ECONOMICS OF OLYMPICS: A dangerous race that no city might aspire to run in the future!


On 08 August 2021, the hugely anticipated 2020 Tokyo Olympics came to an end in the backdrop of the disastrous covid pandemic. Held a year after scheduled, the event took place in a relatively deserted stadium during an ongoing state of emergency. IOC President Thomas Bach declared the 32nd Olympics closed. 'See you in Paris, thank you very much,' Bach said.

The 17-day global sports extravaganza brought a mixed bag of emotions for all the participants, volunteers and supporters alike. All of them were incorporated and reported widely. What most people failed to notice is the massive, whooping total spending topping $20 billion. The expense is almost three times the initial projection of around $7.4 billion when Tokyo put together its bid for the Olympics. It made the Games the most expensive ever by surpassing the total cost of the 2012 London Olympics by $11.04 billion.

Are the Olympic games a dangerous deal for host cities?

It is an enigma that most countries are pondering over. An Oxford University study affirms that the planned Olympic budgets are typically overwhelmed by an estimated 172% in real terms. For the 2016 Summer Olympics, Rio de Janeiro estimated $14 billion but ended up spending roughly $20 billion. Sochi, Russia, budgeted $10.3 billion for the 2014 Winter Olympics and paid more than $51 billion. And London, the 2012 host, spent $18 billion while having aimed for $5 billion.


The games leave tremendous debt, reckless infrastructure and rigorous maintenance obligations.


Tokyo does not endure alone. The economic bonfire ignited in Japan is still blazing at several former Olympic locations.


The numbers articulate for themselves. For instance, the overrun cost and associated debt from the Athens 2004 Games impoverished the Greek economy. It, in turn, contributed to the 2007 deep financial and economic crises often dubbed as the “forever crisis” by The Financial Times. Furthermore, it was not before 2006 that Montreal ceased clearing off its debt from the 1976 games, while Russian taxpayers will spend almost $1 billion yearly for many coming years to square off the debt from the 2014 Sochi Olympics.


Presenting a bid to the International Olympic Committee (IOC) to host the Olympics itself necessitates millions of dollars. On average, $50 million to $100 million are designated by the cities interested in hosting to handle payments for consultants, event organizers, and travel-related hosting duties. Tokyo, for instance, dissipated nearly $150 million on its unsuccessful 2016 bid and paid roughly $75 million on its triumphant 2020 bid.


After winning the bid as Olympic hosts, cities generally focus on adding/refurbishing roads, airports, rail lines to support the smooth commute for the enormous visiting delegations and guests. Accommodations for the athletes and the staff are arranged in the Olympic village and hotel rooms, therefore, necessitating well-defined construction. Explicit amenities and various types of equipment for the events must be built or renovated.


Clearly, risks of high-cost overruns are inherent to the Olympic Games from the very inception of the linked processes.


Montreal exhibited the most substantial cost overrun for the Summer Games in 1976 at 720 per cent, while Beijing claims the least cost overrun in the 2008 Summer Olympics remaining at two per cent. In the case of the Winter Olympics, the most comprehensive cost overrun was for Lake Placid 1980 at a mountainous 324 per cent and the smallest for Vancouver 2010 at 13 per cent.


Authorities and critics end up arguing in differentiating between the costs incurred by the games and the investments that cities would have undertaken anyway.


Additionally, organizers account that gains would more than makeup for the costs. It, however, has not proved to be fruitful reasoning to date. For instance, London generated $5.2 billion in revenue while spending $18 billion on the 2012 Summer Olympics. Similarly, Vancouver drew in $2.8 billion after paying $7.6 billion during the 2010 Winter Olympics. Los Angeles is the single host city that earned a profit from the games only because of the endurance of the required infrastructure beforehand.


In addition, Japan ascertained that the games would create ¥14trn ($127bn) of supplementary demand. The development of brand-new infrastructure is a significant part of the boost. These projects simultaneously give temporary jobs quite a hike. Though, it is also apprehended that the afore-mentioned projects might often crowd out investments in other, more beneficial areas. The added benefit ordinarily comes from consumption around the games, on everything from tickets to food and drink. However, with spectators banned, Tokyo estimates to have lost around $800 million in ticket revenue. Thus sombre clouds surround the optimistic supplementary demand figures. The final numbers would need significant time to reflect.


Researchers like Andrew Zimbalist, a professor at Smith College, who has studied the industry of the Olympics, conclude that Tokyo has spent more than the 2019 government audit estimate and anticipates the losses to be at least $35 billion. Covid-19 induced postponement and the further associated preventive expenditure played a substantial role in exacerbating the troubles.


The direct response to such aspects is now readily evident. Countries have started rethinking their policy, dramatically leading to a steadfast decline in the number of cities bidding for the games in recent years. The Japanese experience seems to be only accelerating the process of putting more of them off. With several European cities already dropping their bids, the Olympics may enhance into a race with no cities wanting to run.


REFERENCES:

  1. www.olympics.com

  2. www.wsj.com

  3. www.journals.sagepub.com

  4. www.nytimes.com

  5. www.economist.com

  6. www.theguardian.com



Written By: Gaurav Chakraborty

Edited By: Priyanshi Kapoor