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The Economics of Olympics

With the addition of South Sudan to United Nations, the total no. of member nations increased by one to 193. The 2016 Rio Olympics witnessed participation from 213 nations, the statement in itself tells us the about the euphoria associated with Olympics and the scale on which it is being organized. Olympics has evolved a lot since the first modern Olympics in 1896 with increasing scale and participation. The event requires huge investment starting from spending millions of dollars to participate in the bidding process to the maintenance of sports infrastructure after the conclusion of games and the benefits are reaped for coming years. Though the debate among economists about the economic cost and benefits of Olympics is never ending. Let us today make some efforts to demystify the economics of Olympics.

The cost part can be broadly divided under three heads; general infrastructure cost which includes construction of roads, railways, accommodation and all other costs to prepare the city to accommodate the influx of athletes and tourists, sports infrastructure cost includes building stadiums, tracks for various events, providing equipment and other sports specific infrastructure, Operational cost includes cost of security, general administration, opening and closing ceremony and other minor costs. There are two sources of revenue; one is the short-term returns which would include the spending by tourists, selling of television rights, sponsorships, ticket sales, licensing and all other immediate inflow of cash, the long-term revenue would include a boost in the exports, increase in foreign investment, tourism etc.

econmicApart from looking at the Olympics  from a complete financial perspective, certain intangibles also need to be accommodated. The pride of hosting Olympics, the branding of the host city  and the joyful environment  which it creates are difficult to measure. It creates a legacy for  generations and  improves the performance in sports  of the host country. It sends a positive signal to the world about the openness and friendliness of the host country towards international trade and collaboration.

 econmicSince  1960 all the Olympics have seen a “cost overrun” . *Though some of these have also been very successful , like the 1984 Los Angeles Olympics and the 2002 Salt Lake summer Olympics  which had an operational profit of more than 250 million and 101 million respectively.* While some have proved to be disastrous from  an economic perspective.# This would include the 2002 Athens summer Olympics which had a planned budget of $3billion and the actual cost incurred was above $16billion. 2014 Sochi winter Olympics is so far the most expensive Olympic with expenditure going in upwards of $50 billion, nearly 500% more than the planned $10.3 billion.# These Olympics have left the government with large debts and with maintenance liabilities. The “Opportunity Cost” of these investments also need to be  taken into account. The money could have been utilized by Greece to serve its current debt or Russia could have used that money for other social developmental goals.The  2008 Beijing Olympics though involved a cost overrun of 25 billion# ,it was a huge success for the country. Though it did not generate short-term profits for the  country but the long-term gains from  a boost in trade and international acknowledgment of it capabilities did enhance its bargaining power on various international platforms. The sheer joy of defeating the Olympics leader – the USA by 15 gold medals is a reason good  enough for the  Chinese government to overlook  the financial analysis of the game. The similar logic goes for Great Britain which managed to garner 3rd Spot in 2012 London Olympics and utilized the sports  infrastructure built during that time to bag 2nd position in 2016 Rio Olympics.The 2016 Rio De Janeiro  Olympics  has again posed some serious questions on the economic logic of hosting Olympics. Like all other Olympics since 1960, costs exceeded $20 billion compared to initial estimates of $14 billion but the major concern comes from the revenue generation side as many sports  witnessed half filled stadiums and boost in tourism did not meet the expectations . Political upheaval of the country leadership, security issues and the fear of Zika virus were the main contributors to the flop show at Rio Olympics where volunteers were invited as seat fillers for unsold seats.

Economists have a mixed response to growth in tourism as increasing security concerns  offset  people from visiting the host country . Also, employment generated during the games is also temporary and  in developed economies, an overwhelming no. of jobs created due to Olympics are just a substitution to the already existing job of the worker and do not add much value. The benefits from hosting Olympics are being exaggerated  by the government in order to win public confidence. Widespread corruption and benefits to certain stakeholders  encourage the government to bid for Olympics even if seems to be financially unfeasible. To boost up the national pride and have that “feel good” feeling of hosting the Olympics, nations are wasting taxpayers money which could have been otherwise utilized for other purposes.Hosting Olympics can be  compared to a wedding  which wouldn’t make one rich but happy .But the question is whether all this spending is worth the value of money and can it be utilized for something better . The egos of world leaders often beat the economic logic of hosting the games and they often try to attribute  the growth in the economy which actually did not come from hosting an Olympics.  But what the governments of the nations fail to understand is that poor planning and management during the events can actually tarnish the image of the nation and this risk is often exploited by the contractors at last moments to charge exorbitantly high amount  for their services. In this  context the decision of the PMO to not bid for 2024 summer Olympics is a right step in the direction as India is not yet ready to host such a “mega- event” and participation in the bidding process would have lead to unnecessary wastage of public money.

Thus it can be said that  for most of the cities in the world, it is currently not economically viable to host  Olympics. The most important factors responsible for this are; poor management, corruption, huge infrastructure cost and monopoly in the bidding process. There is a need to reform the process of bidding conducted by international Olympic Association which currently favors the most extravagant bid which leaves the winner with the “winners curse”. The stringent guidelines by IOC force the host nation  to make a huge investment in infrastructure which of not much use after the Olympics. This   leads to increasing oppositions from citizens of democratic countries which gives and unfair advantage to autocratic regimes. China and Kazakhstan are the only two contenders for the 2022 winter Olympics. The mechanism for calculation the cost of hosting Olympics needs to be more robust and lessons should be taken from the mistakes of past. Strategic planning is the other key factor responsible for the success or failure of an Olympics for the hosting country. The US has performed better than other countries in hosting Olympics because of its developed infrastructure and proper planning. Thus it can be said that before hosting a mega project like Olympics, proper assessment  of the country’s capabilities and cost-benefit analysis should be done to reap the benefits of this mega event.

 By: Ashish Gulia 

E: [email protected]

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