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Executive Brief: Beijing recently finished a relatively successful Olympic Games. However, with no fans in attendance, their game balance sheet could be in the red. Official numbers likely won’t come out for a year or two, but today’s newsletter dives into the costs of running an Olympic Games and how the financials work.
NOTE: The numbers I use here are from reputable websites online. However, it is challenging to calculate/estimate the costs of an Olympic Games with exact accuracy. Please consider when reading.
The Olympic Games are the world’s largest international sporting event, with over 200 countries participating.
The costs of organizing and running an Olympic Games are vast for the host country.
Beijing closed its 2022 Olympic Games this weekend after relatively successful games, all factors considered.
Like Tokyo in 2021 (2020 Olympic Games), China’s Olympic organizers decided to forgo foreign spectators and domestic attendees, sealing off the Winter Games from the outside world.
While the move fended off risks related to COVID-19, it significantly affected financial aspects of the Games, from ticket sales to live viewership drops due to lack of fans in attendance.
Just how much does this matter?
Sports-related costs for the Summer Games since 1960 are around $5.2 billion and $393 million for the Winter Games. The highest recorded total costs for an Olympic Games were the 2014 Sochi Winter Olympics in Russia, costing around $50-55 billion.
For reference, the 2016 Summer Games in Rio de Janeiro was around $20 billion. Unfortunately, Rio also suffered some of the most significant losses recorded for the Olympic Games at approximately $2 billion.
Generally, the costs of hosting an Olympic Games can be classified into two categories:
Infrastructure
Operational Costs
The costs of general infrastructure consist of the host country developing the infrastructure required to handle the influx of tourists, fans, athletes, and stakeholders. General infrastructure requirements primarily include housing and transportation.
The International Olympic Committee requires a minimum of 40,000 hotel rooms available for visiting spectators (in a regular Olympic year). The host country must also build or make available an Olympic Village that can house 15,000 athletes, referees, officials, and other stakeholders for running the events.
Beyond accommodations, the host country must also create internal and external transportation facilities that can transport spectators into and out of the host city from venue to venue within the Olympic Game confines.
Host cities typically meet these requirements by renovating existing facilities or building brand new facilities and infrastructure to suffice the requirements. Some countries build entirely new trains or subways to meet their needs. Other potential infrastructure includes roads, airports, and others.
Generally, the infrastructure costs range from $5 billion to over $50 billion. Many countries justify such expenditures hoping that the spending will outlive the Olympic Games. For example, 85% of Sochi’s $50 billion budget built non-sports infrastructure from scratch. More than half of Beijing’s 2008 budget of $45 billion went to rail, roads, and airports, while nearly 1/4th went to environmental clean-up efforts.
While general infrastructure requirements can be labour intensive, host cities invest significant money to meet the sport-specific needs for hosting.
Facilities must meet specific seating and safety protocols set by the Olympic Committee. Often, the host city has massive stadiums available, so they spend money renovating or refurbishing said stadiums to meet the standards. However, some countries build stadiums or arenas to support the sports infrastructure requirements.
Beijing went so far as to build a ski hill next to one of the largest steel mills in all of China for the 2022 Olympic Games.
Sports infrastructure makes the slightest sense of all the investments for host cities because of the imposed costs for years after the Olympics.
Sydney’s Olympic stadium costs the city $30 million a year to maintain. Beijing’s famous “Bird’s Nest” stadium costs $460 million to build and requires around $10 million per year to maintain. It has sat mostly unused since 2008.
Once the necessary infrastructure is built, the Olympic Games require excessive amounts of spending on operating costs throughout the Games. Historically, the highest operating costs for host cities have been event management, organization, security, and preparation of the opening and closing ceremonies.
Operating costs generally run the host country $1 billion to $2 billion.
While costs skyrocket, you’d expect revenues to make up some of the debt, right?
Well, that’s not the case.
Beijing’s 2008 Summer Olympics generated $3.6 billion in revenue, compared to $40 billion in costs.
London’s Summer Games in 2012 generated $5.2 billion compared with $18 billion in costs.
To make matters worse, much of the revenue doesn’t go to the host city – the IOC receives more than half of all television revenue, typically the single most significant chunk of the money generated by the games. Television revenue is more significant thanks to the impacts of COVID-19 on fan attendance and ticket sales.
