Exorbitant Costs and Minimal Benefits: the Impact of Hosting the Olympics

Every four years, the world tunes in to watch pageantry, competition, and peak athletic performance at the Summer Olympics. Before the COVID-19 crisis, the 32nd Summer Olympiad was scheduled to take place in Tokyo from late July to early August 2020 and was marketed as the “Recovery Olympics” in light of recent natural disasters in the region. The Olympics are often touted as a method for invigorating economic growth and urban development under the premise that the effects of infrastructure development and increased tourism last long after the games have ended. However, whether these events actually positively impact their host cities in the long run remains an open question. For some host cities, such as Rio de Janeiro, the aftermath is decay and debt. Government officials considering a bid for the Olympics ought to think carefully about the associated costs and benefits.

It should come as no surprise that hosting the Olympics is a costly endeavor. Cities often need to build event-specific infrastructure, bolster their existing infrastructure (e.g., transportation systems), and deal with operational costs like security. These costs can reach into the billions of dollars and often run over budget: for example, the 2004 Athens Olympics cost $11 billion. For policymakers and taxpayers in a host city, these astronomical costs should not be taken lightly. From a pure accounting standpoint, the benefits of hosting the Olympics must be greater than these costs in order for them to be “worthwhile.”

Economists Robert Baade and Victor Matheson postulate that the potential benefits of hosting the Olympics can be divided into three distinct areas: short-run benefits such as tourism and spending, long-run benefits such as infrastructure development, and “intangible” benefits such as civic pride. Their review of the existing literature on the Olympics finds that there is limited evidence to support any of these claims. Perhaps of the greatest concern is that the short-run increase in tourism and spending from the Olympics does not cover the cost of the games. Furthermore, the long-run infrastructure spending does not lead to the expected net positive impacts. Another potential benefit of the Olympics could be increased trade, a benefit that Andrew Rose and Mark Spiegel do find to exist, but not necessarily due to hosting the games. Countries that lose a bid to host also experience a boost in trade.

It is much harder to assess whether the Olympics benefit a city by increasing or improving abstract concepts like civic pride. However, by conducting surveys of host city residents’ moods and valuations of the Olympics before, during, and after the games, researchers Henry Hiller and Richard Wanner ascertain information about these less tangible impacts. Hiller and Wanner look at survey data for two recent Olympics — London in 2012 and Vancouver in 2010 — and find that a majority of the respondents in both cities believed that hosting was “worth it,” and that the event was a success. However, Hiller and Wanner’s results should not be used to generalize across all potential host cities. Vancouver and London are wealthy cities in developed countries, so it is not realistic to assume that this pattern holds for cities in all countries.

Finally, in an era of climate change, it is essential to look at the impact of hosting the Olympics from a sustainability perspective. The International Olympic Committee (IOC) has made a prominent effort to include sustainability in its host selection process. Infrastructure development is often carbon intensive and can impact local communities. As Jules Boykoff points out, host cities like Rio de Janeiro made commitments for their development to be sustainable, but often failed to match their commitments. As environmental concerns grow for urban residents, the lack of credible sustainable development around the Olympics only furthers the case against hosting the games.

The literature asserts that the economic costs of hosting are not covered by the benefits, and the negative environmental impacts have not been successfully mitigated. Yet, in select cases, the population finds the event to be successful and “worth it” more than a year later. Perhaps hosting the games can serve to signal revitalization or recovery after loss. These mixed results paint a confusing picture for policymakers. The choice whether to bid or not is a complex one, but, broadly speaking, it appears that the benefits do not outweigh the costs.

Article sources: Robert Baade and Victor Matheson, “Going for Gold: The Economics of the Olympics,” Journal of Economic Perspectives 30, no. 2 (Spring 2016), 201-218.
Jules Boykoff, “Green Games: The Olympics, Sustainability, and Rio 2016,” in Rio 2016: Olympic Myths, Hard Realities, ed. Andrew Zimbalist (Brookings Institution Press: 2017), 179-206.
Arnout Geeraert and Ryan Gauthier, “Out-of-control Olympics: Why the IOC is Unable to Ensure an Environmentally Sustainable Olympic Games,” Journal of Environmental Policy & Planning 20, no. 1 (2018): 16-30.
Philip Hersh, “The Olympics in Crisis,” Harvard International Review 39, no. 1 (Winter 2018): 28-33.
Harry Hiller and Richard Wanner, “The Olympics as an Urban Policy Choice: Post-Game Assessments of Economic Value by Host City Residents,” Journal of Urban Affairs 41, no. 8 (July 2019): 1205-1224.
Andrew Rose and Mark Spiegel, “The Olympic Effect,” The Economic Journal 121, no. 553 (June 2011): 652-677.

Featured image created by: Mark Sheppard