Why Are the Olympics So Expensive?
Olympic host cities take on enormous financial risks in hopes of economic and cultural rewards. Tokyo 1964 was the ultimate triumph, but Paris 2024 may find it harder to justify the expense.
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Today, we will talk about Tokyo 1964, Paris 2024 and why it is so difficult to make the economics of the Olympics work.
Also this week:
Duolingo’s notification hacks
The 17th century invention of the suit
…and them wild memes (including Justin Timberlake)
The Paris 2024 Summer Olympic Games kicks off in a month.
An estimated 15 million visitors will descend on the city to see some next-level spectacles including beach volleyball next to the Eiffel Tower, horseback riding at the Versailles Palace and highly sophisticated protestors dropping deuces in the Seine River (for real, there is a movement to disrupt the preparation of the Games called “Je Chie Dans La Seine Le 23 Juin”, which translates to “I poop in the Seine on June 23”).
Aside from the athletics, the most interesting Olympics topic is the outrageous cost to host the event. You need at least ~$10B to throw one of these bad boys and the expenses always spiral out of control. A study from Oxford researchers (Bent Flyvbjerg , Alexander Budzie, Daniel Lunn) found that every Olympics from 1960 to 2016 — a total of 30 Summer and Winter Games — ran over budget, at an average of 172% in real terms (Tokyo 2020 wasn’t included in the study but let’s just say it did the opposite of stay under budget).
Was the cultural exposure and reinvigoration worth the financial headaches for these host cities?
There is only one clear “yes” — Tokyo 1964 — while the other cities have been a mixed bag.
We can understand why by answering the following questions:
What made Tokyo 1964 a success?
Which cities can even host the Olympics now?
How will the Paris 2024 Olympic Games fare?
What made Tokyo 1964 a success?
A BBC Sports World podcast on Tokyo 1964 explains how it was one of the greatest urban projects ever and shines light on why it is basically impossible for Olympic events to achieve the same benefits for a host city.
The Tokyo Olympics story traces back to 1959, when the city — which was a far cry from the Tokyo in our popular imagination — won the bid for the 1964 Summer Games. The Fire Bombings of Tokyo in World War II had taken place just 14 years earlier, when the US Air Force conducted "the most destructive bombing raid ever".
During America’s post-war occupation of Japan from 1945 to 1952, the country received a new constitution and had its economy reorganized but the reconstruction of the cities was slow.
In the late 1950s, Tokyo was still a "polluted mess" that few wanted to visit:
The roads were poor and the traffic was very bad
The sewage system was underdeveloped with only 1/4th of the city equipped with a flush toilet
The city’s tallest building maxed out at 10 storeys (that’s right, 10 storeys…wild)
This basic infrastructure was strained by the city’s rapidly rising population, which grew from 3.5m people in 1945 to 10m people in 1963.
For Japan, the Olympics — which was the first to be hosted in Asia — was a ticket to re-enter the global community. It was also an opportunity to modernize Tokyo and invite foreign investment. The 1964 Olympics slogan ("Faster, Higher, Stronger") is exactly what the Japanese government wanted for the city of Tokyo.
Between 1959 and 1964, Tokyo constructed:
10, 000 new buildings
8 overhead expressways
2 subway lines and a monorail (including the baller line that connected Haneda Airport to downtown Tokyo)
Most memorably, the government also built a bullet train between Tokyo and Osaka (which was unveiled by Emperor Hirohito just 9 days before the Opening Ceremony).
One historian told BBC Sportsworld that Tokyo's rapid change over five years was “the greatest urban transformation ever”. The timing for Tokyo 1964 also benefited from a technological coincidence. The early 1960s saw a boom in color TV sales and Tokyo would be the first Olympics to broadcast the Games live in color, making it the perfect media spectacle to advertise Japan to the world.
For Japanese citizens, the Tokyo 1964 Olympics was book-ended by two very memorable events:
Opening Ceremony: Yoshinori Sakai — who was born in Hiroshima on the day the 1st atomic bomb dropped (August 6th, 1945) — lit the Olympic flame.
The Japanese women’s volleyball team beat the Soviet Union in the inaugural volleyball tournament to close out the Games.
Within four years of the Tokyo Olympics, Japan had become the world's second-largest free-market economy. The year of the event was almost the exact midpoint from the end of World War II and the height of the "Japanese Economic Miracle," which saw some truly insane asset prices reach their peakiest peak in 1989:
Top-tier Tokyo real estate costed $139k a square foot, which was 350x comparable prices in Manhattan (the real estate market would lose 80% of its value over the next decade after the bubble burst)
Land under the Imperial Palace was worth more than all of the real estate in California (this includes every single In-N-Out Burger joint…which is impressive)
The Japanese stock market was larger than the US stock market and represented 44% of global equities (peak-to-trough, the Japanese market would decline by more than 70%)
Since 1964, a few host cities have approximated the success of Tokyo’s first Olympics by combining an economic boost with the “re-introduction of the country to the global stage”:
Seoul (1988): This was the 2nd Olympics hosted in Asia after Tokyo. The Games took place 30+ years after the end of the Korean War, which split the peninsula. More timely, it took place one year after the 1987 South Korean elections, which ended nearly four decades of authoritarian rule in the country.
