Olympic Games:

gain or loss?

The Olympic Games are the biggest international summer and winter sports competition,
in which a huge number of athletes from around the globe fight for supremacy. The Olympics are
held every 4 years, always in a different host country, Summer and Winter Games alternating,
having a 2 year distance between them, never interfering. (dictionary.cambridge.org, n.d.)

The host cities are chosen by the International Olympic Committee, usually 7 years
before the mega-event. The selection process takes about 2 years and in the first part, any city in
the world can sent a request to become a host city, but only after a new examination, the city can
become an official candidate.

Historically speaking, almost all of the host cities were rich and industrialized countries.
The majority of all host countries (over 90%), between the years 1896 and 1998, come from
Western Europe, US or Canada, Australia and Japan. Just Mexico City (1968 Summer Games),
Moscow (1980 Summer Games), Seoul (1988 Summer Games) and Sarajevo (1984 Winter
Games) evaded this pattern. Lately, The International Olympic Committee has supported bids
from developing countries, encouraging some cities that were outside the traditionally regions to
serve as hosts. So, the first time when the Summer Olympic Games took place in South America
was in Rio de Janeiro, Brazil, in 2016. (Robert Baade, Victor Matheson, 2016)

Great events like the Olympic Games or World Cup can be seen as an economic
improvement/recovery. Of course, many are stressed over the financial expenses of hosting such
an event and no wonder why. Seemingly, hosting the Olympic Games tends to be less positive
than we would expected. Since the most countries that hosted the great event have become
massively indebted after that, cities without the necessary requirements and infrastructure for
organizing the Games may be better without submitting bids. If we look at the costs, only
presenting an offer to the International Olympic Committee with the purpose of organizing the
Olympics costs millions of dollars. There is a huge spending for the consultants, event planners
and necessary trips. For instance, Tokyo lost around $150 million on its offer for the 2016
Olympics and spent roughly $75 million on its 2020 offer. However, these costs will appear to be
nothing compared to the necessary costs after winning the hosting. (investopedia.com, 2018)

The following picture shows us that in the last years every edition of the Olympic Games
exceeded the budget, with additionals billions of dollars over the initial proposed country budget.
Source: (businessinsider.com, 2018)

As an interpretation of the picture above, the Athens Summer Games went over its $3
billion budget by an additional $13 billion. Also, the 2008 Beijing Summer Games went over its
$20 billion budget by an additional $25 billion and the 2014 Sochi Winter Games went over its
$10 billion budget by an additional $41 billion. So, after so many financial disasters, less and
less countries bid to host the following Olympic Games editions, this information being evident
in the following image.
Source: (businessinsider.com, 2018)

Apparently, the specialists say that the future of the Olympics is looking usure, as the
IOC receives less and less bids. Only 3 countries bid to host the 2018 and 2024 Olympics and
only 2 bid to host the 2022 Games. So, if we compare the actual situation with the Athens 2004
situation , with offers from 11 countries, we see that not so many cities wants to host the
Olympics anymore. The huge costs have led to skepticism and various cities have pulled back
their bids for the 2022, 2024 and 2028 games over expenses concerns. Oslo and Stockholm both
retreated their 2022 offers after understanding that expenses would be higher than initially
evaluated. Boston pulled back from thought for the 2024 Olympics, its mayor “refuse[d] to
mortgage the future of the city away.” Los Angeles and Paris being the only 2 finalists
candidates for the 2024 Games, after the withdrawal of the Budapest, Rome and Hamburg. So,
given the absence of applicants, the IOC picked simultaneously the 2024 and 2028 hosts, Paris
and Los Angeles alternating hosting. (cfr.org, 2018)

Now, let’s see the benefits for organizing such a great sport event like de Olympics.

The benefits of hosting the Olympic Games can be devided in 3 categories: short-run
benefits, long-run benefits and intangible benefits.

