The Economic Myth of the Olympics

August 23, 2016

 Every two years the International Olympic Committee (IOC) holds an auction where cities compete against each other for the honor of holding either the summer or winter Olympics. City builders boast of new stadiums and infrastructure projects that they will build in order to make their cities more suitable to hold the games. Like most auctions, however, the winning city tends to overbid and over promise and it might be time to re-think how we choose where to hold the Olympics.

 

The winning bid typically runs somewhere between $15 billion to $20 billion and usually the funds come from debt issued by the host country. In return for hosting, the city gets roughly 25% of TV contracts, endorsements, ticket sales, and memorabilia sales while the remaining 75% goes to the IOC. Sadly, this usually only totals somewhere between $3.5 – $4.5 billion for the host city, a shortfall of at least $10 billion. This deficit is considered short-term and proponents will argue that there are long-term economic benefits of the updated infrastructure and increased tourism in the future. Unfortunately, history does not support this belief.

 

In London, during the summer of the 2012 Olympics, tourism actually fell by over 5% overall. For those not interested in seeing the Olympics, most tourists will try to avoid the city where they believe lots of traffic and security risks will abound. Also, if media attention is negative such as during the games in Sochi or even the current situation in Rio de Janeiro, it could actually deter future tourism after the scrutiny.

 

Beyond the lack of tourism is the failure to sustain the infrastructure built once the Olympics are over. Some of the beautiful stadiums built slowly fade into disarray because the cities don’t need stadiums that are so large. Many in Greece are used to house refugees or are employed as parking lots for city buses. With no net benefit to tax revenues in the long run, the debt can often be overwhelming after the games, Greece being one of the best examples with their debt struggles over the past decade.

 

Does this mean that we should give up on the Olympics? Not necessarily, but it is prudent to re-examine how we award the games. The IOC has enjoyed awarding the contracts to the highest bidders which often are countries that are still developing. While it seems charitable to send the business to countries that have less, it ends up being too much of a burden and the revenue they hope to cover the costs never materialize. Using more modern cities that already have the infrastructure in place would greatly lower the risks. Another model that is being considered is to simply use the same city for each Olympics. Keeping the Olympics where they originated in Greece might be an option that could make much more sense financially over the long term. Whatever they decide, it is time to change how we decide where to host the Olympics.

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