Hosting the Olympic Games: Is it worth it?

September 14, 2016
Editor(s): Claire Shinkfield
Writer(s): Alistair de Steiger, Kayley Loo, Elise Coorey, Caris McClements

The Olympic games have long since been a means to display an array of talents, vast cultural exchanges and application of peaceful global interactions. As the most televised event globally, the Olympics offer an arena for individuals to be involved in a historic global phenomenon. It presents a phenomenal incentive for countries’ social and cultural atmosphere to be able to host such a unique event. Of course, this does not come without extraordinary monetary costs.

Particularly in developing countries such as Brazil, the costs of general, sporting and operational infrastructure, as well as the daily expenses of the Games, put a highly tangible toll on the economy that, if past Olympic games precedent holds true, is rarely recovered. Over the 10 years since Brazil won the bid at the 2006 Annual Assembly, the Olympics has offered a significant increase in jobs and money flow around the nation’s economy. However, the estimated $12 billion investment was only 58% private ventures, leaving the Brazilian government filing for bankruptcy and pending a recession. Furthermore, post-Games government debt levels for developing countries have in the past resulted in an inability to maintain the quality of Olympic infrastructure, leading to significantly lower than expected actual tourism levels in the years following the games.

The costs and benefits must be analysed by any nation wishing to bid to host the Olympic Games. These nations must consider the tangible effects such as financial burden, ongoing infrastructure costs as well as effect on local businesses. However, these must be weighed up against intangible effects such as domestic morale, global perceptions and cultural amplification in order to gauge the true impact of hosting the Games on their society. In balancing the rewards and shortcomings that are attached to the deal, one must identify the motives behind a city bidding to host.

The prospect of the advertising effect associated with hosting the Games is particularly alluring. From acquiring hundreds of hours of television exposure from the millions of global viewers, to the sponsorship deals – the revenue potential appears exponential. Additionally, if you include the projections for boosts to tourism, placing a bid seems to be a hot investment.

However, if you look at the recent history of budgets from the cities (and their respective countries) that have hosted an Olympic Games, an immediate trend is identified – the Olympics are incredibly expensive to run, especially in comparison to the allure of revenue.

Olympic Money: How Much Does the Olympics Cost to Run?
Host/Year Cost Revenue Profit or Loss
2000 Summer Olympics, Sydney, Australia $3,000,000,000 $900,000,000 -$2,100,000,000
2004 Summer Olympics, Athens, Greece $9,000,000,000 $3,000,000,000 $6,000,000,000
2008 Summer Olympics, Beijing, China $42,000,000,000 $6,000,000,000 -$36,000,000,000
2012 Summer Olympics, London, UK $14,600,000,000 $4,000,000,000 -$10,600,000,000
2016 Summer Olympics, Rio, Brazil $12,000,000,000 –          – –          –

(Adapted from source: https://moneynation.com/olympics-money-facts/ amounts in US dollars)

Looking at a cost benefit analysis of hosting such a sporting spectacle, one may question whether the sizeable costs of hosting the Olympic Games are justified by the benefits. Whilst countries such as China rationalize that hosting the games had political motives rather than profit motives, Brazil’s bid was still heavily scrutinized. With rampant poverty and a deepening recession attracting said scrutiny, Brazil has instead focused their attention upon the holistic benefits rather than immediate financial costs.

Despite the sky high expenses, it can be reasoned that hosting attracts necessary foreign investment, increases tourism, and draws the public eye to incessant problems within Brazil’s political and social landscape. In other words, bidding to host the Olympics can be viewed as a government’s willingness to pay for some perceived political gain. The intangible non-monetary benefits are therefore a consideration to be accounted for when looking at a country’s bidding intentions.

The bidding process is an Olympic event in itself. Cities joust for the opportunity to represent their countries, with successful applicants competing for the honour in the global arena. However, here is where the process is usually intercepted by the ulterior motives of private interests. These Olympic Planning committees can be manipulated by private businesses that stand to gain from the massive constructions and infrastructure that is required for the event. With interests coming from construction companies and architectural firms, the local planning committees are pressured to overbid.

Accordingly, this invariably wipes out any potential net economic gains that would exist in a perfect world where the bidding system contains rational cities. If this rational world were to exist, cities would bid up to the dollar figure where they would cease to financially benefit, alas this is not the case. Cities appear to fail to seriously acknowledge the inevitable financial strains that will come with the pride and honour of hosting the Games.

Although host countries expect a boost in tourism, the reality of this is difficult to quantify. Rio expected up to 400,000 tourists through the city in this year’s games. Similarly, in their recent bids for the 2024 games, four American cities all entertained the idea of the games boosting their economies through tourism. However, studies have shown that the net tourist inflow is generally not much higher than usual. This is mainly owing to ‘normal’ tourists being driven away in fears of overcrowding and heightened costs caused by the games. The topic is still widely debated and data surrounding this topic is still unclear as there is no real ‘control’ data to refer to had the Games not been held.