Barcelona (1992): Long-time Spanish fascist dictator Francisco Franco died in 1975 after 36 years of rule. Under the leadership of King Juan Carlos I, Spain transitioned to a democratic constitutional monarchy. The 1992 Olympic Games in Barcelona — most remembered for the Michael Jordan-led US Dream Team — reinvigorated the city and turned it into a global tourist hotspot (where I smahsed a comical amount of Aperol Spritzes, patatas bravas, and Iberico ham a few summers ago).
Beijing (2008): China was admitted to the World Trade Organization (WTO) in 2001, which signified its re-entry into the global economy. The late-2000s was halfway through a multi-decade run of massive economic growth and nearly two decades after Tiananmen Square (this Games lost a lot of money, though)
While these Games were monumental in their own right, Tokyo 1964 was still much more impactful for Japan than the other three events were for their countries. It took place while the city had yet to be rebuilt after total destruction and coincided with the advent of the color TV.
Moving forward, the clear economic victory of the 1964 Tokyo Olympics looks unlikely to ever be replicated.
Let’s discuss why in the next section.
Which cities can even host the Olympics now?
The Tokyo 1964 Olympics costed $200m or $2B in 2024 dollar.
That is an absolute deal compared to the cost of recent games.
Due to COVID — which reduced ticket revenue, increased health safety costs and delayed the event by a year — Tokyo 2020 ended up costing $35B, more than double the initial budget estimates. The previous 7 Summer games cost an average of ~$20B, which includes the cost to build out 20+ stadiums and an Olympic Village. Looking at all 30 Summer and Winter Games from 1960 to 2016, the average cost to host the Olympics is $12B.
How many cities can afford a $10-20B investment commitment? Not many!
Also, the risk of a cost overrun is almost assured because literally every major construction project comes in over budget. Estimates are always too rosy and shit always hits the fan (dealing with unions, corruption, contractors, construction difficulties and fluctuating building part costs).
The Olympic Games are a special class of financial risk, though.
According to the aforementioned Oxford study, the cost over-run on Olympic Games (+172%) is significantly greater than that of comparable mega-projects in IT (+107%), dams (+90%), rail (+45%), or bridges and tunnels (+34%).
Here are four reasons:
Hard deadline: Mega-projects often trade off between schedule and cost. If construction costs are too onerous, a project can be delayed. However, the Olympics have a hard deadline — the Opening Ceremony — and host cities will pay anything to finish on time.
Inflexible requirements: Similarly, the host city can’t trade off venue specs for cost. The decathlon track, bobsledding course or swimming facility must meet the event requirements.
Legal agreement: The two previous constraints are hardened by the fact that a host city enters into a very very legally binding agreement with the International Olympic Committee (IOC) — which organizes the Olympics — to make sure the event takes place. This legal guarantee misaligns incentives. The IOC doesn’t really care what the host city spends as long as the deadline is met. Once you sign that contract, it makes a lot more sense to follow through than to back out. In fact, Denver is the only city to win a bid (1972) and walk away from the commitment.
Economic Cycles: Cities typically bid on the Olympics when they are feeling flush, but the actual event takes place 5-10 years later. During this interim period, a gazillion things can happen in a typical economic cycle that could deplete the coffers.
“When problems arise there can be no trade-off between schedule and [cost or design], as is common for other mega-projects,” according to the Oxford researchers. “All that managers can do at the Olympics is to allocate more money, which is what happens. This is the Blank Check Syndrome.”
Two Summer Olympic host cities that really got Blank Check’d were:
Montreal 1976 was over-budget 13x and it took 30 years to pay off the debt that was issued to finish building the venues.
Athens 2004 took on so much debt that it impaired government finances and was part of a chain of events that led to Greece’s financial crisis in the early-2010s.
Other financials pains of hosting the Olympics include:
Less media revenue: The IOC has significantly increased its share of the lucrative TV rights deals, rising from 4% in 1990s to 70% for Rio 2016.
Ongoing maintenance: Upkeep for (often unused) stadiums and venues can cost as much as $30m a year.
Locals citizens…are usually pissed because of the disruption to their daily lives and the fact that they lose out on prime real estate.
Meanwhile, the bidding process sucks.
It is long and very expensive. A recent example is Chicago, which spent 10 years and $100m to not get the 2016 Olympics.
