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The economics of the Olympic Games

[] l 2016-08-08

The 2016 Summer Olympic Games officially opened in Rio de Janeiro on August 5. Korea has always enjoyed an economic boost from this global sports event, so naturally Korea’s struggling companies are busy preparing for promotional sale events associated with the Olympics. Today we’ll look at the special benefits gained from the Olympic Games with economic analyst Jeong Cheol-jin정철진.

There are specific terms referring to the special economic demand generated by the Olympic Games or FIFA World Cup. Such demand can be analyzed from two aspects – local demand and exports. People watch big events like the Olympics on TV, so demand for electronics tend to soar, starting six to eight months prior to such festivities. Since Korea is a world-leading exporter of electronic appliances, the industry stands to benefit from sudden spikes in demand. As for local spending, people stay up late to watch the games, as they did during the London Olympics in 2012, and tend to order late night snacks, like fried chickens. So fried chicken places and other snack sellers see their businesses boom during these events. Also, department stores and large retailers hold competitions, such as “Win a TV by guessing Korea’s medal standing correctly.” Such events positively affect revenue to a great extent. So we can expect to see big gains in the export and domestic sectors from the Olympic Games in Rio.

According to the white paper published by the Ministry of Strategy and Finance, Korea saw economic gains in the amount of 26 trillion won or roughly 23.4 billion U.S. dollars from the 2002 FIFA World Cup Korea/Japan and posted economic growth of 7.4 percent. During the 2012 London Olympics, Korean food companies saw an increase of more than double in their annual average sales and convenience stores enjoyed a 22% increase in sales from the previous year. In fact, Korean exporters have already seen conspicuous increases in their figures in the weeks leading up to the Rio games.

Samsung Electronics has recorded quite a performance recently. Mobile devices sold well, but it was the appliances division that showed surprisingly remarkable results. Samsung’s recent performance indicates that people bought a lot of electronics to watch the Rio Olympics.

The Rio Olympic Games are driving up the demand for household appliances. Thanks to the popularity of premium TVs, LG Electronics posted a sales figure of almost 3.6 billion dollars in the second quarter and lots more TVs are being sold domestically in the third quarter as well. The local market is also rearing up to take advantage of the Olympic Games. One department store is holding an event giving away up to 180,000 dollars in cash, depending on the number of gold medals won by the Korean delegation. One liquor company is marketing a limited edition makgeolli during the Rio Olympics and a convenience store franchise is giving discounts on breakfast items for office workers going to work after watching the Olympic events all night long. The Olympic marketing events by Korean enterprises are also taking place in Brazil.

Samsung Electronics is an official Olympic partner, the only one from Korea. Samsung has recently unveiled its latest smartphone models, the S7 Edge and the Galaxy Note 7. So Korea’s electronics giant is trying to promote those new products. Also, although Hyundai Motor is not an official Olympic partner, it does have a local corporation in Brazil. Foreign businesses cannot use Brazilian landmarks for their advertisements, but local corporations can. So Hyundai Motor Brazil can take images of Hyundai cars in front of well-known landmarks in Rio, such as the Christ the Redeemer statue, for advertisements.

Samsung Electronics, an official Olympic sponsor, is advertising the brand by providing athletes with smartphones featuring the Olympic logo. Hyundai Motor, the only carmaker with the right to use the images of Christ the Redeemer in Rio, is providing free WiFi hot spots around the statue to publicize the brand and KT, Korea’s premier mobile communications service provider, is offering chances to use its services during the Olympic period. However, some experts believe that special demand generated during this Olympics may not be as impressive as we hoped.

The Rio Olympics is rather disappointing, marred by insufficient infrastructure and security issues. Compared to the Olympic Games in the past, the Rio Olympics does not measure up to the global expectations in terms of enhancing Brazil’s reputation. What Korea needs to worry about is domestic demands, which is determined by the performances of Korean athletes. Another problem is that there is a 12-hour time difference between Korea and Brazil. It would have been best for local businesses if Korean athletes competed between 10PM and 1AM, when the demands for late night snacks are at their highest.

About 10,500 athletes from 206 countries around the world are taking part in the Olympic Games in Rio. They will vie for 306 gold medals in 28 events in one of the grandest sports celebrations in the world. Brazil hopes to generate over 31.5 billion dollars in economic effects from this festivity, but only 80% of the tickets have been sold so far due to economic and political instability. The games have also failed to generate much tourism revenue, only earning around 400 million dollars, so Brazil will not see the big economic windfall it expected. The 12-hour difference between Korea and Brazil is also hurting the prospects for Korean businesses. Popular events such as soccer or archery are taking place early in morning to the disappointment of late-night snack shops or home shopping channels. But all this could change if Korean athletes perform well and win a number of medals.

Special Olympic demands are, in a nutshell, people celebrating great athletic wins by spending money on food, alcohol, and shopping, which ultimately help small businesses thrive. Such behavior could drive up spending in the private sector and even the nation’s GDP growth rate. If the Korean volleyball or football team advances to the semi-finals, that would lead to group cheering sessions, late night snacks, shopping, promotional events and other economic effects. So Olympic sales in Korea rely on the performances of Korean athletes.

A Hyundai Research Institute report said that one Olympic medal boosts consumption by as much as 39 million dollars, enhances corporate image by 18 million dollars and promotes Korea’s national image in the global arena. Let’s hope that the inspiring feats of Korean athletes at the Rio Olympics can help energize the Korean economy.