'Olympic Economics'
The Tokyo Olympic Games just got over less than a week away so this article will be looking at the economic impact of the Games for Tokyo, Japan, The IOC(International Olympic Committee) and the Japanese future.
There are 3 main aspects that are affected/required when hosting the Olympics.
- The Bidding Process
- Profitability and Revenue of the Games
- Future Impact
Bidding:
Bidding for the Olympics is a long process that starts years before the actual event. Bidding begins 10-12 years before the date of the event (sometimes even more) and the winner of the bid is usually announced 8-10 years prior. Bidding costs are usually between $75-$100 million starting at about $50m and sometimes even ending at $125-$150 million. Another thing to note is that once a nation bids for the Games there is no backing out. For example; Tokyo lost close to $150m while bidding for the 2016 games which were finally won and hosted in Rio. However Tokyo did manage to win the bid for the 2020 Olympics with a bid of about $75m, but the $150m lost some years ago would not be recovered from the IOC.
While bidding, a city must keep in mind the facilities it can provide. It must have adequate housing and lodging services for fans (40,000 rooms minimum) and have a well developed and functioning Olympic village for nearly 15,000 athletes. The city must renovate/construct infrastructure it is lacking for the games which is a amount worth millions. And yes, lastly all of this must be completed within 8-10 years with corruption, red tape and bureaucracy.
Profitability (Or not) and Revenue:
This is something that should not even be debated upon. No, the games are not at all profitable. in 95% cases the host city and its organizers cross the budget that they had prepared and submitted to the IOC. For example, Tokyo 2020 is going to be overrun by about 190% making it the most expensive Olympic games of all time!! To put that into further perspective, on an average every host city since the inception of the Games has overrun its budget by close to 172%. YES, 172% !
One would argue that ticket sales, broadcasting rights and indirect tourism would turn this around, but no this doesn't happen. It is no secret that all head bodies of sports be it IOC, FIFA, UEFA, ICC or FIA are all behind money.
Their motive is to make as much money as possible even if it irritates the fans, host cities or athletes. In this case the IOC takes up nearly 30% of the money earned from TV rights and about 50% of the revenue from international sponsors with the remaining 50% going to the Olympic organizing committee and not the host city. The money that is left after this hoarding is completed by the higher bodies, is given to the local organizing committee ( host city ) which is to be honest peanuts.
The last Olympics to make a profit was the 1984 Los Angeles Olympics 37 years ago. They had distributed the rights to private investors which minimized the organizers' losses and ended up making them a profit of $240 million while the private investors bore the brunt of the heavy capital investment.
Future Impact:
After a city hosts the Olympics, it has a mixed impact on it's future. Some good and some bad. When a city hosts the games it slowly gains more popularity over 5-10 years which in turn boosts tourism, sports meets and media attention. However, the side effects are much more; cities go bankrupt, nations are in debt to banks, loans are borrowed which sometimes turn into bad debts, etc.
To explain both of these side we take the example of Greece. Greece was at a high point in 2004. It hosted the Olympics and even won the Euros that year. People learnt more about Greece due too it's sporting affairs in one year than they probably would have in a decade. Mykonos in Greece has become a hotspot for athletes since then to spend vacations and their time off. Every summer you would see sprinters, footballers and other athletes flock to Mykonos. Thus, Mykonos really has developed as a tourist spot for the rich and middle class over the years.
Now coming to the negatives of Greece are that due to the hosting of the Olympic games, falling into debt and over the years losing more and more money due to other transactions(during their 2007-08 financial crisis); they finally became bankrupt in 2010 as a whole nation.
Another example for the same could be Montreal 1976. They went into huge debts which were paid only in 2006.
Conclusion:
Hence one may consider the Olympics as a boon or bane for a city and nation as a whole but in our opinion it is more of a bane over the long term as it's glory days of being the host of the Olympics is very shortlived, also if a host nation performs badly in the Games it's long term effects are even worse.
Due to all these problems cities are now not wanting to host the games as can be seen from the graph below. Bids put forward by cities is receding with the passing of each Olympic Games.
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Credits:
BBC Sport
The Balance - World economy
Bloomberg Quint
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