The Olympic Games and its Economic Impact

By Anna Thompson

Many cities submit their application for the Olympic bidding process, with five cities bidding to be host to the 2024 Olympic Games. As such, you would think that the economic impact of hosting the Olympics would be a positive one. However, most cities have fallen into debt after hosting the Games. The immense spending begins at the bidding process and according to the Federal Reserve Bank of St. Louis, interested cities can spend up to US$100 million to appease the International Olympic Committee (IOC) and gain their vote.

In the short run, hosting the Summer Olympics has been shown to boost regional GDP per capita by around 3 to 4 per cent. However, there is no statistically robust evidence of positive long-run effects. Additionally, the Winter Olympics does not positively impact the host cities – rather, they lead to regional GDP per capita to temporally decline.

Broadcasting & Sponsorship

Sources of Olympic Revenue

Source: International Olympic Committee

Arguably the largest source of revenue for host cities comes from sponsorships and broadcasting revenue. As can be seen in the figure above, ‘Television’ makes up the largest proportion of revenue from the Games. However, it should be noted that the IOC keeps more than half of this revenue. While Australia did not host the 2020 Tokyo Olympics, Channel Seven’s coverage of the Games beat all Australian streaming records, showcasing the large impact on the media industry. Additionally, this global media coverage of the Games can lead to a long-term increase in tourism in the host city.

Tourism

The impact on the tourism industry from hosting the Games has been found to be mixed due to security issues, increased crowds and ramped-up prices. While Barcelona in 1992 rose from the 11th to 6th place in most popular European destinations after hosting the Games, London, Beijing and Salt Lake City all witnessed decreased levels of tourism during the years they hosted the Olympics. While people will travel to host cities to watch the Games, the increased cash flow is not much higher compared to income that would have been earned from usual tourism activities. 

Infrastructure

Sports facilities, the Olympic village and a venue for the ceremonies are all typically built new for the Games. Whereas infrastructure such as roads, train lines and bridges are often improved upon. These infrastructure costs often range from US$5 billion to over US$50 billion and are often funded by increasing taxes or cutting spending on other areas of government expenses such as healthcare and education.

In theory, this infrastructure has the potential to be used for many years into the future, yet, most often these facilities are not maintained. According to the 2004 PriceWaterhouseCoopers Report on the economic impact of the Olympic Games, the lost benefits of not using these facilities after the Games is very costly. The South Korean province of Gangwon incurs an annual debt of US$8.5 million to maintain unused facilities from the 2018 Winter Games. Furthermore, almost all the amenities built for the 2004 Athens Olympic Games are unused and only exacerbated the Greek debt crisis following the Global Financial Crisis. 

Employment

While governments of host cities often argue the Games will boost economic output through mechanisms such as job creation, evidence has not always proven this to be the case. For example, it was found that for the 2002 Salt Lake City Games there was only a short-term boost of 7,000 jobs – one-tenth of what was promised – and no long-term increase in employment levels. The European Bank for Reconstruction and Development stated that the jobs created from constructing infrastructure for the Games are most often temporary. Additionally, these new jobs often go to already employed workers – with only 10 per cent of the jobs created during the 2012 London Olympic Games going to the unemployed. Consequently, this  stumps the positive economic impact it could have on the broader economy. All of these components have led many host cities to experience a cost overrun, where final costs exceeded the estimated budget due to unexpected expenses being incurred.

 

Estimated versus Final Olympic Costs

Source: Council on Foreign Relations

The 2021 Tokyo Olympics 

The official price tag for the Tokyo Olympics is US$15.4 billion, however, several Japanese government audits have revealed that the real outlay of the Games could be twice as much as the official figure. All but US$6.7 billion comes from Japanese taxpayers. The IOC only chipped in US$1.3 billion and some additional amounts following the pandemic. Tokyo saw costs soar with the postponement. Officials reported that the delay added US$2.8 billion to the final total. The subsequent ban on fans also wiped out all ticket sale incomes, which was budgeted to be US$800 million. Periodically, the Olympics have always overrun their budget. A study by the University of Oxford revealed that since 1960 the Games have on average experienced cost overruns of 172 per cent. Tokyo’s cost overrun is 111 per cent or 244 per cent , depending on which cost figure, the conservative or the extreme, is selected.

Future Recommendations

In order to reduce the unfavourable impacts of hosting the Games, a number of reforms to the process should be made. IOC President Thomas Bach presented the Olympic Agenda 2020 which had a number of recommendations including:

  • Reducing the cost of bidding (Tokyo spent US$150 million on its failed bid in 2016);
  • Allowing host cities to flexibly utilise existing sports facilities (in 1984 Los Angeles relied on already existing infrastructure and consequently spent lesser than the estimated budget);
  • Encourage bidding cities to develop a sustainable development strategy; and
  • Increase external auditing.

Additionally, economists Baumann and Matheson believe that the IOC should only allow developed countries who are more capable of absorbing more of the costs to host the Games, rather than developing countries. As a more extreme option, author Andrew Zimbalist suggested that there be a single permanent city that hosts the Games every four years, thus allowing for the expensive infrastructure to be reused.

Hosting the Olympic Games is rarely profitable, especially for developing countries, and little evidence suggests it has a positive economic impact. Organisers often overlook the unexpected costs and underestimate the expenses. While it is possible to realise economic benefits from hosting the Games, most countries simply increase their debt and fail to utilise or even repurpose the infrastructure built for the Olympic Games.

Sources: Council on Foreign Relations, AFR, Grand Valley State University, Austrian Institute of Economic Research, Manning & Napier, U.S. News & World Report, Forbes

Disclaimer
The authors of this publication are not qualified to provide financial or investment advice and as such the content provided should not be construed in this manner. All information is intended purely for educational purposes and is provided for the personal interest of UNIT members. The opinions expressed within the article do not reflect those of UNIT as an organisation, its partners or its sponsors.