The council's assessment of the Love Luton Festival weekend of events revealed the festival cost £100,000 more than expected and only a quarter of tickets for headline concerts were sold.
Love Luton took place on 6-9 July, to celebrate the Olympic Torch being hosted overnight in the town on 8 July.
Just over 5,000 tickets were sold for the two main concerts from Olly Murs and The Wanted - a quarter of the 20,000 sales needed for the council to break even.
Ticket prices were reduced from £30 and £32.50 to £15 in June to combat low sales.
A council spokesperson told Event today: "Localised market research that was undertaken by contracted experts suggested the original [ticket] prices would attract levels of interest that would make the event financially viable.
"When tickets weren’t selling we spoke to local people who told us that ticket prices were too high, particularly for families, and those with very young children. We made the bold decision to significantly reduce the price of the tickets and allow under fives in for free.
"We think that weather played a huge part in much lower-than-expected last minute ticket sales."
The council commissioned De Montfort University to carry out the assessment of the festival, which found that 67,000 people attended the festival's events.
It concluded the financial loss was due to low ticket sales and sponsorship, high production costs due to poor weather and increased marketing costs.
The last-minute announcement that Lewis Hamilton would carry the Olympic Torch through Luton town centre also created added costs due to extra security and infrastructure.
Production company Watch this Space worked on all festival events, and LFX Events was used for the concerts.
The festival included an Olympic flame evening celebration attended by more than 12,000 people; the Luton Carnival and Mela; the Big Dance; Bedfordshire School Games; and concerts on ten stages in Wardown Park and Luton town centre.
The De Montfort report also found most attendees felt the festival brought pride and benefits to Luton families and businesses, and millions of people have been exposed to positive coverage about the town.
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