Taking all of these factors into consideration, it is easy to understand why fewer and fewer cities are making a play for the Games. The number of cities bidding on the Summer Games decreased from 12 for 2004 to 5 for 2020. The 2022 Winter Olympics only had two bidding cities, with China beating out Kazakhstan.
The bidding process for the upcoming 2024 Olympics was quickly narrowed down to only two contenders: Paris and Los Angeles. They ended up splitting the next two events with the West Coast city set to host the 2028 Summer Games (on a very related note: Los Angeles was a pioneer in utilizing existing facilities and the city’s 1984 Summer Games is considered the most financially successful modern games, turning a profit of $250m even including the cost over-run).
Also remember that it is hard to transfer the learnings from one event to the next. This adds to the risk. What could Seoul in 1988 actually teach Rio in 2016 about how to throw a first-time Olympics? It’s just completely different geographies, labor markets and financial situations. The Oxford paper calls this the Eternal Beginner Syndrome.
What this means is that as fewer cities participate —because of the prohibitive investment commitment — fewer cities will ever know what it takes to throw a $10B-$20B mega-event. Eventually, the pool of host cities for the Olympics and the World Cup will dwindle down to only the biggest hitters that can actually apply lessons from previous hosting experiences.
Unlike Tokyo 1964, it’s nearly impossible for an "up-and-coming" city to justify spending $10B+ to host a future Olympic games.
But if I had to guess which first-time city would be next: maybe Buenos Aires in 2040m if Javier Mileil's financial reforms work and Argentina's economy booms in the following decade (the city did host the 2018 Youth Olympic Games).
How will Paris 2024 fare?
Paris 2024 will be the first real test of a “compact Olympic Games”, the idea that a mature city can keep costs under control by utilizing existing facilities.
The 2020 Tokyo Olympics was supposed to provide a model for this approach. The city used many existing sporting venues and the main ones were within 8km of the Olympic Village. However, COVID happened and blew up the budget.
According to Reuters, Paris 2024 has only exceeded its original budget by 37% and is set to host the games for under $10B. This is significantly less than Tokyo 2020 ($35B), Rio 2016 ($13B), London 2012 ($13B), Beijing 2008 (which went absolutely HAM at a cost of $53B) and Athens 2004 ($19B).
These costs swamped the revenues. While TV broadcast rights have risen in recent decades, each of the last four Games — Tokyo, Rio, London and Beijing — brought in less than $6B in revenue.
A major reason Paris has kept a cap on costs is that 95% of the events will take place in existing facilities or those that require “minor refurbishment”.
The French government only undertook three major construction projects, totaling less than $2B including ~$200m for an aquatic centre, ~$150m for a gymnastics arena and $1.6B for the Olympic Village (which presumably includes the cost for 200-300k condoms provided at each Games because young fit athletes are unsurprisingly very horny). After the Games, the Olympic Village will provide housing for up to 6,000 residents.
If the budget stays under $10B, the Games could stay financially acceptable. Tickets from 15m visitors, TV and marketing deals are expected to bring in $5B (which will cover IOC’s operating expenses). Meanwhile, the city expects an economic benefit of $10B from housing, F&B and other consumption. These estimates are usually way optimistic, though, and how much of that spend would have happened anyways since Paris jukes so hard in the summer?
While the financials look decently rosy, there are major security concerns and French politics — which was just plunged into chaos after President Emmanuel Macron called a snap election — threatens to overshadow the event.
I hope everything shakes out well and am excited to watch.
Paris has great Olympic history. It hosted the 2nd modern games in 1900, which was also the first to have women participate. The city was host again in 1924 and created the first Olympic Village.
In 2024, they will be showing some classic Paris sites.
The MegaBuilds YouTube channel has a great breakdown:
We mentioned volleyball at the Eiffel Tower and horseback riding at Versailles.
There’s also events at the famed French Open stadium Roland-Garros.
Archery at the Les Invalides Complex, the site of Napoleon’s coffin.
Taekwondo at the Grand Palais.
There will even surfing in Tahiti. Yes, that Tahiti. It’s part of French Polynesia — a semi-autonomous territory of France — in the South Pacific (it became a French colony in 1880, which was 7 years before modern-day Vietnam became part of a French colony dubbed French Indochina).
The transformation I’m looking forward to is the Seine River. It will play a major part in the Open Ceremony and be used for swimming events.
This is a major development because Paris has banned swimming in the river since 1923 because of dirty water. The Organizers are hoping that an updated sewage system will fix that issue.
The organizers are also probably hoping that not too many protesters show up for “Je Chie Dans La Seine Le 23 Juin” (or the day after that or the day after that or the day…).
