A year and a half ago I wrote about the who pays for the Olympics in Beijing. Weakonomics was in its infancy but it remains one of my most favorite posts to date.
Now the Vancouver Winter Olympics are just around the corner. I’m going to retouch some things from that post but I’m also going to expand and focus on some of the details of the business behind the Olympics in Vancouver.
But first, let’s look at how all Olympic games are paid for. In order to pick which city and country will play host for the Olympics, interested parties submit bids to the International Olympic Committee (IOC). This was previously rumored to be a situation in which various people may bribe or try to sway opinion in “inappropriate” ways. New rules keep this from happening.
Vancouver won the bid, but as far as I can tell, the bidding does not include any direct transfer of funds from any parties to the IOC. That happens elsewhere.
The IOC handles all the money making ventures not through the winning bidder, but like any other media event. They sell the rights to broadcast the games all over the world. Media companies will usually bid on a country-by-country basis. In the US, NBC has been the home of the Olympics since 2000. They have the rights for Vancouver and for London which will be the summer games in 2010. They paid over $800 million for Vancouver and even more for London. NBC met the bid that the IOC wanted, whereas competing bids from FOX and ESPN were much less desirable. ESPN proposed a revenue share, which the IOC was not interested in. Similar, though probably less expensive deals were made with other networks in other countries. The IOC further raises money with official sponsorships such as Visa.
The local and national government of Canada will invest significant resources in upgrading or building facilities to host the games. They’ll also provided much needed security through the Royal Canadian Mounted Police. Governments and businesses are happy to provide the funding because they expect to make it back with tourism money and getting their region on the international stage.
So the IOC uses the governments to build facilities and media companies to broadcast the games, but they still have to pay for a bunch of overhead and someone has to buy all those medals right? Well, the estimated cost to run the Olympics in Vancouver is a little under $2 billion. However this number could be as high as $6 billion. No one knows for sure.
Now before I let you go we need to go back to NBC. Remember they’re shelling out what will amount to a couple billion for the rights to broadcast the Olympics in Vancouver and London, and that doesn’t even include the cost of sending over hundreds of NBC employees and production staff to film the thing. They expect to make their money back. Or at least they expected to make their money back. Back when they placed their bid, the economy was doing great. NBC projected revenue from the advertising they would sell to at least outpace their costs, otherwise they probably wouldn’t bother with a bid at all.
But we’re in a recession. Advertisers aren’t spending what they once did for commercials, even during big ticket items like the Olympics. General Motors used to be counted on for $100 million in advertising sales, but going bankrupt put an end to that. NBC’s former owners (GE) stupidly announced publicly that they expect to lose $200 million on the Olympics this year. Making an announcement like that before all the lines had been signed on advertising deals probably gave some advertisers more bargaining room. So the losses could certainly be higher. NBC is now owned by Comcast, so they get to sweat it too.
All this and we haven’t yet covered everything. Who pays for the Olympic teams? The US Olympic team may be close by, but someone has to pay for them to get to Vancouver and give them all their cool clothes. They have their own sponsors, many of whom will also be advertisers on the TV broadcasts. Some countries will receive money directly from their government, if the US team needed it they would too, but I doubt they need it. You can also donate of course, but seriously, don’t.
So like I said the first time around, we all pay for the Olympics one way or another. Whether your tax dollars are building a stadium or you buy the products you see advertised while you watch the white knuckle intensity that is curling, it’s you that pays for the Olympics. Be proud, the Olympics are awesome. And while we barely won the medal count (lost the gold count) to the Chinese in 2008, it’s the Canadians and Germans we will focus on this time.