Outlook #3: Going for Gold: Gambling the Stakes from Hosting the Olympics

Written by Aletha Herdiman, Justin Hesli Jonathan Simbolon, and Najwa Dzakiyaturrahmi
Research and Analysis Division FPCI Chapter UI Board of 2024
The Olympic Oath, written by Pierre de Coubertin—“We swear that we will take part in the Olympic Games in a spirit of chivalry, for the honor of our country and for the glory of sport,”—strongly promotes the spirit of nations through sports without discrimination, upholding the philosophy of solidarity, friendship, and fair play. However, beyond the game, the intentions are ever-present. Focusing on the host countries of the Olympics, proponents argue that the Olympics brought hosts onto the international stage and accelerated their development. After all, hosting the Olympics is a golden opportunity and often becomes the key factor in both local and national development strategies. Looking at the 2016 Olympics, Brazil successfully showed the world how far they have gone, but it comes with a greater price—loss (Drehs and Lajolo, 2017.). On the other hand, when Beijing hosted the 2008 Olympics, it showcased remarkable economic growth. That being said, a question comes to mind: Does hosting the Olympics in itself produce more financial benefits than the costs?

The Continuous Glow-Up of Olympics Through History 

The first Olympics date back to 776 BC at the sanctuary of Zeus in Olympia (Sakavitsi, 2024). Initially, this event was a religious festival to honor Zeus, the father of Greek Gods and Goddesses, established by the demigod Herakles (Bahtu & Srihsti, 2024). Then, similar to now, this event takes place once every four years. However, in 393 AD, the Olympic games were banned by the Roman Emperor Theodosius I, who believed that this event promoted paganism. The Games were not revived until the modern era. After numerous initiatives to establish an international sporting event, the Olympics Games were finally revived by Baron Pierre de Coubertin, who held the first Olympics at the Grand Amphitheatre at the Sorbonne University from 16 to 23 June 1894 (Sakavitsi, 2024). Since then, the Olympics has officially been reborn and is now under the supervision of the International Olympics Committee (IOC). 
There were 4 pillars that guided Baron Pierre de Coubertin for his revival of the Games: promoting the development of the physical and mental qualities that form the foundation of sport; educating young people through sport in a spirit of mutual understanding and friendship with a view to help build a better, more peaceful world; sharing the Olympic ideals with the whole world and creating an international sense of goodwill; and bringing together athletes from all over the world for a major celebration of sport every four years (Sakavitsi, 2024). However, as time goes by, this quadrennial event is changing. The most significant change has been the rising degree of competitiveness. This shift is largely due to the IOC’s decision in 1992 to  abandon its rule of only allowing amateur athletes, aiming to attract the world’s biggest stars and further commercialize the event (The Economist, 2021).

Economic Benefit of Hosting the Olympics

Since the first modern games took place in 1896, the Olympics has evolved dramatically. In the second half of the twentieth century, both the costs of hosting and the revenue produced by the spectacle grew rapidly, sparking controversy over the burdens that host countries shouldered (McBride, 2024). According to the IOC, hosting the Olympic Games generates significant economic benefits. It enables a region and country to develop several sectors, such as the tourism and events industry, the business sector, the host country’s global profile, and improve diplomatic relations (Olympics, n.d.).
Besides the IOC’s claim, there are certain benefits countries hosting the Olympics can reap. Firstly, the most highlighted benefit is tourist spending. On average, 5.1 million tickets were sold for the past six Summer Olympic Games and 1.3 million for the past five Winter Olympics. Since the Olympics are spread over more than two weeks, these visitors may spend a significant amount of time in the host area, generating substantial spending in the lodging and food and beverage sectors (Zimbalist, 2010). Secondly, hosting a mega event like the Olympic Games often require better infrastructure. Beyond the construction period, sports-event-generated infrastructure can provide the host metropolitan area or region with a continuing stream of economic benefits and potential returns (Zimbalist, 2010). Thirdly, an indirect benefit from the Olympics is the advertising effect. Intense media coverage before and during the Olympic Games could possibly attract enthusiastic tourists from many parts of the world that may generate significant, broad, and long-lasting economic benefits (Zimbalist, 2010).
Last but not least, the growth of human capital for individuals involved in or working with the event is one of the biggest, yet most frequently overlooked, benefits of hosting the Olympics. From a practical standpoint, current findings suggest that future host countries can leverage employees’ knowledge in various disciplines that are sport and non-sport related. It is evident that people working for an Organizing Committee gained in four key areas: network cultivation, teamwork and interpersonal relationship skills, adaptability or flexibility, and an Olympic level skill-set (i.e. project management skills, multitasking, working under pressure) (Kaplanidou et al, 2019). Furthermore, the Olympics have a significant impact on people’s networks and skill sets in a variety of industries, including marketing and urban planning. The Games can serve  as a catalyst for positive change in the host city, accelerating advancements in areas such as transportation, sports facilities, and cultural offerings that could have taken far longer to complete otherwise.

