The Opportunity Cost of Hosting the Olympic Games

2008_beijing_olympics_-_panoramio

According to the Sports Book Review, the modern Olympics were first held in 1896 with only 12 countries. Today, the Games attract thousands of athletes from 206 countries around the world. In ancient times, the Games were always held in Greece. Today, in the spirit of international cooperation, the Games are held in different host cities every four years.

It is commonly believed that hosting the Olympics has a great deal of benefits such as altering the design of the city, improvements in transportation and infrastructure,and international investment. According to the Council on Foreign Relations, in 1984 alone, Los Angeles actually made a profit of $215 million because it already had the sports arenas that were needed for the Olympics, in addition to earning revenue from selling television broadcasting rights.

However, the benefits of hosting the Games are not as great as imagined and there are often many drawbacks. Simply put, for the last 20 years, the Olympics grew too big, too quickly. In the 2016 Rio de Janeiro games, for example, the host city faced a siege of problems such as funding shortfalls, under-equipped police, thousands of dollars of infrastructure that went obsolete as soon as the mega-games ended etc.

Currently, bids for 2024 Games are underway and many wonder whether any city would want to host the Olympic Games anymore. As the International Olympic Committee (IOC) receives fewer bids with each Games, the future of the Olympics is looking uncertain. In this article, I will provide a cost-benefit analysis on the hosting of the Olympic Games on the host city and provide a prediction on what effects hosting the games will have on Los Angeles.

The first downside is that hosting the Olympic Games are a financial drain on the host cities. According to a study conducted by Claremont University, a host city can spend hundreds of millions of dollars to put on the Olympics. The process of bidding alone costs $100,000 in application fees, and a city must pay an additional $500,000 if it is accepted as a candidate city. Then the candidate city has to pay for the onsite inspection, as well as all formal responses and impact studies which cost millions of dollars. The host city must  then dedicate hundreds of millions of dollars for marketing, advertising, logistics, infrastructure revision, building future amenities, all to impress international investors and the International Olympic committee, often going over the intended budget.

In 2008, Beijing hosted the most expensive Summer Games to date at $40 billion, building thirty-seven stadiums and venues as sports facilities,which included $1.1 billion on transportation improvements, $200 million to demolish dilapidated housing and urban buildings, and $3.6 billion to transform Beijing into a “digital” city.  Due to this expense, cities will spend years paying off debt to host the Olympics. For example, the event cost Montreal more than $6 billion to host in 1976, leading the city to spend the next 30 years paying it off until the debt was forgiven in 2006.

Why do cities spend so much? As cities with the most extravagant bidding plans are awarded hosting privileges, they set higher and higher standards for each subsequent game. Thus, to win over the IOC quicker than competitors, host cities will rush their applications and promise too much without taking the time to understand the impact of hosting the games. According to Robert Barney, a professor at Western University specializing in the study of the Olympic Games, “Cities began to see it [the Olympic Games] in a different light when the cost escalated beyond all reason, and beyond the amount of dollars that they could raise through normal revenue processes.”

The second downside is that the Olympics force host cities to create expensive, overspecialized sports infrastructure and buildings that often fall into disuse. In past years, bid plans have included construction for new hotels and dormitories, media centers, athletic facilities, public transportation, event management, security, airport improvements. The opportunity costs for these projects are enormous with millions that could have been spent on public investment, health, education, defense, and more. Using the Olympics to justify construction is weak because these facilities could be built regardless of the games, without expensive customizations specifically for Olympic events. In Rio de Janeiro, for example, the $700 million athletes village for the 2016 Games was turned into luxury apartments that are now “shuttered” and the Olympic Park is “basically vacant” after failing to attract a buyer.

Finally, the Olympics displace the residents of the host city. According to the Center of Housing Rights and Evictions, the six summer Olympics from the 1988 Seoul Games and Beijing’s 2008 games caused an estimated 2 million people to be forcibly evicted from their homes with minimal compensation. This does not only happen in Beijing but in places like Seoul, Rio, and others. Not only does this move citizens away from friends, family, it effectively turns them into domestic refugees, far away from their homes and place of business.

While all these costs must be considered, there are also several benefits to hosting the games. For one, host cities receive direct economic revenue in the short-run from ticketing for spectators, sponsorships and advertising fees from major sports brands, and a share of television broadcasting rights. Meanwhile, infrastructure improvement can provide a form of fiscal stimulus to a city with high unemployment, raising GDP, consumption and economic investment.

