What if You Could Invest in the Olympics?

The 2018 Winter Olympics kick off on February 7th and end on Sunday, February 25th. PyeongChang, South Korea will play host to over 90 countries at 13 venues where over 2,800 athletes will be competing for hundreds of medals across 15 disciplines. The 15 disciplines are categorized into three main categories: (1) ice sports, (2) alpine, skiing and snowboarding events, and (3) Nordic events.

As I’m sure you’ve noticed, the vast majority of news stories about this Winter Olympics have been negative. The political turmoil with North Korea, safety concerns in the region, the Norovirus, weather that might be too cold, another IOC scandal, and Russia’s ban, just to name a few. And let’s not forget that South Korea and North Korea, while sort of cooperating, still don’t really like each other.

But that’s not what I want to think about right now. Instead, I want to think about the business of the Olympics. More specifically, I want to address this question: as a financial advisor, if it were possible to invest in a stock that was directly correlated to the success (or not) of the Olympics, would it be a
good investment? Here are some thoughts.

The Olympics are Expensive to Hold
First, here are the estimated costs of the last few Olympics, and the projected cost of the upcoming games in South Korea.

Sydney 2000: $4.7 billion
Athens 2004: $10 billion
Beijing 2008: $42 billion
Vancouver 2010: $6.4 billion
London 2012: $11 billion
Sochi 2014: $51 billion
Rio 2016: $13.9 billion
PyeongChang 2018: projected to be $12.9 billion

Now, most economists would agree that cities that host the Olympics rarely, if ever, break even. And in Rio’s case, it was pretty ugly. According to Andrew Zimbalist – a sports economist at Smith College whose recent book, “Circus Maximus,” examines the economic consequences of the Olympics and the World Cup – Rio received at most $4.5 billion in revenue.

I’m not sure under what circumstances investing in a “company” that had expenses of $14 billion with revenues of $4.5 billion makes sense. But let’s see if that revenue number should be higher – because
I suspect the actual expenses were higher than reported.

Tourism and Infrastructure
There are two common themes that host cities tout when bidding for the Olympics.

The first is that there will be an increase in tourism and the second is that the infrastructure to be improved / built will have long lasting positive effects for the residents of the host city.

The Olympic Games, watched by millions on television all over the world, offer a city publicity that is almost unrivaled. In 2011, NBC agreed to a $4.4 billion contract with the International Olympic Committee – the group in charge of the Olympics – for the rights to air the Olympics through 2020. And in 2014, NBC agreed to a $7.8 billion extension that carries through the 2032 games.

But besides the great publicity, how much does a host city make from this television arrangement? The answer is nothing. But for purposes of this exercise, let’s say the host city receives ALL of it – or roughly $2 billion – that’s about the revenues per game paid to the IOC by NBC (actually nearly half of that goes to the International Olympic Committee).

Let’s further make some assumptions with respect to the benefits of tourism to a host city, but from a simpler approach. Imagine that every man, woman and child from the globe travels to South Korea in 2018 and spends $1 – now we’re up to $6 billion in “revenues”
to the host country.

Interestingly enough, a few studies have suggested that the summer Rio Games generated $5-6 billion in total revenue, so that’s not far off from our assumption (try to ignore the obvious question of how many world-travelers intend to go to South Korea soon).

And here is another thing to think about: a fair comparison of how much money is spent because of an increase in tourism requires some sort of estimate of how much would have been spent without them. And that’s enough to make your head spin. But let’s stick with $6 billion.

So, here is what we have: a company with expenses of $14 billion (on the low-end) and revenues of $8 billion (on the high-end).

Those numbers make my conclusion as your financial advisor pretty straightforward: if you could invest in the Olympics in the same way you could buy stock in Exxon Mobile or General Electric or IBM or Wal-Mart, I’d tell you not to do it because it’s a terrible investment idea. But shorting the Olympics might be a great investment idea…

Nevertheless, the Olympic Games will go on and for those attending or watching, it is sure to be a magnificent show.

But when the games end, the people of the host city and country will be left holding the proverbial bag.