What If You Could Invest In The Olympics?
Would it be a good idea?
With the Olympics winding down I figured I would take a moment and look a them from a financial planner perspective. Here goes.
The 2016 Summer Olympics kicked off on August 5th and will end on August 21st. Brazil’s Rio de Janeiro has been playing host to over 200 countries and 10,000 athletes.
The vast majority of news stories about this summer’s Olympics have been negative. Brazil’s political corruption and turmoil, infrastructure barely built, polluted waterways, collapsing bike paths, athletes cancelling, unsold tickets, and team doping scandals, just to name a few.
Let’s keep in mind that Brazil is also ground-zero for the Zika virus. Let that sink in.
If this was a publicly traded stock, the value would have plummeted!.
But that’s not what I want to think about right now.
Olympics INC.
Instead, I want to think about the business of the Olympics. For me that is the real Olympic Games
Consider this question:
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?
My first thought is about the purpose of the Olympics. In addition to athletic competition, I think you would agree that the games are a world unity and peacemaking initiative.
You always want to think about what a company is doing to better the world. “Good Will” goes a long way…
Unfortunately the buck stops there…
From a financial perspective investing in the Olympics might not be a good decision at all. Here is why
First, here are the estimated costs of the last four Olympics, and the projected cost of the upcoming games in Rio:
- Sydney 2000: $4.7 billion
- Athens 2004: $10 billion
- Beijing 2008: $42 billion
- London 2012: $11 billion
***Rio 2016: $15 billion budgeted, but costs expected to exceed $20 billion
Notice how the cost to the host city peaked dramatically in 2008? What else happened in 2008? Oh, yea, we had a global financial crisis… You don’t have to be a professional to see the connection here.
Now, most economists would agree that cities that host the Olympics rarely, if ever, break even. Especially considering the once a century facility usage, and in Rio’s case, it’s 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 is expected to receive at most $4.5 billion in revenue.
Believe it or not, I’m not sure under what circumstances investing in a “company” that had expenses of $20 billion with revenues of $4.5 billion makes sense. But let’s see if that revenue number should be higher – because I know the expenses will continue to creep northward.
The Expectations
Host cities promote two things to their citizens when they bid for the Olympics.
- There would be an increase in tourism.
- The infrastructure to be improved/built would have long lasting positive effects.
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. Zilch
Results
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). And in Rio’s case, this publicity might actually be harming the city’s image more than it is helping.
Let’s further analyze 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 Rio in 2017 and spends $1 – now we’re up to $6 billion in “revenues” to the host country. And interestingly enough, studies have suggested that the summer games might generate $5-6 billion in total revenue, so that’s not far off from our assumption. Unfortunately, nearly half of that goes to the International Olympic Committee.
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. So I’ll stick with $6 billion.
So, here is what we have: a company with expenses of $15 billion (on the low-end) and revenues of $8 billion (on the high-end).
Conclusion
So that makes my conclusion 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.
Source data:
https://en.wikipedia.org/wiki/Cost_of_the_Olympic_Games
http://www.businessinsider.com/summer-winter-olympics-sports-cost-2015-7