In the long-run, there are also several indirect economic benefits. The Olympics increase a country’s global trade status. The very act of bidding for the Olympics is a signal to other countries that the nation commits itself to trade liberalization and lowering protectionist barriers. This advances a reputation for being a center for world class citizens, as well as, for future sporting events, conventions, and tourism. One example was, after a successful 1955 bid for the 1960 Summer Olympics in Rome, Italy joined the United Nations and began the Messina negotiations that led to the creation of the European Economic Community..

Aside from infrastructure, tourism, due to a worldwide advertising campaign, is likely to skyrocket. While this means more tourist revenue in the short run, in the long run it also increases foreign investments and better trade networks. For instance, based on a study by the University of Utah, following the 2002 Olympic in Salt Lake City, there has been a major economic boost in winter sports, with tourists now seeing it as a premier ski destination for athletes.

Despite these benefits, many argue these points do not hold water. With regards to the increase in tourism, it could also be argued that, in the process of preparing the Olympics, it could crowd out the tourism industry, with some non-sports tourists dissuaded from visiting by concerns about Olympic crowds. According to the Council of Foreign Relations, Beijing and London both saw fewer international visitors during the months they were hosting the Olympics in 2008 and 2012 compared to the same months in previous years. With regards to TV rights revenue, this is offset by the fact the International Olympic Committee has been taking larger percentages. In the 1990s, for instance, it took 4% of revenue compared to the 70% it pocketed from the 2016 Rio Games.

In all possibility, it could be that the only reason countries host the Olympics in the first place could be civic pride and a desire to prove to other nations, that their destination is a host city. Meanwhile, after each financial failure and with fewer exceptions, fewer and fewer countries wish to hold the Olympics.

Recently, Los Angeles kicked off its bid to host the 2024 Olympic Games by promising to provide an Olympic experience better than any in the past. Los Angeles has a strong Olympic legacy in 1932 and 1984 to back up its claims, both considered to be among the most successful Olympic Games ever. In 2024, the games, according to a UC Riverside study is expected to generate $14.0 billion in economic output, support 93,566 full-time equivalent jobs, generate between $6.1 billion in labor income, and generate $742.4 million in state and local tax revenue throughout the state of California. To put this into context, the total estimated economic output generated by the 2024 Games is nearly equal to the combined Forbes valuations of Los Angeles’ five largest sports franchises—the Rams ($2.9 billion), the Lakers ($2.7 billion), the Dodgers ($2.5 billion), the Clippers ($2.0 billion), and the Kings ($580 million).

LA 2024 seeks to harness a model that fits the City of Los Angeles with few innovations. The City of Los Angeles is home to a wealth of existing venues and infrastructure that allow LA 2024 to utilize existing world-class venues, creating the best experience for athletes. In an article by the LA times, in  an effort to cut the normal deficit expenses, LA plans to make use of existing arenas, dorms at UCLA, the media center of USC, all to cut down on spending and facility investment. Currently, the projected revenue is $5.3 billion, which could be covered from broadcast rights, corporate sponsorships, ticket sales etc.

Los Angeles is constantly finding new innovations to accommodate demand for traffic-easing infrastructure and currently has the largest ongoing transit construction program in the United States. Over the next decade, Los Angeles will invest $88 billion into subway, light rail, rapid bus, LAX, commuter rail etc, connect every corner of Los Angeles. Los Angeles also aims to deliver the first energy-positive Olympic Games and through this commitment realize long term outcomes in local water, local power, local solar power, energy-efficient buildings, carbon and climate leadership, and waste and landfills.

In this review, it would appear that the benefits of hosting the games weigh less than the costs, than other public services like health and education. The fact that Los Angeles is expected to profit in 2024 from these games lends evidence to claims the Games are transformative. However, this is an expensive gambit to the host

 While the future of the Olympic Games seem bleak, the International Olympic Committee is working to resolve problems by evaluating cities based on key opportunities and existing, built-in infrastructure. This will ideally reduce the coast of bidding and promote sustainability in all aspects of the Olympics Games. Although this idea is untested, it does look promising.

 

Author: GrantGo77

This Blog is about Information Technology

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s