February 9, 2018 / 5:05 AM / 3 months ago

Breakingviews - Korea can aim for Olympic economic bronze

By Jeffrey Goldfarb

Ski Jumping – Pyeongchang 2018 Winter Olympics – Men’s Normal Hill Individual Qualifications – Alpensia Ski Jumping Centre - Pyeongchang, South Korea – February 8, 2018 - Richard Freitag of Germany competes. REUTERS/Dominic Ebenbichler

HONG KONG (Reuters Breakingviews) - Organizing the Olympics is generally a losing economic proposition. In one financial competition, though, South Korea can aim for bronze.

The 2018 Winter Games, whose opening ceremonies will be held on Friday, are set to cost some $13 billion. This includes expenses for stadiums, lodging, transportation and more. It’s nearly double the original estimate when Pyeongchang was chosen, a fairly standard sort of upward budget revision for the event.

Olympic supporters like to tout the benefits of tourism, trade and foreign direct investment for host cities, but the research is inconclusive. Norway, for example, expected a visitor boom after the spectacle took place in Lillehammer in 1994, but one study found the reality was more sobering. Increased public debt and lost alternative opportunities are also risks.

This year, a show of unity with North Korea may yield some sort of peace dividend. The direct and tangible sources of income from international skiing, bobsledding and curling contests are less promising. 

The past two decades are instructive, with the advent of lucrative broadcasting contracts. TV revenue generated for the Salt Lake City games in 2002 equaled about 30 percent of the modest $2.5 billion tab. Not all of that money trickles back to the organizing committee, though. Throw in sponsorship, tickets, licensing and other sources of income – as spelled out in Olympic marketing materials – and Utah’s capital covered around half its costs.

Vancouver and Turin, Italy, managed to recover nearly a quarter of their outlays from the same kind of direct revenue. By comparison, the excessive expense of holding the games in Nagano, Japan, and Sochi, Russia, was far too high for the likes of U.S. network NBC or Coca-Cola to make much of a difference with their contributions. The ratio of revenue to cost for those cities was under 5 percent.

Pyeongchang would need to reap some $3 billion to match the rate achieved by Vancouver or Turin. That sounds like a stretch, based on Sochi’s $2.2 billion haul and considering the corruption scandals in Korea that encompass corporate titan Samsung – a potential deterrent for sponsors. Still, it’s a reasonable target. In terms of financial planning, the Olympics is something of a freestyle event. 

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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