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Links and Memes
Duolingo’s notification hacks: The language learning app has mastered streaks as a hook to keep users coming back to the app on a daily basis. Ben Cohen at the Wall Street Journal broke down the numbers:
70%+ of the 30m daily active users have a week-long streak
5m users have a streak of at least one year
The longest active streak is 4,100 days
One dude in the article was so hyped to keep his streak going that he whipped out the app at Everest bass camp to complete a lesson. The overall effect is clearly working: Duolingo went public in July 2021 and its market cap has more than doubled from $4B to $8.6B.
Duolingo’s top two nudges to get users coming back are:
Streak-saver notification: “It pops up on your phone when there’s an hour left in the day, often with the alarm of a siren emoji.”
Passive-aggressive notification: “After a week of inactivity, Duolingo gets the hint and stops sending messages. But on that seventh day, before it rests, the app tries one last notification: ‘These reminders don’t seem to be working. We’ll stop sending them for now.’”
The cynical take on notifications is that a Duolingo streak doesn’t actually mean you’re learning a language. A week fully immersed with a Spanish speaker is probably worth a 4,100-day Duolingo streak (see this TikTok for a good laugh). On the other hand, 99.9% of smartphone apps are dumpster fires of wasted time and empty dopamine drips. Duolingo has to fight fire with fire by using engagement hacks.
Either way, I need to start using the 🚨 emoji more in all digital communications.
***
The 17th century invention of the suit: The Rest is History podcast has a great history on the invention of the suit and tracks it back to an exact date: October 7th, 1666. This was one month after the Great Fire of London, which gutted the city. One of King Charles II’s responses to the disaster was to declare a new dress code: a vest, which would eventually become a waistcoat, which morphed into the modern-day suit.
The rationale behind the decision was to support the English wool trade and “teach the nobility thrift” during a period that London was rebuilding itself. The latter rationale was partially in contrast to France’s King Louis XIV, who liked to flex on plebs with gaudy gear and appropriated 1/5th of the state’s budget to build Versailles (the Sun God spent up to $300B in 2024 dollars to build that palace).
Charles II's humble look did not mean cheap, though. The suits still signified wealth and status because of how difficult it was to keep the fabric in good condition. Black jackets frayed easily, so if your jacket was always black, it clearly meant you could afford multiple new fabrics. Keeping a white shirt clean meant you could afford to send it to cleaners in the countryside. Today, all I have to do to keep my whites white is hit to the discount clothes aisle at Costco and grab as many Kirkland shirts as I can fit in one hand.
***
The House of the Dragon: No spoiler alerts here other than to say that the first episode of Season 2 made me sick to my stomach. Here is a fun fact for Game of Thrones fans: author George R. R. Martin initially didn’t want to include dragons in the saga for A Song of Ice and Fire.
In a 2017 interview, Martin explained the challenge of balancing magic and reality (and who convinced him to keep the dragons):
“I did consider in the very early stages not having the dragons in there. I wanted the Targaryen’s symbol to be the dragons, but I did play with the notion that maybe it was like a psionic power, that it was pyrokinesis — that they could conjure up flames with their minds. I went back and forth. My friend and fellow fantasy writer Phyllis Eisenstein actually was the one who convinced me to put the dragons in, and I dedicated the third book to her. [...]
Fantasy needs magic in it, but I try to control the magic very strictly. You can have too much magic in fantasy very easily, and then it overwhelms everything and you lose all sense of realism. And I try to keep the magic magical — something mysterious and dark and dangerous, and something never completely understood. I don’t want to go down the route of having magic schools and classes where, if you say these six words, something will reliably happen.
Magic doesn’t work that way. Magic is playing with forces you don’t completely understand. And perhaps with beings or deities you don’t completely understand. It should have a sense of peril about it.”
…and here them fire posts (I’m not including any here because there’s too much context to give but something called “Hawk Tuah” went nuclear viral and it’s one of my favourite memes in recent history…read about it at Know Your Meme).
On Wednesday, Kendrick Lamar did a pop-up concert in LA that was live-streamed on Amazon Music. Dr. Dre and YG went on stage for a few bangers and the audience was packed with celebs including Lebron James, James Harden, Russell Westbrook and Demar Derozan. I’m telling you all this because Kendrick finished the concert by playing his chart-topping Drake diss track (“Not Like Us”) six straight times. It was insane.
In 2011, I went to a concert in Vancouver when Kanye and Jay-Z played “Ni….” a song about people going to Paris 11 straight times. It was wild but Kendrick took it to another level by bringing on stage what looked like every affiliated individual from California. Even Derozan — who is a Compton native but played for the Toronto Raptors and was ostensibly tight with Drake — went on stage. The internet went crazy and I actually don’t know how Drake will be able to perform in LA again.
Finally, Justin Timberlake got a DUI after a party in LA and X lost its mind (including this first dancing video):
For me the Olympics are state sponsored cheating. A propaganda tool for the likes of Russia and China. Why would any country or even city want to be the host for that.
Madrid also spent tons of money on two consecutive bids -- probably in line with Chicago.