Economics of the olympics
The summer Olympics in Rio are quickly approaching, and not without their fair share of drama. So far, the Russian Track and Field team is banned from competition, there are health concerns regarding Zika virus and the sanitation of the water, and the city is suffering a financial short fall and has asked the State for additional financial support. But, once the Games arrive and the spectators are in, Rio will make their money back, right? A new study says perhaps not.
The actual costs to host the Olympics are incredibly high, starting with the bidding process. Just applying to be a host city can cost over $70million. This is the just the beginning. The proposal has to then outshine all the other cities vying to be the host, so the proposed venues compete for the most outstanding (insert price increase) and then there is the cost of updated infrastructure and room capacity. Once the games commence, there are event management costs, opening and closing ceremonies and security personnel to pay. While the revenues generated by the Olympics are considerable, they are nowhere near the actual cost of hosting the Games: Vancouver in 2010 garnered $1.5B but spent $7.5B, London in 2012 brought in $3.3B but spent $11.4B.
Host cities believe that they will receive downstream revenue from being an ‘Olympic City’, increased international exposure and trade deals. While, this is correct, the amount generated is not substantial and not more than other cities that applied, but were not awarded the hosting of the Games.
Then, there are the facilities. The host city constructs elaborate facilities for the events and the staff, but after the games they are of little use. There is not the ability to reuse these facilities due to the specificity of their construction and unless facilities exist to be reused, the buildings fall into disrepair at the conclusion of the Games. So, what is to be done?
The popularity and expense of hosting the Olympics is not going away anytime soon and as long as cities and nations feel that the international exposure is worth the risk, they will continue to bid on them. In order to help the host nation avoid financial distress as a result of hosting, it has been proposed to limit the hosting to a handful of sites in order to reuse existing buildings. It has also been proposed to make the Games more sustainable for the host City including using current facilities, better economic forecasts and more reasonable infrastructure upgrades. Time will tell if the city of Rio sees an economic benefit for hosting the Games, or if they, like other cities, will have lost money on the venture.
Baade, R. and Matheson, V. (2016). Going for gold: the economics of the Olympics. Journal of Economic Perspectives, 20 (2). http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.30.2.201
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