The Economic Game of the Olympic Games

Underneath the spectacle of the Olympics, there is quite a lot of hidden debt taken on by host countries, which has led many to question why hosting the games remains so enticing.

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By Rin Fukuoka

Millions of people from all over the world tune in to the ongoing Olympics in Beijing to see what medals their countries will take home and watch hundreds of phenomenal athletes excel. Beijing’s opening ceremony drew more than 16 million viewers from NBC’s stream alone. Between the ongoing pandemic, the controversy surrounding Peng Shuai, and the NHL pulling out, this number saw an expected decrease. However, 16 million is no small number, speaking to the volume of people interested in the games. But behind the facade of grandeur put on by the opening ceremony and the games’ proceeding events, there is a significant accumulation of debt taken on by the host country. This debt has caused the Olympics to lose some of its allure and begs the question of whether or not this drawback is big enough to scare off future hosts.

While the games are a massive revenue generator, especially compared to the negligible amount countries make from national sporting leagues, they still barely begin to compare to the costs of hosting. Albeit a long time ago, the debt incurred by Quebecois taxpayers surpassed $1.5 billion (equivalent to just over $7 billion today) following their hosting of the 1976 Summer Games, which took over three decades to pay off. While this instance is an extreme example, numerous other host countries have incurred substantial amounts of debt, stemming from the costs of new infrastructure and bidding to host the games. Russia spent over $50 billion on infrastructure alone for the 2014 Winter Games in Sochi, and much of the arenas went into disuse following the games. The costs to host the games are often considerably higher than expected, and many countries fall into seemingly insurmountable amounts of debt.

However, hosting the Olympics is not without its benefits. For one, the games bring in a substantial amount of revenue for the host country. The Olympic Games are an international spectacle, and their relatively low frequency (in comparison to major sporting leagues that have championships once or even twice in a given calendar year) give way to much more profit for hosts. Hosting countries can generate exponentially larger sums of revenue from the Olympics, specifically from ticket sales for the hundreds of thousands of viewers flying in from all over the globe. Host countries also receive an adequate amount of broadcast revenue, which, again, is not an insignificant amount. For example, the broadcast revenue from Rio’s 2016 Summer Games approached $3 billion. The Olympics is an amateur competition, so competing athletes don’t receive any money for their participation. Their only incentive is recognition and display of skill. As a result, the revenue generated from the games is a considerable amount and is one of the major motivations for countries to host, before accounting for the cost.

The only host city to ever make a net profit from the Olympics Games was Los Angeles in the 1984 Summer Olympics. The historically low cost for bidding following the release of the news about Montreal’s debt, Los Angeles’s Olympic-level sporting infrastructure, and a stark increase in broadcasting revenue led to a net profit of just over $200 million. This instance was the only time any profit was made from the games, and relative to some of the debts incurred by host countries, it was shockingly low, especially when considering just how much played in Los Angeles’s favor that year.

Why, then, do countries continue to bid on the Olympics? It seems like a dismal business model, one that could even lead to political unrest when considering the raise in taxes required to pay off the cost of the games. While a country may benefit from the short-term increase in tourism, there is no clear incentive for its citizens to pay off the costs of the Olympics with substantially higher taxes when there is no profit for those involved.

However, tourism doesn’t fade as the games do. Brazil has experienced record highs in tourism (with the peak being in 2016) over the last six years, likely stemming from the Olympics. Countries experience immediate losses from hosting the games, but their appeal remains for a longer period of time. The Olympics bring an international spotlight to host cities, a motivating factor for a lot of countries. Barcelona, for example, began to end their recession by going further into debt. By hosting the 1992 games, a strategy that enraged many at the time, Barcelona brandished their municipal improvements and reestablished its international lure. Following the 1992 Olympics, Barcelona grew to be ranked as the sixth best city in Europe and rapidly climbed out of what proved to be a brief recession.

This pattern has continued for many other hosts, with the exception of Beijing this year and Tokyo last year, because of the absence of fans. The Olympics is certainly a short-term loss, but if countries can find ways to turn the legacy into a long-term profit, it may be well worth the risk.

The International Olympic Committee (IOC) is also responsible for incurring a lot of this debt. The bidding process includes not only a financial incentive for the IOC but also infrastructure plans that encourage “wasteful spending,” making it far more difficult for smaller countries to host the Olympics. Reforms have been put in place by the IOC, but many are calling for larger scale plans to be enacted. They believe that richer countries should pitch in to help cover the cost for developing countries to host the games, increasing their global reputation and national profit.

Currently, hosting the Olympics is equated to insurmountable debt, wasted infrastructure, and high taxes. However, a combination of smart economics, IOC reforms, and aid from other countries could see more countries able to share the honor and pride that comes with hosting the Olympics.