By: Bengu Canliel
When the Olympic flame was reignited in Athens for the first modern Olympic Games in 1896, it was perceived as a mere gathering of athletes. Since then, it has evolved into a mesmerizing global spectacle that transcends sport and unites cultures worldwide. The latest Olympic Games in Paris not only showcased human physical excellence, but also served as a dynamic platform for business opportunities on the world stage.
The multi-billion-euro budget of this summer’s Olympic Games has made it impossible to ignore the economic dimensions of the event. Given that the long-term impact of the Games still unclear, the immediate economic impacts and challenges experienced by different groups provide valuable insights into the business landscape of the 2024 Paris Summer Olympics.
The Olympic Games serve as a gathering place, displaying the shared values and capabilities of the human race. They draw a diverse audience to the host cities from all ends of the world to witness athletes compete across hundreds of events. The 2024 Paris Summer Olympics have successfully followed suit, attracting over 9.5 million ticketholders to watch over 20,000 athletes compete in hundreds of events. Undoubtedly, this year’s games will be marked in history for their outstanding athletic excellence, focus on sustainability, and being the first Games in history to achieve full gender parity amongst their competitors. While there is much to celebrate and discuss about this year’s Olympic Games, it’s essential to examine them from a business standpoint. First and foremost, the 2024 Olympics were projected to generate up to €10.7 billion in revenue and create up to 247,000 jobs. Though these economic gains sound highly promising, it is important to note they were not guaranteed. Not all outcomes are positive, and not all economic benefits are expected to be sustained in the long-run. For example, even if that many jobs were created, the Bank for Reconstruction and Development claims that these jobs created by Olympics construction are temporary and unlikely to translate into higher levels of employment in the future.
While some stakeholders will benefit financially, others suffer significant losses. The promise of economic benefits also comes with challenges including debt accumulation and the underutilization of sports facilities. From a purely economic perspective, it appears that the Olympic Games have failed to meet all their financial expectations and promises.
THE HIGH-STAKES OF HOSTING THE OLYMPIC GAMES
Hosting the Olympic Games has historically represented a challenging and costly endeavour. Paris won the bid in 2017 and was named the host city of the 2024 Olympic Games. The preparations for the 2024 Games began effective immediately, as planning for the influx of athletes and spectators is a lengthy, complex, and resource-intensive process. In the past, the high costs were justified as the Olympic and Paralympic games proved to be prosperous athletic competitions that had the ability to put the “city on the world map,” boost local tourism, and encourage business and investment activities. The competition to host the Games was incredibly intense. However, in recent decades, the costs of hosting the Olympic Games have skyrocketed, and the spending for the Olympic Games hasn’t outlived the Olympic Games. The spectacle is increasingly associated with long-term costs, including budget overruns, long-term debts, wasteful infrastructure, displacement, gentrification, and environmental harm. While hosting the Olympic and Paralympic Games was once strongly desired by many cities for its economic benefits, it has become an extraordinary feat, and one that is “financially untenable.”
The Olympics are notorious for cost overruns, with the last 2 most recent host cities (Rio 2016 and Tokyo 2020) exceeding their budgets by over 100% Paris was no exception. The final budget for the Paris Olympics surpassed the initial budget of $8 billion by a couple of billion dollars. However, in sharp contrast to the 2016 Rio Games and 2020 Tokyo Games which deviated from their initial budgets by 350% and 280% respectively, the Paris Olympics have successfully remained close to their initial cost estimates.
A substantial fraction of the expenses is allocated to urban planning and architectural design, both of which are central to the development of the global sporting event today. Infrastructure is adapted not only to accommodate for the venues and facilities, but also to ensure a safe and enjoyable experience during the Games. Yet, this pursuit of a ‘tangible legacy’ has resulted in expensive sports infrastructure that is unsustainable in the long run. Many host cities have been criticized for prioritizing short-term glory by building infamous “white elephant facilities”, only to leave them to be abandoned or underutilised after the Games. For example, Beijing’s famous “Bird’s Nest” cost $460 million to build in 2008, $10 million to maintain each year, and was mostly unused until the 2022 Winter Games.
