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The pinnacle of athletic performance, one of the most watched events in the world and the dream of every athlete. Representing your country on the biggest stage is an opportunity athletes only get a few times in their careers. On paper, this seems like a profitable event for any city that undertakes hosting the event. Cities would jump at the opportunity to host the games and that was the case around two decades ago.
There were 11 cities that applied for the 2004 games and Athens won.
For the 2008 games, 10 cities applied and Beijing won.
For the 2012 games, 9 cities applied and London won.
For the 2016 games, 7 countries applied and Rio de Janeiro won.
for the 2020 games, 5 countries applied and Tokyo won.
The 2024 and 2028 Olympics went to Paris and Los Angeles respectively after no other cities bid to host the games.
The trend of cities wanting to hold the games has been on a steady decline, but why?
When a city decides to host an event as big as the Olympics, the complete economic impact must be considered before the expenditure is considered worthwhile. To be regarded as efficient, the short- and long-term gains must be substantial enough to exceed the enormous costs. As a result, when a city decides to invest in large-scale sporting infrastructure, the cost to benefits assessments are crucial.
Source: The Oxford Olympics Study, 2016.
Most of the benefits of hosting the Olympics are intangible. Intangible benefits, also known as legacy benefits, are benefits that are subjective and cannot be quantified in monetary terms. The long-lasting infrastructure that may be used for many years into the future is one of the different types of legacy advantages that come with hosting the Summer Olympics. Furthermore, holding the Olympic Games sends a message to the rest of the world, elevating the status of both the host city and the country on a worldwide scale. This intangible benefit manifests itself in the form of increased media exposure, which can lead to a long-term rise in tourism and new business attraction. According to the Federal Reserve Bank of San Francisco, hosting the Olympic Games conveys a message of economic liberalisation to the rest of the world, which leads to increased trade activity in the long run. It is also argued that sending this message to the rest of the world has long-term benefits in terms of tourism, human capital, urban regeneration, and reputation. Furthermore, while benefits such as greater civic pride in the host city and nation are hard to quantify, these are some of the benefits that are considered when considering whether to submit a bid to host.
Costs of hosting the Olympics
Cities must first spend millions of dollars evaluating, developing, and submitting a bid to the International Olympic Committee (IOC). The cost of planning, hiring experts, organising events, and travelling is consistently in the $50 million to $100 million range. Tokyo spent up to $150 million on its unsuccessful 2016 campaign and less than half that on its successful 2020 effort, while Toronto determined it couldn't afford the $60 million needed for a 2024 bid.
When a city is selected to host, it has nearly a decade to prepare for the influx of athletes and visitors. The Summer Games draw hundreds of thousands of foreign tourists to witness over ten thousand athletes compete in approximately three hundred events. In most cases, additional general infrastructure, such as housing and transportation, is also required. The International Olympic Committee (IOC) mandates cities hosting summer games to have a minimum of forty thousand hotel rooms accessible, which in Rio's case entailed the building of fifteen thousand new hotel rooms. Roads, train lines, and airports must all be improved or built.
Operational costs account for a lower but still considerable portion of the Olympic budget for the hosts. Since the 9/11 attacks, security expenses have risen rapidly—Sydney spent $250 million in 2000, Athens over $1.5 billion in 2004, and expenses have hovered between $1 billion and $2 billion since.
White elephants, or expensive facilities that receive little post-Olympics use due to their size or specialised nature, are also a source of concern. This typically leads to long-term costs. Every year, the city of Sydney spends $30 million on the upkeep of the Olympic stadium. The iconic “Bird's Nest” stadium in Beijing, which cost $460 million to build and requires $10 million to maintain each year. Almost all of the facilities constructed for the 2004 Athens Olympics, the cost of which contributed to Greece's economic crisis, are now abandoned.
The games' so-called implicit costs must also be taken into account. These include the opportunity costs of government spending that could have been used for anything else. Servicing the debt left over after the games can put a strain on governmental finances for decades. Montreal took until 2006 to pay off the last of its debts from the 1976 Olympics, while Greece's billions in Olympic debt contributed to the country's bankruptcy.
Budget overruns have been the standard for host cities, and it is believed that delaying the games by a year cost Japan $2.8 billion, with the taxpayers covering two-thirds of the cost. This is on top of a project that was already much beyond budget. The bid committee estimated a final expenditure of $7.3 billion when Tokyo was awarded the Olympics in 2013, and this was raised upwards to $12.6 billion in December 2019 before the postponement. The final cost, according to Japan's National Audit Board, would be much higher, at $22 billion. According to the financial dailies Nikkei and Asahi, the total cost of hosting the Olympics will be $28 billion.
Tokyo is the latest in a long line of host cities to suffer a severe economic setback. Some have learned from their errors, such as Hamburg, which had its 2015 bid rejected in a public referendum due to financial concerns. Other cities have discovered that the financial ramifications of hosting the games can be disastrous. The University of Oxford's 2016 research and the website Play The Game reveal how costs have risen dramatically in most locations over time. Montreal in 1976, where the games were 720 percent over budget, and Barcelona in 1992, where the cost overrun was 266 percent.
The 1984 Summer Olympics in Los Angeles were the only ones to generate a profit, thanks in part to the city's ability to rely on pre-existing infrastructure.
How do the Olympics make money
While hosting costs have risen dramatically, profits only cover a small portion of expenses. The 2008 Summer Olympics in Beijing brought in $3.6 billion in revenue compared to nearly $40 billion in costs, and the 2012 Summer Olympics in London brought in $5.2 billion compared to $18 billion in costs. Furthermore, a substantial portion of the revenues does not go to the host—the IOC keeps more than half of all broadcast revenue, which is often the single largest source of revenue for the games.
Research has also shown Olympics' influence on tourism is uneven, as security, crowding, and higher prices deter many visitors. Barcelona, which hosted the Summer Games in 1992, is cited as a tourist success story, having risen from eleventh to the sixth most popular destination in Europe as a result of the Games, and Sydney and Vancouver both saw minor gains in tourism as a result of hosting. However, tourism declined in London, Beijing, and Salt Lake City during the Olympic years.
While the Olympics will remain as a spectacle for the near future. The economics behind hosting the Olympics gives us a short insight as to why countries are slowly opting out of hosting the Olympics. It just is not worth it, the havoc it can cause to an economy and the reckless spending that it entails just is not something cities and countries can afford anymore. A few decades most cities would take up the opportunity to host the games in the blink of an eye. The legacy of hosting the Olympics has often been nothing more than a collection of abandoned and overgrown structures. To this day, dilapidated stadia and Olympic towns serve not as triumphant monuments to athletic prowess, but rather as gloomy symbols of catastrophic financial mismanagement in Sarajevo, Athens, Beijing, and Rio, to mention a few places.