The costs incurred in hosting the ongoing virus-delayed Tokyo Summer Olympics remind observers of the financial bonfires still burning at many former Olympiad locations despite enormous deals of prestige or economic privileges.
From building sports facilities to hosting athletes or attracting huge global sponsorship deals, the economic cost of hosting an Olympics is always a bitter-sweet experience irrespective of any country’s level of economic development.
A growing number of economists have argued that both the short- and long-term benefits of hosting the games are at best exaggerated and at worst nonexistent, leaving many host countries with large debts and maintenance liabilities.
Benefits of Hosting the Olympics
On the face of it, hosting the Olympics has a lot to offer a city, particularly those wishing to elevate their position on the global stage.
Adele Labine-Romain, national travel, hospitality, and services lead at Deloitte, and a partner within Deloitte Access Economics’ economic and policy advisory practice, says cities that bid to host the Olympics have a much bigger ambition than staging a mega sporting event.
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Barcelona is a fine example. The Spanish city, which hosted the Games in 1992, used the event to implement a well-planned, wide-ranging urban renewal plan.
“For Barcelona, the long-term agenda was about kickstarting the tourism industry and rebuilding the city – and it worked,” says Labine-Romain. “When you put your hand up to host the Games, you have to be really clear in what your objectives are.”
Other economists noted that cities hosting the Olympics gain temporary jobs due to infrastructure improvements that continue benefiting the cities into the future.
For example, Brazil constructed 15,000 new hotel rooms to accommodate tourists, Russia invested approximately $42.5 billion in constructing non-sports infrastructure for the 2014 Olympics while Beijing spent over $22.5 billion constructing roads, airports, subways, and rail lines, as well as almost $11.25 billion on environmental cleanup.
Additionally, thousands of sponsors, media, athletes, and spectators typically visit a host city for six months before and six months after the Olympics, which brings in additional revenue.
According to research notes by economics professors Robert Baade and Victor Matheson, “the very act of bidding for Olympics serves as a credible signal that a country is committing itself to trade liberalization that will permanently increase trade flows.”
For example, China negotiated with the World Trade Organization, opening trade for the country, after being awarded the Beijing 2008 Summer Games.
Costs Incurred When Hosting the Olympics
Submitting a bid to the International Olympic Committee (IOC) to host the Olympics costs millions of dollars.
Cities typically spend $50 million to $100 million in fees for consultants, event organizers, and travel-related to hosting duties. For example, Tokyo lost approximately $150 million on its bid for the 2016 Olympics and spent approximately $75 million on its successful 2020 bid.
Hosting the games is even more costly than the bidding process.
A recent study by the University of Oxford’s Saïd Business School has found that the cost of hosting the Olympics is ever-increasing and that every Olympics since 1960 has run over budget by an average of 172 percent in real terms.
For instance, the Tokyo Olympics which is set to be the most expensive Olympics in history initially had a budget of $7.3 billion, but a 2019 government audit put the actual spending at around $28 billion.
The Business School report includes a list of recommendations to save future Olympic hosts from cost overruns. One of them is to avoid hosting the Games in the first place.
According to a report by the UK’s Council of Foreign Relations, Rio de Janeiro budgeted $14 billion and spent an estimated $20 billion for the 2016 summer games, Russia budgeted $10.3 billion for the 2014 Winter Olympics and spent more than $51 billion while London, the summer host in 2012, aimed for $5 billion and spent $18 billion.
The report noted that once cities win a bid for hosting the Olympics, they commonly add roads, build or enhance airports, and construct rail lines to accommodate the large influx of people.
“Housing for the athletes in the Olympic village, as well as at least 40,000 available hotel rooms, and specific facilities for the events, must be created or updated, as well. Overall, infrastructure costs maybe $5 billion to $50 billion,” the report noted.
