Both times Los Angeles has hosted the Olympics, the Games were in crisis. And both times, Los Angeles transformed them by creating a viable new financial path. Twice Los Angeles innovated by incorporating private sponsorship to defray costs, in the process helping to create the modern Olympics business model. Now, as the Games’ reputation is tarred by massive costs and hulking venues that often have no use once the Olympic flame is extinguished, Los Angeles can save the Olympics for a third time — by creating a sustainable business model other cities can follow.
Los Angeles first hosted the Olympics during the Great Depression. The lack of available public funding forced the organizers to raise private funds to stage the Games. Faced with concerns from other countries about the cost of sending athletes, Los Angeles developed the idea of an Olympic Village to host the male athletes (women stayed in private lodgings with their chaperons). The Olympic Village helped lower the costs countries incurred for sending a team to the Games.
Los Angeles also became the first Olympics to have official sponsors and licensed suppliers. While the two previous hosts, Paris and Amsterdam, had received some funding from businesses, Los Angeles pioneered the idea of official sponsorship for the entire Olympic Games. Agreements with Helms Bakeries to provide the bread for Olympic Village, for example, saved the organizing committee precious dollars.
These innovations have since become staples of the Olympic movement. Every subsequent host (except London in 1948) built an Olympic Village, with most villages still used as rental apartments, condominiums or student dormitories. Many of these urban venues are highly sought after for their convenient locations and public transportation access.
By the time the Games returned to Los Angeles in 1984, the Olympics were again in turmoil. The killing of 11 Israeli athletes and coaches by Palestinian terrorists at the 1972 Olympics in Munich sent security costs soaring and revealed the hidden danger that hosting the Olympics could stain a country’s reputation.
Montreal, host of the 1976 games, faced several other financial problems as well, from a weak sponsorship program that did not meet projections to labor problems with venue construction, which led to delays and increased costs. Montreal finally paid off its approximately $1.5 billion Olympic debt in 2006, 30 years after its Games ended.
Skyrocketing costs left cities uninterested in hosting the Olympics. Things got so bad that after Tehran withdraw from consideration in 1978 in the wake of the Iranian Revolution, Los Angeles was the only city that wanted to host the 1984 Olympics. With no competition, and confronting public antipathy to funding the Games, Los Angeles forced the International Olympic Committee (IOC) to accept its vision of a private, rather than public, funding structure.
To do this, Los Angeles established an extensive sponsorship program. The organizing committee secured corporate funding to build the three new venues, and AT&T sponsored the 12,000-mile torch relay. The corporate dollars flowed to such an extent that the Games produced more than $230 million in surplus revenue.
Following the roaring success in Los Angeles, the IOC realized that the Games were now a huge business. The committee established the Olympic Partners (TOP), a lucrative program that streamlined the process of sponsorship. Companies received exclusive rights to promote their product — be it soda or credit cards or electronics — as the Olympic partner in every participating country. They gained exclusive access to the Olympic logo for marketing purposes. Countries slowly bought in, and once the United States hopped on board, the program took off.
This program brought in more revenue with each successive Olympics, making hosting a hot ticket. The stiff competition in the following decade ultimately resulted in several bidding scandals, most notably involving Salt Lake City, which hosted the 2002 Winter Games.
In recent years, however, the number of cities interested in hosting the Olympics has plummeted, as the spiraling cost overruns and revelations of excessive demands from the IOC (such as hotel minibars stocked only with Coca-Cola products, a new Samsung mobile phone with a national plan in the host country for all IOC members, and meeting rooms kept at exactly 68 degrees Fahrenheit at all times) has diminished public support for Olympic bids.
In addition, questions arose about the long-term economic impact of hosting the Olympics. Many of Athens’s venues from the 2004 Games sit abandoned and covered in graffiti, while Beijing’s iconic Bird’s Nest, which cost $480 million to build, is rarely used yet costs $11 million annually to maintain. Not surprisingly, Oxford University scholars have called hosting the Olympic Games “one of the most financially risky type[s] of mega project that exists.”
Only two cities bid for the 2022 Winter Games, and three withdrew from the 2024 selection process. Los Angeles was not even the first U.S. candidate city; the USOC only nominated Los Angeles after its initial choice, Boston, withdrew.
The decision to reward both Paris and Los Angeles with successive Games is part of an IOC effort to change the narrative about hosting the Olympics. Paris and Los Angeles offered comparable bids that attempted to rein in costs, be more environmentally sustainable and provide new opportunities for their local population, particularly youths. By agreeing to take the latter of the two Olympic Games, Los Angeles has spared itself a lengthy and costly bidding process and can instead devote that money to actually organizing the Games.
Its willingness to defer to 2028 also gave Los Angeles enormous leverage to extract concessions from the IOC. The agreement Los Angeles Mayor Eric Garcetti announced Monday showed that Los Angeles used its leverage well. The city extracted $1.8 billion from the IOC to organize the Games — $300 million more than Rio received for the 2016 Games. The IOC also agreed to waive a fee of 20 percent of surplus revenue that organizing committees have been required to pay in the past.
Los Angeles might have lost the 2024 Games, but the city won the 2028 Olympics before the race even began. Now it stands poised to revolutionize the business of the Games once again. The city has gained more concessions from the IOC than any previous host, and with 11 years until the Olympic cauldron again blazes in Los Angeles, the city and its Olympic organizers have ample time to revamp the Olympic movement even further. Los Angeles can once again help contain and rein in costs, while significantly transforming the Olympic Games from having costly sparkling new venues to using existing ones — incorporating sustainable business models that can allow the Olympic Games to flourish for decades more into the future.