Are the Olympics a budgetary burden for Paris?

As the 2024 Summer Olympics kick off in Paris this week, the games are unlikely to burden the city’s coffers. Large private funding and state guarantees are cushioning public sector entities from costs—but the operational logistics of increased tourism and security measures are likely to create challenges for the city.

What we’re watching:

More than 10 million tourists and billions of virtual viewers will be championing their countries’ athletes at the Paris 2024 Summer Olympic Games, over 19 days of events defined by showstopping sports and powerful physical performance. Alongside the high stakes for the national teams, the logistical dynamics for the host city are also complex.

The City of Paris won its bid on its already-solid infrastructure for sports and transportation, and with predominantly private financing. Large-scale events can often burden a host city or country, but Paris already had most of the required infrastructure: 95% of its Olympic venues were already in place, required limited refurbishing, and/or will be temporary constructions. This positions the Olympics to have a limited budgetary impact on the City of Paris (AA-/Stable/A-1+) and France (unsolicited; AA-/Stable/A-1+) overall.

But while the French capital is used to hosting major sporting events, the volume and concentration of activity during the Games presents multifaceted challenges .

To counteract terrorism concerns on the ground and pushback against the feasibility of swimming events due to potential bacteria in the River Seine, the French state and City of Paris have already implemented substantial operations to promote safety and security across the city. Now that the Games are set to begin, focus may shift to how the city (through the regional transportation authority) will manage the influx of athletes, tourists, spectators, and supporters into its metro network—which is already surging fares to double the everyday cost.

?

What we think and why:

The Olympics investment budget included three main construction projects: an Olympics Village (estimated at about €1.5 billion), the Aquatics Center (€175 million), and a new arena that will host badminton and gymnastics (€138 million). Cleaning up the River Seine, in which swimming has been illegal for a century due to high pollution levels—by renovating antiquated sewage infrastructure and building an underground water storage tank, among other efforts—has cost the state and local water treatment authorities €1.4 billion ($1.5 billion). While the project started before Paris officially became a candidate city for hosting the Olympics, the event was a key catalyst to provide momentum in executing all needed investments by this year.

With the capital’s limited investment needs, the Olympics should ultimately weigh less on the Parisian public purse than recent games. (Both the 2012 London Olympics and 2016 Rio Games cost approximately $13 billion, while the 2020 Tokyo Games totaled $35 billion). The central government is taking on the lion's share of the public sector contribution, totaling 67% of public investments and 47% of public operating expenses.

The latest budget put the total cost of the Paris Olympics at €8.9 billion, or 0.3% of French GDP in 2024—primarily powered by large private funding and state guarantees, split between capital investment in the three new venues, temporary venues, and renovation of existing facilities (€4.5 billion) and operating expenses related to the Games (€4.4 billion). Overall public spending (including by the French state and local and regional authorities) is likely to total 28% and has been directed toward investment needs.

Some market participants estimate that additional spending such as extra personnel and security could add €3 billion to the final bill, but the total operating costs will only be known after the conclusion of the Olympics.

Meanwhile, the City of Paris estimates its costs, net of grants received and/or rental revenues for the use of sporting venues, to total approximately just 1.2% of its budget (€405 million). Paris' infrastructure spending overshot the initial budget by 37.5%, compared to its 2016 projection, which represents a more moderate 14 percentage point overspend after inflation.

In mid-July, ticket sales reached 8.6 million for the Olympic Games, surpassing the previous record held by Atlanta in 1996 with 8.3 million tickets and close to the authorities’ 10 million goal. Ticket sales and licensing should bring €1.4 billion to the estimated €4.4 billion operating budget for the event.

What could change:

With the Olympics about to commence, budgetary slippages are still a risk and will notably depend on attendance figures.

While Paris has not avoided the usual cost overruns, we expect them to remain limited compared to recent games. Its overall bills have not ballooned, especially compared to previous Olympics—where London overspent by more than $5 billion; Tokyo by nearly $26 billion; and the State of Rio defaulted in 2016 after a sizable debt intake notably to fund additional infrastructure (including transportation and sporting venues for the games), which added to the state's financial pressures.

On the upside, Paris stands to benefit somewhat from games-related increases in tax revenue. The surge in arrivals and related spending will be channeled to the city via its share of national VAT receipts, which we expect to grow 4.2% in 2024. Paris will also benefit from an uptick in tourist tax receipts, through increased tariffs (up 6% year-over-year), and strong hotel occupancy of which the city has budgeted €185 million in revenues for this year (marking a meaningful increase compared with the €100 million it earmarked in 2023). If these projections materialize, the boost to the city's revenues should cover almost all its games-related operating costs, net of rental revenues.

Still, operating risks remain high. Absorbing at least 10 million visitors could prompt problems for Paris' transportation network.

Ile-de-France Mobilités (or IDFM, the public body managing the Parisian transport network, which is not rated) has expanded existing metro and train capacities to match increased demand. The IDFM temporarily raised public transport ticket prices during the Olympics and expects to collect €200 million, or 1.6% of its operating revenue budget, for 2024. The Grand Paris Express, a €35.6 billion extension of the metro network comprising 200 kilometers (124 miles) of new lines, should have boosted network capacity—but significant delays, partially pandemic-related, have meant that only some of it has opened to the public.

Although higher transport ticket prices should cover extra spending, extra capacity could prove insufficient to match demand, leading to network disruptions, higher costs, and reputational risks.

CreditWeek, Edition 38

Contributors: Hugo Soubrier

Written by: Molly Mintz

?