The Olympics: Benefit or burden for the host’s economy?

By Tina Irgang

On the face of it, hosting the Olympics should be a good thing — it’s a major sporting event that has the potential to attract millions of athletes and visitors over a period of several weeks. All of them will have to patronize local businesses at some point. But naturally, the event comes with costs — enormous investments in building the required infrastructure, for example. So what’s the ROI for Olympic hosts, if any?

Estimates of Brazil’s spending on the Olympics have varied, but according to a report by Oxford University, it could run to $4.6 billion — by no means an unusual amount to spend based on the history of the games, notes The Financial Times.

The argument in favor of hosting goes that this kind of investment will in the long run benefit residents and businesses in the host country, and especially the host city. When making the pitch for London to host in 2012, city officials argued that the games would provide a major boost for economically depressed East London, according to The Daily Beast.

So did it happen? The problem is that host countries have an inherent motivation to claim that their massive investment has paid off. One report claimed that two years after the Olympics, Great Britain had seen economic benefits that outstripped the cost of hosting by $1 billion. However, that report was commissioned by the government, and independent researchers found that the number of tourists arriving in London actually decreased during the Olympics, compared to prior years, notes NPR.

What happens to the venues?

In general, many economists are skeptical of the Olympics’ long-term benefit for businesses and residents. “Spending lavishly on a short-lived event is, economically speaking, a dubious long-term strategy. Stadiums, which cost a lot and produce minimal economic benefits, are a particularly lousy line of business,” argues The New York Times.

That’s largely because it can be hard to find a long-term productive use for Olympic venues after the games end — and that fact can get expensive. Four years after hosting the 2004 Olympics, Athens “faced a bill estimated at $784 million simply to maintain” its venues, according to The Daily Beast. Out of 22 stadiums, arenas, sports halls and swimming pools built for the Olympics, 21 are “either derelict, in a state of disrepair, boarded up or unable to find a buyer and underused.” (For more examples, here is a slideshow of abandoned Olympic venues around the world.)

Some cities have found a way to make use of at least some former Olympic venues. In Atlanta, the Centennial Olympic Stadium was converted to Turner Field, home of the Braves. (That said, the Braves are planning to move to a new stadium at the end of the 2016 season.) Elsewhere in the city, it’s a mixed picture. While the Olympic aquatics center became a rec center for Georgia Tech, the tennis complex is deserted, according to NPR affiliate WBUR.

A boost for trade?

There is some evidence that the Olympics carry a trade benefit. The National Bureau of Economic Research has found that “hosting a mega-event like the Olympics has a positive impact on national exports. This effect is statistically robust, permanent and large; trade is around 30 percent higher for countries that have hosted the Olympics.” (However, note that countries don’t have to actually host the games to see the trade benefits, the report goes on to say: “Unsuccessful bids to host the Olympics have a similar positive impact on exports. We conclude that the Olympic effect on trade is attributable to the signal a country sends when bidding to host the games, rather than the act of actually holding a mega-event.”)

That’s not the only argument in favor of the Olympics: Despite their transient nature, the games do create permanent jobs — 24,742 in Atlanta, by one estimate.

To some extent, the long-term impact on the Olympics may be most beneficial in cities that already have much of the needed infrastructure — athletic, hotel and transport — in place. For example, Los Angeles made “a healthy profit” off the 1984 games, in part because it didn’t have to make a major investment compared to other hosts, notes The Economist.

However, even that rationale may be changing, as the International Olympic Committee (IOC) takes an ever bigger share of the games’ profits. For example, the IOC now claims more than 70 percent of television revenue, compared with less than four percent between 1960 and 1980. A chart by The Economist shows that in general, IOC profits are trending upward while local profits are trending downward.

Los Angeles, which put in a bid to once again host the Summer Olympics in 2024, might want to take note.

Tina Irgang is the managing editor of SmartCEO magazine and SmartCEO.com. Contact her at tina@smartceo.com.