Short-run benefits
 Broadcast rights represent an important and direct revenue source for the hosting city.
The Organizing Committee of the Winter Olympics in Vancouver 2010 earned $414 millions
from television rights and the Organizing Committee of the Summer Olympics in London 2012
earned $713 millions from the same type of source. If we only have this information, it sounds
like a lot of money, but compared to what the International Olympic Committee (IOC) gained
from broadcast rights in both cases, it won’t seem so much anymore. In theory, those who
organize the Games can share the revenues as they think is right, but the reality is that the
International Olympic Committee (IOC) has complete control over the Olympics; between 2009
and 2012, IOC shared less than 30% of the total earnings from television rights with the
organizers, getting to win a total of $2.723 millions, compared to $414 m and $713 m. Besides
the broadcast rights earnings, organizers have to split also the revenues from the international
sponsors with IOC. In the next table, we also see that the earnings from ticketing, licensing and
local sponsors remain in the host city, those also being some of the short-run benefits.

Source: (Robert Baade, Victor Matheson, 2016)

But, even if IOC received nothing from London and Vancouver’ revenues, it still
wouldn’t be enough to cover the hosting costs of the Olympics.

Job creation represents another benefit for the city economy, being a need for people to
work in the new stadiums and hotels that were created special for the sport event. It sounds very
promising and also the estimates of the economic activity gains are even more optimistic. Salt
Lake City Winter Olympics predicted 35.000 jobs, Vancouver Winter Olympics predicted
244.000 jobs, Atlanta Summer Olympics predicted 77.026 jobs, compared to the real outcome of
4000-7000 jobs for Salt Lake City and an increase of 0.2% in employment growth rate in
Atlanta. About the Sydney Summer Olympics, the Games took place when unemployment was
at a lower level, so instead of boosting employment it was just a movement to other activities.

In the case of London and Rio Summer Olympics, the fluctuations in unemployment
cannot be directly linked to the effect of the Olympics. The new jobs that were created specially
for the 3-week Mega Event might help lower the unemployment rate in some specific zones, but
looking at the effect on the whole city, there were not enough jobs to create a significant impact.
Also, because the 2016 Summer Olympics occurred during the Brazil’s recession, the new jobs
would help too little in the process of the cost recovery from the hosting. (scribd.com, 2018)

Increase in visitors of the host city is another advantage of organizing the Games. But,
even in this case, studies shows that because of the over-crowded period when the Olympics
takes place, the business people and the tourist who have nothing to do with the Olympics will
postpone or cancel the city visit. A good exemple is London Summer Olympics in 2012, when
British people were very happy about hosting the Mega Event, having big expectation about the
new wave of touristis. But the reality was different and far from the optimistc expectations. The
2012 Olympics took place at a time when the tourism was already very high, even when there is
not hosted a Mega Event. So, the regular visitors of the city were scared by the high hotels
prices, expensive flight tickets to and from London and the crowded transportation and areas in
the city. According to (interfacetourism.fr, 2016), London lost 750 000 in the month of the
Olympics and the Games spectators didn’t cover for this, with only 500 000 ticket owners. Also,
the regular tourists are different from the Games related tourist, regular tourists visit and walk
more around the city, therefore they consume more, while the tourists who are in town for the
Olympic Games spend a lot of time as spectators at sport competitions. Because of this, it was
observed a decresed activity for restaurants, touristic spots and even airlines in August 2012.

Long-run benefits
 This category includes: development of sporting facilities, infrastructure and raising
awareness about the host city.

To begin with, infrastructure and transport are usually upgraded for such events and this
kind of change can diminish congestion and boost efficiency, a huge number of people will be
there during the event, bringing a plus to the local economy and after that, the Games can lead to
an increased number of city visitors for a longer period. (economicshelp.org, 2017)

But, even the most developed and rich countries are not 100% prepared for all the
requirements of such a great event. General infrastructure for the tourists and athletes, minimum
40.000 hotel rooms for spectators, an Olympic Village for 15.000 competitors and officials,
transportation facilities, infrastructure for all the Olympic types of sports, great security,
management team, event organizers for the opening and closing ceremonies are necessary for
hosting the Olympic Games. But the problem is that sometimes, host cities are left with the
specialized sports infrastructure that they don’t actually need in the future. So, besides the cost of
the construction cities are left with another responsibility, that of mentaining the perfect state of
what has been built, thus adding extra high costs. Beijing’s National Stadium (Bird’s Nest) has
rarely been utilized since 2008 Games and many of the venues where the Athens Olympics were
held are deteriorated. (Robert Baade, Victor Matheson, 2016)

A little more about the Athens Olympic situation. While numerous factors are behind the
devastating debt crisis, the 2004 Summer Olympics in Athens has drawn specific attention.

