Olympics

Prologue

Olympics – once in every four years, athletes and teams from around the world compete against each other – a global event in a true spirit. Ever since the first modern games in 1896, the Olympics have evolved dramatically. The sports have become competitive and it’s a pride to watch national athletes compete at a global level – something that brings people of a nation together irrespective of the differences within. However, the business end of the event has suffered adversely. The costs of hosting and the revenue produced by the spectacle has increased rapidly over the past years and this has led to controversies over the burdens that a host country has to shoulder. An increasing number of economists argue that both the short term and long term benefits of hosting the Olympics are exaggerated and even non-existent as it leaves many host countries with large debts and maintenance liabilities. There’s no doubt that the Olympics is an event appreciated and loved across the world, however, if the economies of hosting the Olympics do not support the games, how long will it survive?

Backdrop

When the sportsperson and the support staff arrived at the Tokyo Olympics, they discovered something unusual about the beds in the athletes’ village – they were made of Cardboard, no wood, no metal but completely using cardboard. The beds have been made by Japanese Company Airweave and while many were surprised how these beds would hold, the beds are more solid than wood and sturdier than they look, according to the company. The Japanese organisers opted for the cardboard beds instead of wood, to recycle them after the event is completed, as the beds are made out of recyclable materials.

A study by Oxford University suggests that the Tokyo 2020 Olympics is already the most expensive in history. The costs involved in upgrading infrastructure, the postponement of the games from 2020 and a blanket ban on spectators to curb the rising rate of coronavirus cases in Japan have all been pivotal reasons behind the skyrocketing of the hosting finances. While the event is important, once the event is over these infrastructures which are specially built for the Olympics become a waste, or the cost of maintaining them is so high that most Olympics sites are abandoned instead. Hosting the Olympics is becoming a burden than an exciting opportunity.

How do hosts countries earn from the Olympics?

Hosting countries earn from ticket sales, sponsors, investment companies, hospitality companies and television broadcasting rights in the country and across the world. Owing to the COVID-19 pandemic, spectators are not allowed in the Tokyo Olympics 2020 and thus, the projected USD 800 million income from ticket sales for the Tokyo Olympics Committee is now blown away in thin air. However, the Olympics Committee expects to earn around USD 3 billion from 60 Japanese companies who have invested in various areas across the games and at least USD 200 million by the additional sponsors to secure contracts. The Tokyo Olympics has also managed to secure around USD 2 billion from TV rights, sponsorships and hospitality. Broadcasting contracts across Asia, Europe and the States have also pumped in further USD 3 billion for the hosting committee.

What are the costs of hosting the Olympics?

Bidding

To being with, submitting a bid to the International Olympic Committee (IOC) to request hosting the Olympics itself costs millions of dollars to the applicants. Cities typically spend USD 50 – 100 million in fees for consultants, event organizers, and travel-related to hosting duties. All these expenses are good for nothing if they do not win the bid. For example, Tokyo lost approximately USD 150 million while bidding for the 2016 Olympics and spent approximately USD 75 million on its successful 2020 bid.

Public Infrastructure

Now coming to hosting the games which are even more costly than the bidding process, the host country has to arrange for infrastructure in the city as people from around the world would be visiting the city. The roads have to be prepared and even added specifically for the Olympics to manage the traffic. Airports are to be enhanced so that they can have the capacity to manage the high frequency of flights. Public Transport such as Buses, Rails and Metros have to be upgraded to accommodate a large number of tourists and also to provide relief to the road traffic. These are public infrastructure and its up-gradation is helpful for the country in the long run. However, certain expansions such as the expansion of airports, railways and new special roads usually do not have much use once the city returns to its normalcy. The construction of these special-purpose infrastructures happens at the cost of town planning as the event is of high importance and result in problems in later years.

Hospitality

Apart from infrastructure, the hosts have to prepare housing for all the athletes in a special Olympic village as well as make available at least 40,000 hotel rooms and specific facilities as a part of hospitality – all in one city. While the developed nations may already have a part of this capacity, the same does not apply to every city and other country. Besides, similar to public transportation infrastructure, once the event is over, the hotels may not be in much business unless the tourism of the city shoots up. The Tokyo Olympics 2020 opting for recyclable beds explains that the beds are usually of no further use after the event and thus, it is important to make sure that they provide some benefits in return – in this case, recycling would fetch recovery of costs.

