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Sports Economics
The Olympics Games: Striking Gold or Hitting Rock Bottom?
September 21, 2016
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The Olympic Games, much like other international competitions are focused on skills, training and most importantly national pride. Winning medals for the home country is of paramount importance. Take the Rio Olympics for example. There has been much discussion on social media about Indian athletes not winning any medals and snide comments about how it is a waste of resources to send athletes to participate when there are slim chances of winning. But is that the real waste in this whole scenario?

The real costs of these games are borne by the countries hosting them. They spend years planning and creating infrastructure. They divert funds away from important projects, schemes and channelize them into creating massive structures for accommodating the contestants and organizing the events. During the planning stage, extensive plans are laid out to ensure that mega structures to be created can be successfully used for some other project. One would naturally want to know if that actually happens. History tells us that the actual scenario differs greatly from the planned one.

The costs of holding the Olympic Games are massive. They start with the bidding process, at least a decade before the games. Countries start construction projects even before winning the bid. Once a country wins the bid, they have to start planning and construction with full force. Major structures to be constructed include a village for housing and practice, various stadiums, courses and pool complexes. Auxiliary costs include cleaning drives, creation of transport facilities or any other initiatives that the countries might undertake. During the games, the costs of operation play the biggest role. After the Games, the costs of maintaining the infrastructure and ensuring its reuse are to be borne. Other than these, there are several opportunity costs associated with the Games. The biggest opportunity cost is that of the development projects that could have been undertaken with the public money used for the Games.

However, this does not mean that there are no benefits associated with hosting the Olympic Games. The benefits start to accrue once a country wins the bid. They can be in the form of increased tourist inflow and rising demand for consumption goods. Creation of the necessary infrastructure and transport facilities increases demand in the economy by creating jobs. Some of these projects may be necessary but may not be undertaken in the normal course of events. . The return on investment comes from TV rights, sponsorships and tickets. They only manage to cover the operating costs of the events. Also, a successful reuse of the facilities created is not just an economic benefit but a social benefit as well.

We can always argue the pros and cons of hosting and organizing such competitions but we can only conclude from the past experiences of different countries. Starting with the first summer games of the 21st century, held in Sydney. Sydney has one of the few success stories of Olympics hosting. Australia invested about AUS $3.4 billion and most of the Olympics venues were put to use after the games ended. But this was primarily because sports and sporting events are popular in Australia. These venues were still in use by 2015, generating returns for the investors. The pointed to be noted is that the venues were prevented from becoming white elephants.

The second case is that of the 2004 Olympic Games held in Athens, Greece. The Athens Olympics venues met with a terrible fate after the games ended. An estimated 9 billion euros were invested in the construction of the venues in the period before the games. The hosting of the Olympics filled the Greeks with pride. But the emotions quickly turned sour when the Greek economy faced a depression sometime after the Games. The government could not invest the amount necessary to ensure the reuse of the venues. The stadia became the reminders of wasteful expenditure incurred on the Olympics amidst poverty, unemployment and homelessness.

Next in line are the 2008 Beijing Olympic Games. The Chinese government prepared plan for investment of US $14.26 billion in the facilities and auxiliary projects. However, it is speculated that the actual investments far exceeded the stipulated amount. Estimates put the actual figure close to US $40 billion. It is widely believed that the goal of emerging economies is to not gain from the main hosting opportunity but to join “The League of Extraordinaire”. It is true that hosting Olympics does boost tourism in most cases but the effects are not long lasting. The venues constructed in China are currently being used as water parks, marinas and recreational centres, generating a fraction of the amount required for the upkeep of the facilities.

The London Olympics in 2012 are expected to be a success. The effects of the games are still being monitored and accounted for. But a report by Goldman Sachs expected the London Olympics to be profitable. Some of the venues have been put to use. Former Business Secretary Vince Cable expected the returns to reach US $40 billion by 2020.

Now, over to the Rio Olympics currently taking place in Brazil. The estimated investment in the facilities stands at US $25 billion out which about 60% of the investment came from private sources. Brazil is facing a major economic crisis with low demand primarily because of reduction in exports to China and excessively high inflation rates. Its securities have been awarded junk bond status, which means that foreign investment is low. High inflation rates translate into widespread pauperization. In such a scenario, investing billions on the construction of sporting venues which may not even be used again is similar to snatching from the needy and flushing it down the drain. This situation coupled with political unrest and a possible presidential achievement is the perfect recipe for disaster in yet another Latin American country.

In a discussion of the economic impacts of hosting the Olympic Games, I would be remiss in failing to mention the Winter Olympics. These games also take place every four years but only feature winter sports. They deserve a special mention because the facilities required for these games are much more expensive to construct and maintain. Also, the facilities are difficult to reuse because of the specific requirements. The Sochi Olympics held in 2014 were the most expensive Olympic Games held till date. Around US $51 billion were incurred on these games, when the initial budget was US $12 billion. The 2010 Vancouver Olympics cost around US $6.4 billion out of which less than half came from public contribution.

The indisputable fact is that the Olympic Games are a costly affair. The actual expenditure, more often than not, exceeds the planned expenditure. Countries are rarely able to follow through on their plans to reuse the facilities for other purposes. Experience states that developed countries are better suited to minimize their costs than developing countries. A Goldman Sachs report stated that the Los Angeles Olympics 1984, The Vancouver Olympics 2010 and the Sydney Olympics 2000 were successes as they were able to boost tourism and reuse the facilities. The Olympics organized in Athens in 2004 and Beijing in 2008 were major economic wastes. The verdict is already out on the Rio Olympics. There is widespread condemnation of the games in the face of massive economic downturn in Brazil. Countries should prioritize their internal affairs instead of making a show of economic strength on the biggest international stage in the world. They should also stop falling for the myth that Olympics hosting gives a permanent boost to tourism as there has been no research corroborating the same.

References

  • http://olympicstudies.uab.es/pdf/OD008_eng.pdf
  • Brunet, Ferran; Zuo Xinwen (2008): The economy of the Beijing Olympic Games: an analysis of first impacts and prospects [online article]. Barcelona: Centre d’Estudis Olímpics UAB.
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