Indeed, even before the Athens Olympics, there were inquiries over Greece’s capacity to
host such an event. But it was a sentimental decision, being the home of modern Games but with
traditional values and history. The country has built a new airport, arenas, metro system, tram
service, and all this took 7 years to be done. But, surprise! Many new structures stayed covered
in scaffolding only days before the start of the Games. Numerous Greeks stayed worried,
organizing protests and communicating their concerns over their businesses, but there was no
way back. (news.com.au, 2015)

Just days after the closing ceremony, Greece warned the eurozone that public debt and
deficit would be worse than expected, and that is what happened. Greece become the first
country in the European Union that was placed under fiscal monitoring by the European
Commission in 2005. With a public debt of 168 billion euros in 2004, it is clear that the
Olympics have not brought the economic collapse alone. (ziare.com, 2012)

As one of the littlest nation to host the Games, the Greeks still talk about the 2004 as a
defining occasion, when the Greece spread optimism, hopefulness, pride, belief and confidence.
(theguardian.com, 2012) So, it can be about the optimism bias or overconfidence, 2 important
concepts from the behavioral economics. Greece overestimated the probability of everything
going well and underestimated the negative effects that will happen in the future.

The former Prime Minister of Greece, George Papandreou says that the debt crisis is not
cause by the Olympics per se, but certainly did not help the country. He said that “poor
management, putting off unpopular reforms, and vast clientele networks set up by political
parties, promising government jobs, social security perks and loss-making regional projects to
win votes” are to blame.

But what made the Athens Olympic Games so different from Sydney 2000 and Beijing
2008 was that Greece was not as rich as Australia or China to ingest losses on Games. Most of
the nations witch hosted the Olympics were at that the financial powers and not under
development countries like Greece.

Host city awareness

The Olympic Games influence the tourism during and after the Mega Event. But, cities
like Paris or London that are already popular destination for people around the world, may
encounter a decrease in the touristic activity during the Olympic month. Of course, in the case of
less popular cities, the Games might be a real step forward in cities development, becoming
known worldwide, like it was the case of Barcelona and Rio. (interfacetourism.fr, 2016)
Organizing the Olympic Games in already well-known cities, like said before, will not have a
strong promotion effect. The same happened with Sydney, the popular destination in which the
Games failed to improve tourism and employment. (theaustralian.com.au, 2012)
 Intangible benefits

Those benefits should also be considered. Those are about pride and the great feeling you
get, as a nation or as a resident of the country, because of the ability to organize such a big event.
In the case of London, british people recognized that they felt very proud about hosting the
Olympics in their country, and also that they would have been willing to pay to help hosting the
event. The self image, the egos of a nation’s leaders or a show of a country’s political and
monetary power represent the reasons why a country want to host the games, resulting in
enjoying those intangible benefits. (mappingignorance.org, 2016) Nations like Russia, Chia,
Brazil have been impatient, desirous to use the Olympics to show the world their progress. Here
it can be about the peacock effect, which is about getting attention, so the odds of being
memorable definitely increases.

Conclusion

So, after seeing that most of the benefits might never happen or might happen but with a
smaller impact than the wanted one, looking from the economic perspective, and not from the
sports & competitions lovers, I conclude that even the Olympics considered successful affected
the country, finishimg with less money than before. In my opinion, the Olympic Games event is
an enjoyable event for many people around the world, including me, and it shouldn’t have gotten
that far with the negative aspects that could affect the host countries so much, agreeing to what
some specialists say about getting rid of the bidding system and reuse of the constructions from
the past host countries or even select a permanent host, even the International Olympic
Committee is not so pleased with this idea.

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