When It Comes to the Money, Are the Olympics Worth It?

Gabrielle Karol
Posted

In 2003, nine cities submitted their bids to host the 2012 Summer Olympics. As you know by now, London won that race, breaking the hearts of city officials in Madrid, Paris, New York City and Moscow, all of which made the shortlist of contenders.

But now that the price tag for the London Olympics appears to be well over $15 billion, much of which is funded by the British government, it bears asking: Why would a city volunteer for this type of expense?

The obvious answer is tourism: Economists estimate that 5.5 million foreign visitors would pour into the city, with nearly half a million staying in London. But does that temporary surge in tourism cover the large Olympics bill? And what happens to those huge athletic venues after the fact?

To find out whether it makes economic sense for a city to host the Olympics—and what we could predict for post-Olympics London—we took a closer look at the fate of previous Olympic host cities.

How the Olympics Can Help Cities

1. Infrastructure Improvements

Hosting the Olympics gives the city a great excuse to improve infrastructure and revitalize neighborhoods—projects that might not have gotten a lot of public support before become necessary in the face of the Olympics. As Forbes reports, the London Tube has needed improvements for the past forty years, and was finally updated in time for the Olympics. Additionally, roads in London have been repaired, and apartments built for athletes in the East End of London (formerly a downtrodden area of town) have been pre-sold at a profit.

2. More High-Profile Sporting Events

The arenas and sporting venues erected for the Olympics can be used to attract other major sporting events, which help bring in city revenue. Since the ’02 Olympics, Salt Lake City amped up its presence as a sports city, hosting 62 large sporting events, seven world championships, 90 Olympics related events and dozens of youth events. All told, these events have brought in over $1 billion in revenue to the city.

After the ’96 Olympics, Atlanta hosted the Super Bowl, and its Olympic stadium became home to the Atlanta Braves. Additionally, Georgia Tech University took over the aquatics center, and has since adapted it to include an indoor track and basketball courts.

3. Job Creation

Hosting the Olympics can lead to job creation, especially in the construction industry. In Beijing, 1.8 million jobs were created before the 2008 games, nearly half a million of which were in the construction industry.

And in Salt Lake City, 35,000 jobs were created, resulting in $1.5 billion in earnings for Salt Lake City workers in 2002.

4. Great Advertising

The Olympics can put smaller cities on the map and bring international attention. Since the ’96 Olympics, Atlanta—previously, a major city but not a world-renowned cosmopolitan center—has become the home to the world’s busiest international airport. Additionally, the Olympics revitalized Atlanta’s downtown: More than $1.8 billion has been spent on hotels, offices and apartment buildings in that area since the Olympics.

And in the case of Salt Lake City, an international survey showed that one in five people knew about Salt Lake City before the ‘02 Olympics, while one in three were familiar with the city after the fact. Additionally, four major companies producing winter sports goods moved their headquarters to Utah after the Olympics.

Lastly, the ’92 Olympics in Barcelona spurred an increase in tourism over the last two decades, and rebranded the city as a world-class tourist destination, says The New York Times.

5. Good Will, Spirit and City Pride

Hosting the Olympics energizes a city’s residents and is seen as a huge source of pride. Billy Payne, the Atlanta businessman who helped bring the Olympics to his city, told The Chicago Tribune: “Winning the games is the most uplifting, prideful, beat-on-your-chest moment Atlantans ever experienced.” And, as we’ve told you before, optimism can actually help a city recover more quickly from a recession.

How Hosting the Olympics Can Hurt Cities

Positive points aside, it’s not all shiny new trains and boutique hotels. Here’s how hosting the Olympics can hurt a city economically:

1. Creates Debt

Hosting the Olympics—and the infrastructure repairs, construction projects and additional security costs that hosting entails—can create an enormous amount of debt if a city is funding the Olympics through taxpayer money. Montreal’s ’76 Olympics was publicly funded and created $2.7 billion in debt, which wasn’t paid off until 2005.

In comparison, Atlanta was funded primarily through private sponsorships (like from Coca-Cola, which is headquartered in the city), which helped protect the city from sinking into debt.

2. Causes Cities to Build Unused Sporting Venues

Many of the facilities erected for the Athens Olympics have gone unused, becoming so-called “white elephants” in the cityscape. Athens’ Olympic Park has been abandoned and is closed to the public. The softball field has dried out. In fact, 21 of the 22 stadiums built were unoccupied in 2010, and their huge expense helped contributed to Greece’s sizable national debt.

3. High Ongoing Maintenance Costs

If countries do plan to continue using the facilities built for the Olympics, the maintenance costs can be prohibitive: Costs on the Athens’ facilities for upkeep in 2005 rang in at $124 million. And Sydney, which hosted the 2000 summer games, spends $30 million a year to keep the Olympic stadium running.

4. Surprising Drops in Tourism and Consumer Spending

In their book “Soccernomics,” sports economist Stefan Szymanski and writer Simon Kuper researched the economic effect of hosting major sports events. They wrote: “Big sports tournaments attract some visitors and deter many others.” In fact, many cities experience a decrease in normal consumer spending, as residents avoid heavily trafficked areas and tourists who might normally plan a visit to the city stay away. Reports from London have said that hotel, restaurant, theater and other tourist venues are seeing decreases of 30% in traffic. And in Barcelona, one-sixth of the city’s residents planned to travel away from the city during the ’92 games.

How Will London Fare in the Long Run?

It’s clear that hosting the Olympics can have both positive and negative effects on a city. Though the exact math gets a little hazy when calculating all of the onetime and ongoing expenses, and adding all the increases in revenue attributed to the Olympics, popular opinion seems to hold that Atlanta and Salt Lake City had a net positive experience, while Montreal and Athens were negatively affected. So how will London pan out?

While it’s too soon to say for sure, London’s situation differs from more “successful” cities like Atlanta and Salt Lake City in that the city did not need the promotional boost. As Szymanski said to Sports Illustrated: “After London got the Games, there were people running around saying, ‘This’ll put London on the map!’ … Show me a map that London isn’t on!”

One plus is that London was in need of infrastructure and transit improvements, which are undoubtedly a positive result of the games.

But relying a lot on public funding for the games (see: Montreal) has led cities into considerable debt. In the case of London, £9 billion of the funding for the games has come from the government, with only £2 billion coming from LOCOG (the London Organizing Committee of the Olympics and Paralympic Games), which is privately funded.

Of course, given the UK’s current $1.04 trillion national debt, the debts incurred by the Olympics are little more than a drop in an already sizeable bucket.

There’s one last promising sign, though: Nearly £300 million has been earmarked for “legacy funding,” which will help transition the Olympic park into a usable asset for the city once the games are over. Given that the most successful Olympic host cities have turned their Olympic venues into frequently used arenas after the games have ended, this is especially encouraging.

When all is said and done, though, given that London is the second-largest financial center in the world and the most visited international tourist destination, London will probably be just fine and dandy once the torch is passed on to another city, despite the fact that the city just threw so much money down the Tube. (Get it?)

Image Credit: Flickr via id513128

  • jemblue

    London is the most visited tourist destination?  I thought Paris held that distinction.