The Economics of the Olympics
By David Henderson
There’s a widespread view that holding the Olympics must be a money-losing proposition. One of our frequent commenters, Tom West, expressed that view recently. That view is understandable because losing money has been the norm. When the Olympics were held in Montreal in 1976, for example, the loss amounted to $2 billion, which was $700 per Montreal resident. And remember that that was in 1976 dollars. That loss resulted in a special tax on tobacco because, you know, smokers are such fans of the Olympics.
But there’s no necessity for the Olympics to lose money. The recent case in point is the 1984 Los Angeles Olympics, which actually made money. How so? Because the person who organized them, Peter Ueberroth, president and general manager of the Los Angeles Olympic Organizing Committee, ran the show with a tight fist. Why did he do it? He had to. Here’s how Claudia La Rocco put it, in “Rings of Power: Peter Ueberroth and the Los Angeles Olympic Games” [pdf] Financial History, Spring 2004:
[H]e, along with a majority of Los Angeles citizens, had voted against funding, amending the city’s charter so that taxpayers would not be responsible for the then-expected Olympic deficit.
So Ueberroth did his best not to build new expensive facilities that would be used only for a few weeks but, instead, to use old ones. I’m sure he noticed, as any visitor to, say, Munich (1972) does, that many of the facilities are essentially abandoned. The only new facilities built, according to Wikipedia, were a “swim stadium and a velodrome that were paid for by corporate sponsors.”
Ueberroth got large contributions from a number of corporate sponsors and drove a hard bargain with NBC for broadcast rights. The result? A $215 million “profit” that was donated to charity.