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The huge cost of hosting the Olympics: is it a loss-making enterprise?

Sourjya Bhowmick | Updated on: 16 August 2016, 23:25 IST

The Olympics aren't just about breaking records, winning medals, and glamourous sporting superstars.

The quadrennial mega event also has a huge impact on the business and economy of host cities and countries.

Hosts invest billions of dollars on infrastructure, hoping to reap huge economic gains that would benefit the national economy.

But what happens to the economy after the event is ever? Is there a loss, or some tangible financial gain?

The answer to these questions is important, especially if the host economy (like Brazil's this year) is witnessing negative growth, rising poverty and unemployment .

Here are some insights on the Olympics and their impact on the economy:

67%

  • The percentage of host countries during the period 2000-2020 which can be classified as 'industrialised'.
  • The rest are developing economies.
  • However, 49% of industrialised economies during this period had bid for the event, while 44% were developing.
  • Clearly, the evaluation commission of the International Olympic Committee (IOC) favoured industrialised nations as hosts. The question arises - is it because of economic might?

9 billion
pounds

  • The final cost of the 2012 London Olympics.
  • When the organisers won the bid in 2005, the estimated cost was 2.4 billion pounds.
  • Significantly, from 1968-2012, all Olympics saw a 150% increase over their estimated budgets. The biggest offenders were Montreal 1976 (Summer) and Sarajevo 1984 (Winter).

$45
billion

  • Estimated spending on the 2008 Beijing Olympics (adjusted for inflation).
  • This is the highest amount of money spent on hosting the Olympics between 1988 and 2016. The cost includes sports and general infrastructure.
  • Some common benefits of hosting the Olympics are: tourism gains, sponsorships, ticketing, licencing and media revenue.
  • Half the revenue comes from television rights. However, it is the prerogative of the International Olympic Committee to share the revenue. When it comes to television rights, the IOC shares less than 30% with the hosts.
  • Only ticket revenue, domestic sponsorships and licencing rights lie exclusively with the hosts.

30
years

  • The estimated time that it'll take China to recover the approximate $480 million cost of building the Bird's Nest (the national stadium) for the 2008 Olympics, according to an analysis on Citylab.
  • "The cost for building Olympic venues was substantial. But the organisers failed to consider overall how to use the venues after the Olympics when building these sites, or even bidding for the Olympics," said Yan Qiang, chief sports editor of NetEase Media Group to ABS CBN News in 2012.
  • The 1976 Montreal Olympics were the worst instance of a loss-making enterprise. Per capita loss was $700, and it led to a special tax on tobacco.

$5-6
billions

  • The average revenue generated by Summer Olympics, as per a report in The Atlantic.
  • Nearly half of this revenue goes to the IOC.
  • The cost of hosting the Games is nearly double this amount.
  • There are three reasons that research has found which makes hosting the Olympics a bad business deal: 'Bidding process is hijacked by private interests (such as Boston's unsuccessful bid to host the 2024 Olympics), massive overbuilding (for example Bird's Nest, venues in Athens), and little evidence that the Olympics lead to increased tourism (Atlanta, Beijing and London reported a drop in international visitors).
  • However, Barcelona is the only exception. Tourism picked up exponentially after 1992.

Research studies have shown that there is a short-term economic gain in exports, investments, employment (part-time mostly). Los Angeles 1984 and Barcelona 1992 were indeed successes in economic terms.

There is also the pride of world leaders involved, and the intangible legacy effect. But in most cases, it leads to a huge negative balance, as the cost of hosting the Olympics is far higher than the tangible returns in the long run.

The lack of economic viability has, in the past, led many cities/countries to withdraw their bids due to public outcries - Hamburg (Germany), Boston (USA), Munich (Germany), Oslo (Norway), Stockholm (Sweden) and Krakow (Poland).

First published: 16 August 2016, 23:25 IST
 
Sourjya Bhowmick @sourjyabhowmick

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