Some argue that hosting the Olympics provides a significant economic lift by creating jobs, drawing tourists, and boosting overall economic output. However, reports post-Games generally show that said arguments are dubious.
In Brazil, the 2016 Games cost around $20 billion, with the city of Rio shouldering at least $13 billion. At the time, Brazil was suffering through a recession, and Rio required a $900 million bailout from the federal government to cover the costs of policing the Olympics. They were unable to pay public employees. The city also invested heavily in infrastructure to reinvigorate struggling neighbourhoods, yet most venues have been abandoned.
According to organizers, the Tokyo Olympics budget exceeded $15 billion, up from the $7 billion originally projected.
Based on operating costs alone, the 2020 Tokyo Games were among the costliest on the record.
However, the actual total costs could be worse. A pre-pandemic Japanese government audit put the costs at around $28 billion, which some now estimate is $35 billion. This is because the city invested heavily in infrastructure, much of which has little long-term use. Building new venues cost an estimated $3 billion – the most expensive was a 68,000-seat National Stadium, which cost Tokyo $1.4 billion. The facility sat empty during the games due to COVID-19 and will incur a reported $22 million in annual maintenance fees.
The pandemic further exacerbated the costs thanks to the year-long delay costing Tokyo an estimated $2.8 billion. Hosting no fans cost the event around $800 million in revenue. The Games also exacerbated public discontent over hosting the games as the pandemic soared, the government focused on the Games and less on health-care efforts such as vaccine rollouts at the time.
While the 2022 Beijing Games are a slightly different scenario, they likely ran into similar financial issues as Tokyo. The organizing committee estimated that Beijing’s 2022 budget was only $3.9 billion, 14 years after they budgeted $45 billion to run the 2008 Games.
Time will tell when the reports come out.
A growing number of economists argue that the benefits of hosting the Games are at best exaggerated and, worst, nonexistent, leaving many host countries with large debts and maintenance liabilities.
Those same economists argue that the Olympic Committee should reform the bidding and selection process to incentivize realistic budget planning, increase transparency, and promote sustainable investments that serve the public interest.
Cities invest between $50 million and $100 million to plan, hire consultants, organize events, and necessary travel for stakeholders. Tokyo spent as much as $150 million on its failed 2016 bid and around $80 million on its successful 2020 bid. Toronto decided it couldn’t afford the $60 million it would have needed for its 2024 bid.
The current bidding process encourages wasteful spending by favouring potential hosts who present the most ambitious plans leading to the “winner’s curse”. This leads to over-inflated bids often lobbied by local construction, development and hospitality interests despite the likely blowbacks affecting taxpayers and the public when governments have to bail out the stakeholders who did the lobbying in the first place.
Observers also criticized the IOC for not sharing more of the revenue and reports of corruption in the selection process related to bribery and illegal payments.
In response, the IOC has promoted “reforms to the process” known as the Olympic Agenda 2020, which aims to reduce the cost of bidding, allow hosts more flexibility in using pre-existing facilities, encourage bidders to develop a sustainable strategy and increase outside auditing and transparency measures.
Other suggestions include:
Awarding the Games to rich countries only as they can absorb the costs.
Removing the housing requirements for the Games.
Make one city the permanent host of the Games, allowing for the reuse of expensive infrastructure.
The main things I believe need to happen to make the Olympics more beneficial to all:
The IOC needs to incentivize realistic planning from bidding countries and allow for more flexibility on infrastructure.
The IOC needs to make host selection independent to remove bribery and illegal payment scandals.
The IOC needs to force host cities to develop strategies and plans that promote the actual development of the city that will outlive the Olympic festivities.
There needs to be less emphasis on the most ambitious plans winning and more on how the project will sustain the region.
I’m not out on there being one host city in the world. However, I think it would be more realistic to have four or five designated host cities worldwide that host the Games every 2-8 years so that yearly maintenance and repairs lead to further economic growth and not waste.
Will it ever be fixed?
Time will tell.
Thank you for reading. Have a great day, and we’ll talk next week!
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Kendal
Would you want your country to host the Olympic Games?
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