The Downsides of Hosting the Olympics 

Hosting the Olympics can be a golden opportunity, but convincing the IOC to choose a country to be the host requires a huge amount of money and promises. One of the most substantial economic costs of hosting the Olympics is the massive investment for infrastructure development, such as stadiums, arenas, transportations, accommodations, etc (Olympics, 2024). Construction and operational costs often exceed the initial budget. For example, the 2014 Sochi Winter Olympics cost Russia approximately $219.9 billion, exceeding their initial estimate by 189% (Andrea & Nielsen, 2021). When the expenses associated with hosting the Olympics exceed projections, governments may need to borrow funds, leading to increased debt. If the anticipated economic benefits do not materialize, this debt can become a major issue for host countries (Wills, 2024).
During the 2016 Rio de Janeiro Olympics, Brazil was besieged by problems, especially in the funding shortfalls and abandoned infrastructure that were neglected after the Olympics ended (Morgan, 2019). This situation led to the second downfall—overspecialized sports infrastructure and buildings that fall into disuse (Fox Sports & AFP, 2024). Previous Olympics bidding required host cities to construct new hotels, dorms, athletic facilities, transportations, etc. for their Olympic Village and Olympic Park. After the event, many Olympic facilities are underutilized, resulting in ongoing maintenance costs. For instance, Sydney’s Olympic stadium costs $30 million annually in maintenance, while Beijing’s Bird’s Nest arena requires $10 million annually (Wills, 2024). It is important to note that the opportunity costs for these projects are extravagant. The cost of building arenas not only includes the direct financial expenditure but also the opportunity cost—potential resources that could have been allocated to other public projects.

Forecasts for points of GDP, household consumption, and exports growth in France

(p): prediction

Forecasts for points of GDP, household consumption, and exports growth in France in the absence of the Olympic Games

(p): Prediction

Source: INSEE

In addition, significant infrastructure investment, including improvements to public transport systems for venues, are expected to create jobs and stimulate local economic activity. According to current data, this event has succeeded in creating approximately 274,000 new jobs in various sectors (Li, 2024). The Paris 2024 Olympics are also expected to generate a long-term economic impact of €1.85 billion from 2025 to 2034, with tourism contributing between €234 million and €1.43 billion over this period. Paris 2024 has also committed to sustainability goals, including hosting a carbon-neutral event and making significant environmental improvements, such as a €1.4 billion clean-up of the Seine River. The Games are also expected to drive economic diversification, potentially attracting new business and investment with lasting benefits. The estimates and predictions for both long-term and short-term economic benefits are certainly tempting and attractive to host countries. However, as in the theory of risk and return trade-offs, there is always a relationship between potential return and the amount of risk taken (Econlib, 2022).
As previously mentioned, the long-term economic impact of the Olympics remains uncertain and speculative. The long-term impact on local infrastructure and public finances could vary greatly based on planning and post-event implementation. Previous host countries often experienced financial difficulties due to the Olympics costs. The Paris 2024 Olympic Games are estimated to cost around €8.9 billion in total, with cost overruns of at least 25% (Buchholz, 2024). Despite efforts to keep costs low, there is a risk of further cost overruns. Pierre Moscovici, the first president of the Court of Auditors, estimated the final taxpayers burden between €3 to €5 billion (Barnard, 2024). Danish economic geographer Bent Flyvbjerg also noted that Paris 2024 has seen a cost overrun of 115% in real terms, putting it in the middle of previous summer games with a high risk of further cost overruns.
Source : Statista
These cost overruns come with opportunity cost, the value of the next best alternative that is forfeited when a decision is made, as the money could be used for other public priorities and potentially leading to significant debt accumulation for the city and French government. Additionally, underutilized Olympic facilities may lead to ongoing maintenance costs, similar to Sydney’s Olympic stadium, which incurs $30 million annually in maintenance (McBride, 2024).

Conclusion

The experience of hosting the Olympics and other mega-events underscores the importance of careful planning, realistic budgeting, and strategic long-term planning. Host cities and countries should be wary of the allure of short-term gains and instead focus on sustainable development goals that align with their broader economic and social objectives. Regulations and oversight mechanisms should be strengthened to ensure transparency in budgeting and spending, as well as to mitigate the risks of cost overruns. Moreover, there should be a clear plan for the post-event use of infrastructure to avoid the pitfalls of underutilization and ongoing maintenance costs.
In essence, while hosting the Olympics and other mega-events can offer significant opportunities, it is crucial for policymakers to weigh the potential benefits against the associated risks and costs. By adopting a balanced and forward-looking approach, host cities can maximize the positive impacts of such events while minimizing the financial burdens on their economies and communities.
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