCU even said said on Tuesday that it now had ~$500M from new sponsors and captured more advertisers in total than the combined rosters of its Summer Olympics from Rio and Tokyo.

  • What’s even more impressive and the key behind the increase in ad revenue + increase in viewership is that NBCU has begun selling off more ad inventory that had been held back as a hedge against potential under-deliveries.

What does the bidding process look like for a host country to win the Olympic Games?

• For much of the 20th century, the staging and logistics of hosting an Olympic Games was manageable for cities. The events were held in wealthy countries (i.e. Europe or United States), and before television broadcasting, hosts really didn’t expect to turn a profit.

• Nowadays, the bidding process contains very little competition. The 1984 Olympics in Los Angeles was the first of its kind as the only city that bid to host that year’s Olympics. Why?

  • LA already had existing stadiums and infrastructure — so no new arenas or stadiums needed to be built.

  • This + a jump in TV broadcast revenue made LA the only city to turn a profit hosting the Olympics, as they finished with a $215M operating surplus.

• The result? More cities started to bid on the games! And the IOC was able to drive the price up for these bids! And why wouldn’t these countries go for it after seeing these numbers come from the City of Angels?!

  • But, problems arose over the next 2-3 decades as countries like China, Brazil, and Russia invested massive amounts of money to create the necessary infrastructure.

    • Costs rose dramatically (see Table 1)…to over $17B ($13B over budget) for the 2012 Summer Games in London.

    • Sochi spent $50B ($41B over budget) for the 2014 Winter Games

    • And Rio de Janeiro spent $20B ($6B over budget) for 2016 Summer Games (ouch is right!)…

      • …And you might have guessed it, plenty of these newer infrastructures are now vacant (double ouch!).

• This all lead to an insane bell curve effect where now the inflated costs were scaring countries away from bidding for upcoming games. In 2019, the IOC even adopted a new process to help with this issue.

  • They made bidding less expensive, extended the bidding period, broadened geographic requirements to allow for multiple cities/states/countries to cohost — but none of this has worked.

• On top of all these issues, the numbers just don’t seem to be it at the end of the day, which might be why less and less cities are bidding to host the Olympics.

  • For the 2008 Beijing Olympics, the city spent $40B to earn $3.6B.

  • In 2012, London spent $18B to generate just $5.2B in revenue. And the icing on the cake…the host cities don’t even get to keep all of their earnings because the IOC takes more than 50% of all TV revenue, which, like we covered above, is the biggest piece of the pie

Overall, it’ll be hard to fix the problem at hand. One could argue the IOC should only allow wealthy countries to host so other countries aren’t left in economic despair. But that wouldn’t be right. The IOC needs to a find a happy-medium to ensure they’re getting the most out of their host nations while applying the best product for viewers and athletes. The good thing? The IOC has time to figure this out as next Summer Games is in LA 😉.

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Quick Hitter

• 🎤 Can Mr. Worldwide just do that?? The South Miami native and Mr. 305 himself, Pitbull (we all know you know who he is!), has purchased the naming rights to Florida International’s (FIU) football stadium in a multiyear deal. He will pay the school $1.2M annually for the next five years, with the opportunity to re-up for another five. As part of the agreement, Pitbull will record an anthem for the school and promote it on social media. His branded vodka will also be sold in the stadium…is he the Dean now or what’s going on??