What are the Olympic Games worth?

Dear Friends,

Here are the posts to catch up on since the last edition of the newsletter.?

Negative prices? The price for energy in some European countries falls below zero when output from renewables surges and demand drops. You can read the full post here.

Rising house prices: Home prices in some countries seem to defy gravity and conventional wisdom. You can read the full post here.

The potential and power of consumer intelligence: AI and GenAI are poised to turn customer intelligence into a powerful company-wide capability. You can read the post here.

In the Game Changer book, my co-author Arnab Sinha and I defined a pricing strategy as “a business leader’s conscious decisions on how to shape their market by determining the amount of money available, how that money flows, and to whom.”

Those decisions will shape not only your own business, but your market and even society as well. Those are the lenses we will use to look at the flows of money related to the Summer Olympic Games, whose opening ceremony takes place tomorrow in Paris.

What are the Olympic Games worth?

We amplify our definition of pricing strategy by saying that it reflects the philosophy “on how to acquire, retain, and satisfy customers by sharing value with them fairly.” That can bring the value of the Olympic Games down to the level of individual businesses.

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A business perspective

In May 2014, NBCUniversal paid $7.65 billion for the US media rights to the Olympic Games through 2032. How can they earn a return on that investment?

Their ways and means to attract viewers and monetize Olympic content have changed radically since the 1992 Olympic Games in Barcelona, which was the last Olympic Summer Games held prior to the existence of the commercial internet. NBC held the US media rights for those games as well and aired a total of 161 hours of coverage on broadcast television, paid for with advertising.

Contrast that coverage with the nature and extent of the coverage for the 2020 Tokyo Summer Games. NBC produced “a record 7,000 hours of coverage and had nearly 6 billion streaming minutes across digital, and social media.” It is almost certain that the Paris coverage will shatter those records. The Tokyo Games also marked the first time NBC streamed Olympic content via its Peacock streaming service, which leads to a specific question: does broadcasting the Olympics warrant a price premium for consumers?

The price for Peacock's streaming service increased from $5.99 per month to $7.99 per month as of last week, just in time for this summer’s Olympic coverage. The annual subscription to Peacock’s ad-free Premium Plus service went from $119.99 to $139.99. Considering that the money-losing Peacock service had 34 million paid subscribers at the end of the first quarter this year, that is no small amount of money.

The price increases raise important questions about value sharing and customer experience: at a time when overall subscription growth is slowing, would Peacock have been better off using the Games as an opportunity to attract new users and use the Olympic coverage as a way to sell them on the service’s other benefits? Or is streaming the Olympics a margin opportunity the service shouldn’t overlook and a chance to recalibrate subscribers’ price perceptions?

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A market perspective

How will the Olympic Games affect tourism in Paris, including hotels and transportation? That view is mixed. Hotel rates in the area are projected at €342 per night for the period of the Olympic Games, compared to €202 in July 2023 and €161 in August 2023. One report, however, said that Paris experienced a drop in tourism in the period just prior to the Olympic Games, perhaps because tourists wanted to avoid potential crowds.

The effect of the Olympics on tourism is also mixed over the long term, with one notable exception: the 1992 games in Barcelona, a city which "emerged like Cinderella ... ? unrecognizable and ravishing” when it hosted that event. Tourism expanded to such an extent in the aftermath of the Olympics that Barcelona became the eighth most popular destination in Europe, ranked by overnight hotel stays. That same report showed that the number of tourists visiting Barcelona increased by 68% from 1992 to 2000 and the number of overnight stays grew by 79% in the same period.

This “Barcelona Effect” has persisted for almost 30 years after the games. From 1990 to 2019, the last full year before the pandemic, the number of tourists visiting Barcelona had reached almost 10 million, up from 1.7 million in 1990, with a sharp shift away from business travelers to holiday travelers.

This effect has given hope to other cities that hosting the games will burnish their image, attract tourists and investment, and accelerate infrastructure improvements. Are the hopes justified? One paper has argued that Barcelona is a rare exception, not a blueprint.

That brings us to the potential gains that Paris can hope for.

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The societal perspective

The budget for the games in Paris totals roughly €8.9?billion or around $9.7?billion. A substantial amount of private funding will help the games more or less fund themselves. This summer’s games will have a much smaller budget than London, Rio de Janeiro, or Tokyo had, according to a recent study.

Nonetheless, the same question applies here as it did to NBCUniversal’s spending on US media rights: what kind of return will Paris get on this investment? The metrics for that answer have a societal component as well as a financial one. An assessment in the New York Times said that “Paris is hoping that its targeted approach — concentrating some $1.5 billion of the Olympic budget on Seine-Saint-Denis — will jump-start urban rebirth in one of the poorest parts of France.”

Another report said that the apartments comprising the Olympic village will be converted to housing after the games, with a large share devoted to public or affordable units. That same article cited comments from a local official that the 2024 Olympics in Paris represent “a once-in-a-lifetime opportunity to shift the social dynamic for good, by leaving a lasting legacy of urban and economic renewal.”

There is no doubt that the massive influx of money into host cities for the Olympics creates opportunities to change both perception and reality. It may take years or even decades to understand the full legacy that this year’s games will leave behind. But in the meantime, for the next few weeks, we will all have the opportunity to witness world class performances. Let the games begin!

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As always, please continue to share your thoughts and questions with us. If you haven’t ordered your copy of Game Changer yet, you can do that HERE. Thanks for your interest and support.