Should Your City Host the Olympics? — IONA Journal of Economics

What comes to mind when you hear about the Olympics? Likely, images of the 5 colored interloping rings, the podiums, or the world records created are thought of. Hosting this major sporting event that occurs every 2 years, tends to be a source of pride for the host city and country as a whole. However, the unanticipated economic impacts it brings to local communities should spur governments to think critically about whether hosting can truly be a good investment for their city.

Hosting the Olympics primarily provides small, short term benefits to local economies during the period of the Games. The main advantage is that it generates a significant amount of economic activity for the host city, starting from the money spent on preparing for them to tourism spending throughout. Hiring staff, security costs, and venue constructions are all vital forms of expenditure that help boost the host country’s GDP and contribute to generating jobs. Additionally, another short term advantage is that increased travel and tourism-related spending in restaurants, hotels and public attractions funnel money into small businesses. For Vancouver in 2010, 2,500 full-time jobs were added to the region, as well as increased transit use by over 50% during and after the events.

While less significant, there are a few long term benefits associated with hosting a large scale sporting event like this. For one, host cities receive public and private investment to update existing infrastructure. New buildings, housing, roads, and public transportation systems generally experience upgrades. These improvements may attract new talent, increasing employment. Updating transportation may also connect marginalized communities who once had a difficult time reaching the opportunities available in the downtown core.

The general trend suggests that host countries also see an increase in trade and foreign direct investment (FDI) after large sporting events, which leads to job and business growth in the region. For instance, Atlanta saw an increase in the growth rate of FDI from 7.7% to 12.5% from 1993 to 1994 in anticipation of the 1996 Olympics.

Despite these benefits, it would be naive to only observe the increase in economic activity in a city and not account for the costs associated with hosting an event that requires such large amounts of investment.

Most people tend to overlook the economic losses that can be quite immense once the Olympics are over. Most cities are in debt, as original budgets have been surpassed due to unexpected construction or labor costs. Some cities end up with extremely large amounts of debt like Montreal who owed $1.5 billion or Athens with $14.5 billion. On the other hand, cities like Vancouver consider themselves lucky when ticket sales and booming tourism cause them to break even.

Another issue is that some Olympic hosting cities lack good planning, causing many new buildings to be underutilized or unused in the years after the Olympics. For example, Athens’ Sports Complex, constructed for the Olympics in 2004, became covered in graffiti and weeds within four years after the events.

The Olympic Stadium constructed for the 1984 Olympics in Sarajevo, Bosnia and Herzegovina was soon repurposed into a graveyard. Allowing new buildings to quickly deteriorate minimizes the potential impact of investments and decreases future opportunities to use the facilities for other events, such as the World Cup.

Yet a few cities have creatively repurposed buildings originally constructed for the Olympics. Atlanta repurposed a stadium into the new baseball stadium for the Braves and Beijing turned a water complex into an indoor water park.

It is also interesting to observe the different barriers developed and underdeveloped economies face when hosting the Olympics. Generally, host cities in developed regions are able to reap higher profits than poorer nations. They can capitalize on the existing public transportation structures, utilize the numerous hotels already available to house athletes, and use existing stadiums, structures, or ski resorts to help decrease costs in planning and construction. In contrast, poorer countries start at a disadvantage. The barriers presented to them in the amount of funding needed to achieve the standards the world expects are immense. Although poorer nations may benefit from tourism in the years after the events, it is likely this won’t outweigh the billions of dollars they must invest in new infrastructure for the short period of time it is needed for.

Moreover, the Olympics are typically funded by a combination of private and public funding from tax increases. This model causes larger concerns for locations situated in developing countries. When observing the Olympics hosted in 2016 in Rio de Janeiro, richer residents complained about how their tax dollars were not going to help the poor but instead funneled into construction projects managed by the government where a large amount of corruption exists. Clearly, the costs associated with hosting the Olympics are even greater for developing economies.

It appears then that hosting the Olympics doesn’t immediately guarantee a stronger economy and increased tourism that will offset the costs imbedded in hosting an event on such a large scale. More recently, cities seem to be recognizing this reality. For example, in 2016 over 50% of Calgary voted to veto a bid to host in 2026. Despite a widely regarded successful event when the city last hosted in 1988, this demonstrates how many local governments and citizens are beginning to understand the negative consequences associated with obtaining an Olympic bid. Hopefully, cases like Calgary will soon become the norm, preventing more cities from taking on large amounts of debt and constructing underutilized infrastructure.