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The Olympic-Sized Burden

August 6, 2021
Editor(s): Daniel Li

London, Rio de Janeiro, and Tokyo. These are three of the world’s largest megacities, and each has an economy many countries would envy. Yet each has also recently suffered a massive economic burden in the form of the Summer Olympics. London 2012 is estimated to have cost $14.9 billion USD, Rio 2016’s estimate is $13.7 and Tokyo 2020 has exceeded $20 billion USD and is still counting.


How did we end up here?

When Tokyo bid for the 2020 Olympics back in 2013, they had expected to spend $7.3 billion on the event. With that number almost tripling in the 8 years since then, Tokyo 2020 is the most expensive Olympic Games to date. Even accounting for the unique circumstances under which Tokyo 2020 is taking place, a study done by economists at the University of Oxford found that the average cost over-run since 1960 is a staggering 213%.

While it is all well and good to talk about high costs, surely the benefits must be higher still?

Sadly, this is often not the case. With a supposed $3bn spent on infrastructure built specifically for the Games, the construction work does generate employment, and the stadiums constructed (during a normal year) would be packed full of supporters cheering on athletes. Both construction and tourism, however, are short-term economic benefits, which by themselves, are not enough to make the Games profitable. Instead, much of the expected economic benefits are derived from the “Olympic legacy” of a host country, which come from long-term increases in tourism, or use of the infrastructure (namely stadiums) constructed for the Olympics. An even more tenuous benefit is the national pride derived from seeing your country host the grandest sports event in the world.

Unfortunately, Olympic budget preparers are not clairvoyants. Instead, their vested interest in ensuring that the city they work for wins the bid to be the next Olympic host city is likely to see them overstate benefits and understate costs. As such, the long-term realised benefits are far lower than the headline profit figures proposed during the bidding process.

This is best represented through seeing how often the grand stadiums and venues built for the Olympics fall into disrepair, reviving just once in a blue moon for another sporting event. The centrepiece of Rio 2016 was the Maracanã Stadium, rebuilt just in time for the FIFA World Cup and Olympics. Yet as soon as 2017, the Stadium was ransacked by looters and there as damage to windows, doors, and the turf itself. The local energy company even had to shut off power to the Maracanã due to the almost $1m USD debt owed.

Awareness of the high costs and low benefits of hosting the Olympics has caught up to prospective host cities. In 2016, the International Olympic Committee (IOC) made the unprecedented decision to announce both the 2024 and 2028 Olympic host cities at the same time, as all cities bar Paris and Los Angeles had pulled out. Brisbane’s recent bid for the 2032 Olympics was won uncontested, with no other parties winning the IOC board’s approval.


The Future of the Olympics

So, what could possible reform of the Olympic Games look like? The easiest way to make the Olympics more sustainable is to heavily prioritise cities which already have sufficient infrastructure for the sporting events, and don’t need to splash out millions building fancy new stadiums. The most financially successful Olympics in the past few decades was Los Angeles 1984, which ended up with a positive operating surplus, a far cry from the multi-billion-dollar bills incurred by London, Rio, and Tokyo. What made it such a financial success was that they were able to almost entirely rely on existing infrastructure for the Games, to the benefit of the city’s Olympic budget.

But why restrict the Olympics to a single city? The German Rhine-Ruhr region was in the running for the 2032 Olympic Games but rebuffed by the IOC to pave the way for Brisbane 2032. Despite this, the region made a promising bid. Comprised of 14 major cities, the region has existing stadiums with a combined capacity of over 600,000 people, and planners stated that 90% of the required sport facilities already exist.

VELTINS-Arena, capacity of 62,271 and the second-largest stadium in Rhine-Ruhr

A more radical solution proposed is to permanently host the Olympics in a single city. Christine Lagarde, during her time as the Managing Director of the International Monetary Fund (IMF), suggested permanently hosting the Olympics in Athens, citing the permanent economic benefits for Greece and financial and environmental sustainability of such an idea. Economist Andrew Zimbalist has expanded upon this, touting Los Angeles as a permanent host city due to its superior infrastructure.


Back to today

As Tokyo 2020 wraps up and Brisbane begins its preparation for the 2032 Games, both financial and environmental sustainability should be the key focus. Else, in one decade’s time, it will be Australians rueing the heavy Olympic-sized burden.


References:

The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.

Meet our authors:

Daniel Li
Editor

I am a first year Bachelor of Commerce student majoring in Economics and Finance. On a macro-level, I passionate about following and analysing economic policies on both a domestic and international level, but you can also often find me poring over empirical research regarding behavioural economics and strategic decision-making among individuals.