World class competition level, heroism and national pride are the three pillars of the Olympics. With more than 196 countries participating, these Games are global sporting sensational events in their own way. The Olympics also however, stand for big business. From elaborate procedures to even be in the running to host the Games, to actually undertaking the task, it becomes necessary for cities to do a thorough cost-benefit analysis. It all begins with a bidding process, with cities estimating costs and undertaking marketing campaigns for a period of roughly two years. Nine to ten years prior to the Games, applicant cities are required to submit their bids to the International Olympic Committee (IOC) for an initial fee of $150,000. Post this, the applicants are narrowed down to three to five finalists, with the city presenting the most impressive and grand proposal being chosen. Proposals made to the IOC include major infrastructural developments to be undertaken in the future such as world class sports facilities, housing facilities, transportation services and other megaprojects.
While the benefits of hosting the Olympics are undeniable, they are heavily exaggerated and outweighed by the costs borne. Following the event, most countries are left with massive debts and maintenance liabilities that are beyond their capacities to cover up. Since 1950, there have been no Games that have stuck to their budget. In 2008, Beijing hosted the event and spent a whopping $42 billion dollars. London hosted the Olympics and Paralympics in 2012, with expenses totaling $14.6 billion out of which $4.4 billion was funded using taxpayer’s money. The 2004 Olympics in Athens required $15 billion. It is estimated that annual payments of approximately $56,635 will be borne by the taxpayer to fully pay off debts. Usually, the cities fall prey to the “winner’s curse” during negotiations in the bidding process, often overbidding in order to emerge victorious. Tokyo, for example, spent $75 million on its bid in 2020, after having lost $150 million during bidding in 2016.
The construction costs of the Olympic Arenas and Olympic villages are a whole other ball game altogether. These “white elephants” have little use after the Olympics owing to their size and specialised nature. The Athens 2004 Olympic venues remain largely vacant, whose costs added to the Greek debt crisis to a large extent. Sydny’s stadium costs $30 million and Beijung’s famous “Bird’s Nest” stadium costs $10 million per year for just maintenance. Such costs that need to be incurred by governments act as burdens on public debt for years on end. Montreal hosted the Olympic Games in 1976 and couldn’t pay its debt off until 2006. One may argue that the construction of such lavish infrastructure generates employment that provides a fiscal stimulus to the region. However, this is only plausible if the labour market of the region is slack.
A study conducted by the European Bank for Reconstruction and Development confirms that the newly created jobs get occupied by existing labour forces, without creating any impact on economy. According to the study, of the forty-eight thousand temporary jobs that emerged due to the London Olympics in 2012, only ten percent went to previously unemployed people. Thus, it is vital to consider the implicit costs associated with the Olympics, including the opportunity costs of public spending that might have been directed towards other priorities. The tax revenues for education and welfare are expected to be diverted towards building the venue for the 2020 Tokyo Olympic games . The impact on tourism is also dubious as issues of safety, overcrowding and raised costs may deter tourists. London, Salt Lake City and Beijing saw a reduction in tourist numbers prior to and post the Olympics.
Seen from a different perspective, hosting the Olympics has intangible effects such as enhanced civic pride and international recognition, essentially putting the host cities “on the map.” Revenues generated from broadcasting and media are also considered the upsides of hosting the Olympics. But these revenues are heavily overstated by overenthusiastic officials with cities like London, Vancouver and Beijing not generating even one third the costs as revenues. The only time the event has proved to be greatly profitable was the 1984 Los Angeles Olympics. At the time the number of cities in the running to be the host for the Games were dwindling, due to the streak of cost overruns. L.A. used this as leverage to adopt a cost conscious approach, and utilise existing infrastructure effectively. However, Governments continue to present irresponsible bids which only result in taxpayer-financed wastage. Fact remains that hosting the Olympics leads to economic deficiencies more often than not. This demonstrates the need for the IOC to simplify bidding procedures and discourage impractical bids.
Overall, the Olympic Games prove to be only minorly beneficial to the economies of hosts. They’re essentially financial drains, as a result of which most countries are left with unavoidable debts. They lead to the creation of expensive infrastructure that is left vacant post the event. The extravagent arenas and Olympic Villages require additional land, for the purpose of which several citizens are displaced. More often than not, the games lead to a national debt crisis, which goes on to become a burden to taxpayers. Countries run high risks of long-term damage, and with the world’s attention on the host city, every bit needs thorough planning. Moreover, tourists have close to no contribution to expanding the economy as Olympic tourists usually just replace the regular ones. Countries invest billions in hopes of seeing a boom in their economy, but the harsh reality is that the return on investment is nowhere close to expecteds. Thus cities that consider hosting the Games must ensure that the Games fit into the bigger picture of development and economic growth.
Author: Stuti Sarkar
B.Sc. Economics (Hons.) Symbiosis School Of Economics