This year, the 2024 Paris Olympic Games promised us a more economically, environmentally, and socially sustainable Olympics, diverting their focus away from this tangible legacy. As part of this sustainability commitment, the 2024 Games decided to limit the construction of new facilities and to rely on existing or temporary sports venues instead. According to the S&P Global Ratings report, 95% of the venues used for the Olympics existed prior to the city’s winning bid to host the games. The only 3 that were built afterwards from scratch were the aquatic centre in Saint-Denis, the Olympic village, and the gymnastics and badminton facilities. By doing so, the Paris Games showcased that the effective leverage of existing infrastructure is not only a sustainable and responsible alternative to hosting large-scale events, but also one that could significantly reduce their costs and bring substantial economic benefits to host cities at the same time.
HIGH COSTS DRIVE TOURISTS AWAY
While the 2024 Paris Olympic Games may have attracted millions of ticket-holding visitors, international markets showed a significant avoidance of Paris between July 26 and August 11 as tourists and residents fled from the sky-high prices in the capital for the duration of the Games. According to Forbes, this displacement was not constrained to the capital, as travel between Paris and other destinations in France also fell below the usual June-August average, with many travellers postponing their holidays or following alternative travel plans outside of the country. This sudden decline in tourism and travel to France has significantly impacted Air France, as the national airline announced an expected loss of €180 million in revenues in this financial quarter despite making a profit of €9.3 billion in the same quarter last year.
Hospitality in Paris was an industry that experienced a similar spiralling downward trend. Over the duration of the Olympic Games, the hotel prices in Paris were priced at a premium to match the high demand, averaging a 50% increase. They were also aggravated by an increase in tourist tax which required tourists to pay almost 200% more tax per night. Due to the inflated prices, hotel occupancy rates fell short of the average occupancy rate (81.4%) in July of the previous year.
LOCAL BUSINESSES STRAIN UNDER LOW SPENDING
Despite optimistic forecasts, many of Paris’s renowned shops, restaurants, bars, and clubs faced an “unprecedented slump in business” over the 19-day period of the Olympic Games. First and foremost, event-related inflated prices may have caused tourists to budget for other aspects of their day-to-day, leading them to spend less on leisure and eating out. Another contributing factor is the heavy security measures that were imposed in the areas in close proximity to the Olympic competitions. Measures included physical metal barriers, police checkpoints, the requirement of special QR codes, and digital passes, all of which made the city centre incredibly difficult to access, leading to light crowds. Given the high concentration of these security measures in the city centre, the rapid decline in revenues was mainly absorbed by businesses centrally located and reliant on footfall tourist volumes.
THE FINE LINE BETWEEN ECONOMIC LEGACIES AND GENTRIFICATION
The Paris Olympic and Paralympic Village was built in Seine-Saint-Denis, one of France’s most impoverished neighbourhoods and is also the neighbourhood that is projected to see the most permanent changes following the Olympic Games. A vast amount of Olympic infrastructure was built in the region in preparation to welcome 20,000 athletes. This list is not exhaustive of: a new aquatics centre, new roads, bridges, and powerlines. The flow of money and investment into the region is expected to improve the image of the area in the eyes of international investors and generate economic prosperity in the long run.
Additionally, the facilities that were constructed for the Games, including the athletes’ villages, are scheduled to be repurposed into office and housing spaces, which could prove to be a significant catalyst for economic growth in the neighbourhood. Although economic prosperity in Seine-Saint-Denis is a possible outcome of the Olympic Games, it is equally important to consider the opposing viewpoint– that the increased attractiveness of the neighbourhood may expedite gentrification, potentially at a great cost to its current residents. As demand rises, rent prices are likely to skyrocket, making living conditions incredibly expensive and unaffordable for many. The displacement of lower-income residents could be a detrimental consequence of the 2024 Paris Olympic Games.
Given that it has only been a couple of weeks since the Olympics, it is difficult to evaluate the impact of the Games on the region at this given moment. The true impact of the Games on Seine-Saint-Denis will become clearer in the near future.
It is evident that investments in the Olympic Games present a significant gamble due to the complex and far-reaching effects on various industries and stakeholders in Paris. As previously outlined, it is too soon to be able to identify the full scale of the economic impacts of the Olympic Games. As more data is accumulated regarding tourism trends and business performance in Paris and Seine-Saint-Denis in the coming months and years, a more accurate assessment of the lasting legacy of the 2024 Olympics will become apparent. Looking ahead, here are a few key questions that arise: Will the infrastructure created for the Olympics be effectively repurposed as promised? Will the anticipated revenues be achieved? Will the Games contribute to gentrification, potentially displacing the vulnerable populations of Seine-Saint-Denis?
The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.
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