Indeed, the impact on tourism seems to depend on the host country. For London, an already hot tourist destination, the 2012 games saw a reduction in tourism. In August 2012, the British Museum reported comparatively 200,000 less visitors, overall tourism fell by around 5 percent and theatre performances on London’s West End were paused. However, this is in stark contrast to the prosperity brought by Barcelona’s 1992 games, with many pinpointing the Olympics as pivotal to the city’s revival. In the ten years following the games, Barcelona experienced an almost 100% increase in tourism and rose five places in terms of desirable destinations within Europe according to one report. Whether their resurgence, perhaps politically driven, would have occurred without the games is up to interpretation.

While Olympics broadcasting facilitates the showcasing of sporting excellence, the spotlight often finds it way to the host nation itself. Unfortunately, what it reveals is not always positive. Exposing and sensationalising a country’s underlying issues is routine in the media. This is all too evident in the attention paid to Athens’ deteriorating buildings (2004), Beijing’s choking pollution (2008) and London’s security issues (2012).  The 2016 Rio games were also plagued by initial reports by the WHO deeming the country unsafe due to the Zika virus, unsafe levels of bacteria in competition waters and the petty thievery of athletes and tourists. A 7km strip of a three metre wall erected in Rio, supposedly used for advertising, has been referred to as a shield blocking the poor from sight.

Furthermore, the consequences of the games will remain with the locals long after the conclusion of the closing ceremony. Reports from Rio suggest that up to 385 families had to be evicted from their homes to make way for a high-speed bus lane. The loss of the many created jobs is also associated with the conclusion of the games, perhaps further exacerbating Brazil’s pre-existing increasing unemployment. Even though many of these jobs were created temporarily for the Games, poor economic conditions meant employment was in high demand, with locals apparently queuing from 4am, five hours before applications were officially accepted.

This is not to mention the abandonment of many of the newly built stadiums and venues. The highly specialized nature of much of the Olympic infrastructure means that a high proportion of these venues are rarely, or never, utilized again. It could take decades for China to pay off the debt on its infamous Bird’s Nest, yet both the Bird’s Nest and Water Cube have rarely been used in the 8 years following Beijing’s Olympic Games. Signage is left to rot on gates as venues have not been touched since the closing ceremony. The rising value of the land on which these venues stand also adds to the lost opportunity for further property development. Even though Brazil, like other recent hosts, has sought to make stadium spending more palatable by simultaneously constructing and revamping a range of other infrastructure; like highways and airports, the public would definitely derive the same benefit at far less cost if the transportation projects were built and the stadiums were not. It is argued that the economic success of the Los Angeles Olympics was in part to planners avoided building new stadiums.

(Source: http://www.businessinsider.com.au/abandoned-athens-olympics-venues-2014-8?r=US&IR=T#7000-people-watched-misty-may-and-kerri-walsh-win-gold-here-in-2004-2)

Despite there being a number of concerns regarding the economic efficiency of the Olympics on the hosting nation, there are a multitude of economic virtues surrounding the hosting of the Olympic Games. However, determining if hosting an Olympic Games will generate positive net benefits for the host nation, is extraordinarily difficult, with both qualitative and quantitative data needing to be considered. How should the costs and benefits of holding the Games themselves be distinguished from the costs and benefits of the capital investments required to hold them? What is the benefit of “increased international visibility”? It may certainly lead to an increase in tourist visits and tourist expenditure, but is there actually net economic benefit from this increased tourism? Furthermore, it is virtually impossible to accurately asses the value of “the pride of hosting the Games” and the increased nationalism that may result, a qualitative effect that can be instrumental to engendering change in a country.

A range of questions must be considered by a country before deciding to bid, and although developing nations have the most to gain economically in hosting an Olympics, they simultaneously have the most to lose. The Olympic Games have undoubtedly provided a platform for developing countries to announce their progression in standards of living and evolution into a developed country, allowing them to showcase their rich cultural heritage and an ability to uphold international standards. While the domestic population of countries such as Brazil and China primarily benefited from the added tourism boosting revenues for local businesses, there were also many negative effects which needed to be considered.

References:

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http://journalistsresource.org/studies/government/infrastructure-government/economic-and-cultural-benefits-of-the-olympics-research-roundup

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http://www.businessinsider.com.au/abandoned-athens-olympics-venues-2014-8?r=US&IR=T#7000-people-watched-misty-may-and-kerri-walsh-win-gold-here-in-2004-2)

https://www.theguardian.com/world/2016/jul/16/rio-olympics-crisis-brazil-zika-athletes-woes-uplift
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