The Economy of the Olympics

by Salary.com Staff - Original publish date: August 8, 2012

The Olympics as a Moneymaker

We've watched American athletes win gold (and lose gold). We've watched world records fall. We've found ourselves assessing equestrians and rooting for archers, unexpectedly enthralled by largely obscure events enjoying their quadrennial moment in the spotlight. 

But there is another element, beyond athletic excellence and national pride, framing and shaping the Olympic Games: money. 

Preparing the Host City

Hosting the Olympics is a pricey proposition. 

The British government originally pegged the cost of the London Olympics at about $14.5 billion, but more recent reports estimate costs could hit $20.2 billion. This price tag, funded by a mix of private contributions and taxpayer money, includes the cost of building new competition venues, constructing athlete housing and paying for security. 

And there's no guarantee the investment will yield future returns, as it can often be difficult to keep the large-capacity, specialized facilities in use after the games. The striking Bird's Nest stadium from the 2008 Summer Olympics in Beijing cost $480 million to build and another $11 million per year to maintain, yet has no regular tenant. Eight years after the Athens Olympics, many of the venues built for that even have fallen into disuse and disrepair as well.

"As you watch the London Olympics unfold, be assured that the euphoria that ends with the Closing Ceremonies will quickly be replaced by the harsh reality that comes with paying the bills," said John D. Macomber, a lecturer in business administration at Harvard Business School, in a release last week.

It's All About the Advertising -- Or Is It?

The Olympics may not have the same advertising cache as the Super Bowl, but there is still some major money changing hands: NBC reports that it expects to make at least $1 billion in ad sales during the games. Whether that will be enough to make the games a moneymaker for the network is still unclear; NBC paid a reported $1.18 billion for the broadcast rights to the games. 

For the handful of companies that have decided to become official Olympics sponsors, the costs are yet higher. The right to use to the iconic Olympic rings in promotions cost these companies a reported $90 to $100 million, even before they paid to produce and air advertisements. 

Some experts question whether consumers notice (or care about) official sponsorship enough to make it worth the high costs. Others, however, point out that the Olympics' appeal to a wide demographic range and thus present a unique opportunity for a company to align itself with a very strong brand. 

"So, combine the excellence of multi-sport competition, infrequent occurrence, national pride, and the spectacle and story beyond the games themselves...  it's crystal clear why the Olympic Rings have a golden glow to them," said Harvard Business School professor Stephen Greyser, in a release from the school.

Endorsements

For a select few, the time and cost of training for the Olympics pays off in endorsement deals as well as medals. Athletes who combine performance with personality -- think Michael Phelps' charisma, Gabby Douglas' smile or Lolo Jones' comeback story -- can reap millions.

Jamaica's Usain Bolt, recently re-crowned the fastest man in the world with his 100-meter dash win in London, reportedly makes $20 million in endorsements every year. Olympic veteran Phelps also has his share of endorsement deals, including Subway, Visa and Under Armour, totaling about $7 million per year, according to Forbes, and Phelps' agent has said that the swimmer's most recent wins should help him secure hundreds of millions in future endorsements. 

The future is also bright for newly minted Olympic champion Gabby Douglas, who has two gold medals in gymnastics to her name, along with a bubbly personality and a compelling personal story. She has already appeared in a Proctor and Gamble ad, and struck a deal to appear on boxes of Kellogg's Corn Flakes; analysts generally expect millions more in endorsement deals to come her way.

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