Gold for the IOC, Bill for the Host City
By Manasvi K
SY BSc. Economics (2023-27)
Estimated Reading Time ~ 5 minutes
The Olympics are progenitors of sportsmanship, global cooperation, and the celebration of cultures. Hailed as the pinnacle of athletic excellence, the IOC, the association that conducts the Olympic Games reveres itself as an organisation dedicated to building a better world through sport. Every 4 years, athletes from territories of the National Olympic Committees (NOCs) participate in the Summer, Winter and Paralympic Games. The 2024 Paris Olympics have already commenced with a dazzling opening ceremony on the Seine River. It is quite evident that no expenses have been spared. Perhaps, some should.
Since 1960, every Olympics has seen a major cost overrun, except the LA Games of ‘84. Initially, the Olympics were played in a small pool of countries, using public funds and generating revenue through good ol’ ticket sales. As the games grew into what they are today, with their range of focus expanding from a humble sporting event to a multicultural, multisport extravaganza, the costs associated with them also grew, and so did the out-of-pocket expenditures for the host cities, using the taxpayers’ money.
The 1976 Montreal Games put a huge burden on the city, which set the city back an estimated $1.5 billion which it finally paid off in 2006. Construction issues, delays due to corruption and cost overruns led Montreal to pay 13 times its estimated budget for the Games. This disrupted the initial enthusiasm for hosting the Olympic Games and made the NOCs wary about the cost-to-benefit ratio. In 1984, only LA bid for the games.
The LA’84 Games were the pioneers in many ways. LA set the ideal for how the Olympics should be done. As the sole bidder, LA could negotiate its contract with the IOC. Unlike other cities, where stadiums would need to be built to accommodate a variety of sports, the infrastructure required to hold a mass event like the Olympics already existed in LA. Because a good chunk of expenditure was spared, the LA Games concluded with an operation surplus of $215 million.
What then, are the other countries doing wrong? Firstly, hosting the Olympics is no small feat. It takes a village, they say, to raise the Olympics. Olympic Villages are all-equipped residential areas for the athletes, complete with modern athletic training facilities, clinics, food stops, entertainment facilities and of course, the infamous cardboard beds. For Paris 2024, the Olympic Village cost $1.6 billion and an estimated $2 billion for Tokyo 2020. The Tokyo Olympics ran $5.3 billion over the estimated budget presented during the bidding, majorly due to postponements due to COVID and no ticket sales due to the closure of stadiums. Tokyo’s overruns are, however, nowhere near the estimated costs of the Sochi 2014 Winter Olympics and Beijing 2008 Olympics. Sochi and Beijing had large infrastructure costs. Sochi spent $8.7 billion on a rail and highway link which contrary to popular opinion, does very little to help the transportation problems. Beijing built a 460-metre-wide stadium with a seating capacity of 90,000, with the hopes that the local soccer team would fill the stadium after the Olympics. This legacy building lies mostly vacant. Such stadiums are called ‘White Elephants’, with massive maintenance costs exceeding their utility. The Beijing Olympics and Sochi Olympics at a little over $40 billion and $51 billion respectively are the costliest Olympic Games investments to date.
The IOC does little to shoulder the burdens. Before 1984, the TV revenue was entirely given to the hosts. After the rise in viewership during the LA Games, the IOC restructured their share of the revenue generated from media coverage. It took 33% of the revenue generated from the LA Games. This figure constantly rose and by 2006-2010, the IOC shared 51% of the broadcast revenue. Sustainability is a huge concern when it comes to the Olympics, especially concerning the White Elephants. ESPN discovered that 12 out of the 27 venues in Rio had not hosted an event till a year after the Olympics. Many such ‘White Elephants’ sit barren in Olympic host cities.
Although many claim that hosting the Olympics brings significant benefits, the costs cause a puncture to the wheel of the economy. The resounding front is often dampened by little to non-existent benefits. A 1990 study by Jon Teigland on the 1994 Lillehammer Olympics claims that after the 3-year novelty period, the impact on tourism was little to none. While with some cities, tourism seems to have marked a resounding success like with Barcelona who jumped to the sixth most popular destination in Europe from eleventh. It can be noted that while some countries manage to come out as stars, some fade away with massive burdens to bear.
With economic impact in mind, there has been little evidence of the Olympics contributing to kick-starting the economy. On a positive note, employment is generated, albeit temporary and small local businesses flourish during the three-week period of the Games. A study by Mark Spiegel and Andrew Rose on ‘The Olympic Effect’ shows that international trade of the country was affected and exports increased by 30%. However, the long-term effect of hosting the games remains under researcher’s scrutiny.
As the IOC gets hungrier for derived profit, it becomes less lucrative for countries to put in a bid, which is also an expensive ordeal. Cities bid hundreds of millions of dollars to host the Olympics. Tokyo was awarded as the host city of the 2020 Olympics after putting in a $75 million bid. In 2016, Tokyo put in a losing $150 million bid. In Budapest, a record 266,000 people signed a petition for the city to withdraw its bid for 2024, joining Rome, Boston and Hamburg among the cities that bowed out.
It is said that hosting the Olympics is equivalent to hosting a big party. You don’t gain much from it but when it’s all said and done, people walk away with fond memories of you and the party.
Although the Olympics are all fun and games, quite literally, they may not be so much for the host cities. Not all that glitters is gold and not all that cha-chings is the Olympics.