Sports Facilities

The host nation has the more important responsibility of developing world-class stadiums and sports facilities for all the sports games which are part of the Olympics. However, post completion of the Olympics, the cost of maintaining such facilities is a burden for the host country and while they are useful for the athletes of the particular country, they won’t be useful longer if they don’t find a way for the upkeep.

Overall, infrastructure costs anything between USD 5 billion to USD 50 billion and often exceed the revenue.

Profitability of Hosting Olympics

While on most occasions, Olympic games have managed to provide a profit to the hosting committees, the host country’s economy has suffered losses owing to the Olympics except the Los Angeles Olympics in 1984. Olympic Games which were held in Rio 2016, Sochi 2014, Athens 2004 and Montreal 1976 have been economic disasters, as the host countries are still in debt after years with losses worth billions. By the time Montreal finished paying off its debt from the 1976 games, it was 2006, 30 years passed by. Russian taxpayers pay almost USD 1 billion annually to pay off the debt from the 2014 Winter Games in Sochi.

London paid USD 14.6 billion for hosting the Olympics and Paralympics in 2012. Of the total, USD 4.4 billion came from taxpayers. Beijing spent USD 42 billion on hosting in 2008. Athens spent USD 15 billion hosting the 2004 Olympics. Taxpayers in Athens continue to be assessed payments of approximately USD 56,635 annually until the debt is paid in full. Sydney paid USD 4.6 billion hosting the Olympics in 2000 and taxpayers covered USD 11.4 million. Rio de Janeiro is expected to pay over USD 20 billion by the end of the 2016 Olympics.

Income from the games often covers only a portion of expenses. For example, London brought in USD 5.2 billion and spent USD 18 billion on the 2012 Summer Olympics. Vancouver brought in USD 2.8 billion, after spending USD 7.6 billion on the Winter Games in 2010. Beijing generated USD 3.6 billion and spent more than USD 40 billion for the Summer Olympics in 2008. As of 2016, Los Angeles is the only host city that realized a profit from the games, mostly because the required infrastructure already existed.

The Japanese Economy is no different. The depreciation of the currency Yen with comparisons to the stronger currencies like the US Dollar and Euro has made import costs much higher with the renovation of National Stadium and Gymnastic venue alone costing over USD 2 billion after scraping costlier renovation plans. The Badminton Plaza cost USD 330 million, the Aquatics centre cost USD 540 million, the Volleyball arena cost USD 320 million. Building the Games village cost USD 2 billion. Part of the reason for the inflated renovation costs is also attributed to the lack of labour in Japan. The added cost of USD 900 million to ensure COVID-19 Standard Operating Procedure became another additional burden. Japanese Government Auditors have estimated that the costs of Tokyo Olympics 2020 could also shoot to around USD 26 billion including the post-games infrastructure maintenance. While the revenue is nowhere close in comparison.

The boost in jobs for the host cities from the Olympics is not always as beneficial as it is perceived to be. For example, Salt Lake City added only 7,000 jobs, about 10% of the number that officials mentioned before the event when the city hosted the 2002 Olympics. Most jobs go to workers who are already employed and it does not help the unemployed workers. Most of the profits made by the construction companies, hotels, and restaurants go to international companies rather than to the host city’s local companies, as the event is huge and high standard brings higher reputation.

How could the Olympics be made more manageable?

There’s a growing consensus that the Olympic Games needs reforms to make them affordable. The IOC bidding process encourages wasteful spending as it favours the applicant with the most ambitious plans. This so-called winner’s curse means that bids are often overinflated by the local construction and hospitality lobbying and overshoot the actual value of hosting. the International Olympics Committee (IOC) has lately, promoted reforms under the ‘Olympic Agenda 2020’ which include reducing the cost of bidding, allowing more flexibility in using existing sports facilities, encouraging sustainability strategy, and increasing auditing and transparency. However, more drastic measures are necessary. Few authors recommend one city be made the permanent host to allow the reuse of expensive infrastructure. City plannings of the host need to ensure that the games fit into a broader strategy and promote development that outlives the event.

The Bottom Line

Hosting Olympics most often results in severe losses for the economies and unless a city already has the existing infrastructure to support the excess crowds that pour in during the Olympics, not hosting the Olympics is the best option.

Published by: Greenvissage Newsletter

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