The Economics of Olympics

Have you ever wondered," How do countries even afford something this massive?" while watching the Olympics, FIFA or even some matches of IPL? When you see those Brand-new shiny stadiums, those grand opening and closing ceremonies, and the thousands of spectators who come from all around the globe, you can't help but wonder if it is worth a nation to host such grand and expensive events.

Let's investigate it. Because the reality is a little more complicated, even though these events may appear to be all glitter and gold on the outside. In the end, some nations emerge richer, but many ask themselves the costly question: was it all worthwhile?

Who Covers the Cost?

Let's begin with something that all of us already know, it costs millions and billions of dollars for the host country to organise and host grand events like the Olympics, but now a question that many of us might not know is where this money is coming from?

Generally, the host nation pumps in the funds for such events, so the taxpayers of the host nation ultimately bear a large portion of the cost. Now to attract players and spectators, the government of the host nation spends an enormous amount of money constructing the stadiums, repairing roads, developing airports, constructing hotels and sometimes even developing an entire neigbourhood. For instance, it cost about 15 billion dollars for the Brazilian government to host the FIFA World Cup in 2014 and over 13 billion dollars for the Japanese government to host the 2020 Tokyo Olympics, which were postponed until 2021 due to the pandemic.

However, the government isn't the only entity making payments. Global brands, large corporate sponsors, and occasionally private investors.

The Dream: Tourism, Global Fame and a Boost to the Economy

Every city that bids for the Olympics does so with high expectations. Now, what are these expectations? Well, they are pretty straightforward: the event will draw millions of spectators who will then become tourists, which in turn will stimulate the economy and then will establish that city's nation as a major player in the world. And these expectations do turn into reality, like the 2012 Olympics, which were hosted by the United Kingdom in London, in which over 500,000 international spectators came, which led to the hotels in London and its neighbouring cities to be fully booked. Restaurants, Cafes, and malls were packed with customers. And according to the British government, after the London Olympics of 2014, the United Kingdom's economy was boosted by around 9.9 billion pounds, and tourism in London increased by nearly 8 percent compared to the year before the event (2013).

The Harsh Reality: Most Cities Regret It

Now comes the not-so-fun part for the host nations.

Once these events conclude and the excitement dies, many cities are left with massive debts, abandoned stadiums, and empty hotel rooms. These are often referred to as “white elephants,” which means giant facilities that cost a fortune to build but are rarely used after the event.

Let's take an example, when Greece held the 2004 Olympics in Athens, the government of Greece spent around 10 billion dollars on the event, but could only get 2-3 billion dollars, resulting in a loss of about 7 billion dollars, and this event is often blamed for the financial crisis that happened in Greece in 2009.

Hold on, but what about the nations that got it right?

Not every nation regrets organising a major athletic event. For instance, the city of Barcelona saw a lot of changes by the 1992 Barcelona Olympics, which transformed it into one of Europe's most popular tourist destinations.

Another example is the 2012 Olympics which was held in London. This event led to East London's development and improvement in housing and transportation; additionally, thousands of people found employment as a result of the event. This event also made a whopping 14 billion pounds in benefits.

The Change: Smarter Planning by the IOC

The International Olympic Committee (IOC) has made several changes regarding the re-use of old infrastructure to curb the growing expenditure. Now, they encourage countries to use existing stadiums instead of building new ones. And if you weren't aware these changes will be applied to the 2028 Olympics which will be in Los Angeles as the American government  will use many of its existing stadiums and facilities from the 1984 Olympics for the event in 2028.

Final Thoughts

So, what are your insights on the topic after reading this article? For a few weeks of international exposure, is it worth spending billions of dollars on events like the Olympics?

Here's what I think. It can be worthwhile to host the Olympics, but only if done carefully. A nation may emerge stronger if it makes good planning, makes investments that will pay off after the games, and refrains from wasteful spending.

But at the end of the day, it's just for the show, the lights, the momentary frame, and of course, the economic benefits that it gives (if done correctly).

So the next time you are watching an Olympic event, remember that behind every gold medal and every cheering fan, there is an entire economy that is working and one that doesn't celebrate till the event is over.