The Economics of Olympic Games
The Olympic Games are coming to their end for one more time, this year has been an event shadowed by controversies around the opening ceremony, sparkling conversations around the division on gender politics, the viral tik tok videos and the objectification of athletes. But these are not the only shadows about the Olympic games, the economics around them have been a subject of discussion for many decades, a discussion that affects the willingness of countries to host the games.
The Olympic Games are no stranger to controversy, and the 2024 Summer Games in Paris are no different. (Photo credit: AP Photo/John Locher, OLI SCARFF/AFP via Getty Images, CBC Broadcast, Aytac Unal/Anadolu via Getty Images, Joe Prior/Visionhaus via Getty Images, AP Foto/Andy Wong, Ryan Pierse/Getty Images)
Let's start with the economic benefits of hosting the Olympic Games. There are a number of direct and indirect economic benefits that could support the host country to stimulate their economy. One of the direct economic benefits is the revenue from the broadcasting rights. That has increased significantly over the decades, for example the broadcasting revenue for the Los Angeles Summer Olympics in 1984 was $287 million. These days the broadcasting revenue has hiked into billions of dollars with the 2020 Tokyo Olympics having $3.1 billion of revenue from the broadcasting rights. However, the host country doesn’t keep all the revenue, more than half of it is going to the International Olympic Committee.
The host country though can create different other indirect benefits from hosting the Olympics, these mainly include improving the transport infrastructure. For example, Athens constructed a new metro network for the Olympics. Increasing employment before and during the games, increased tourism during the games and long term use of infrastructure are other areas that can help the host country to stimulate the economy. The Paris Olympics are projected to have an economic benefit of $12.2 billion, while Los Angeles is expecting an economic benefit of $18.3 billion in 2028.
But the numbers don’t always add up. For example, some of these economic benefits are temporary, a study from the European Bank for Reconstruction and Development found that unless the host country is suffering from high levels of unemployment, the benefits of the country hosting the Olympic are temporary in the labour market and usually people already in work benefit from the games.
Tourism also may not bring the economic benefits that we are expecting, as security risks, pandemics (it is worth remembering that the Rio and the Tokyo Olympics have been affected by Zika and COVID-19 virus respectively), increased prices and overcrowding may discourage tourists from travelling. However there are some success stories, like Barcelona in 1992 that moved the city from the eleventh up to the sixth most popular destination in Europe after the Summer Olympics.
And it is time to speak about the cost of the Olympic Games, these include all the costs for infrastructure but also operational costs, and always overrun their budget. The Paris Olympics cost $8.1 billion and have overrun their budget by about 115%. Usually the host country is expected to benefit from the infrastructure in the long term as mentioned above, however that is not always the case. Sarajevo, Athens, Beijing and Rio are a few examples of overgrown and abandoned Olympic facilities, which are the result of ineffective long term planning and bad financial management. The large cost of the Olympics and the examples of financial mismanagement has discouraged countries to bid for hosting the Olympic games.
Lastly we need to think about the opportunity cost of hosting the Olympic Games, is the glory of hosting them worth the cost? Or if we could spend the money somewhere else, would society benefit more? That question became very dominant especially during the Greek financial crisis. It is argued that Greece's billions in Olympic debt contributed to the country’s bankruptcy. This increased the scepticism around the spending on the games and whether the host country would benefit more from investing the money on their citizens, their economy or repaying their debt rather than on hosting the games.
Controversial or not, profitable or not, the Olympic Games are an event that should remind us of the importance of athletic spirit in our lives, healthy competition, and that nations can work together in harmony.