The Olympics is one of the mega-events that we witness once every four years. Olympics games apart from their grandeur, large structures, and fireworks that light up the horizon are also significant for being one of the few phenomena where you could find people from every country irrespective of their creed, color, gender, nationality. But it is distressing to find out that today’s Olympics has become a money pit where cities pour in tons of money and find themselves unable to protect their people the next day. As more and more cities opt out of the race for hosting the Olympics, it stands in a morass. The Olympics holds a track record of having cost overrun since 1960 in every edition except one.
The expenditure for the Olympics starts with the bidding. The bidding process is when cities begin spending their money to join the race where they indulge in planning and other activities to make their Cities look attractive to IOC(International Olympic Committee) . Today’s Olympics business model is different from the one in the early twentieth century. Olympics those days relied only on public funding. So, it was easily manageable. Only Rich cities from first-world countries hosted Olympics in the early part of the twentieth century. The dawn of the television and broadcasting industry provided Olympics a business model overhaul.
Berlin Olympics (1936) was the first television broadcasted Olympics. It aired over a small radius for 50,000 viewers. In the London Olympics(1948), this figure surpassed 500,000 milestone. Twenty years later, the 1968 Mexico City Olympics was viewed by approximately 17 percent of the world population from the luxury of their home. As the Olympics started gaining an audience, so did the share of IOC on broadcast revenue. From a small portion in 1984, today IOC shares constitute about 73 percent of broadcast revenue. The colossal amount of money spent on raising structures makes the Olympics a risky financial venture where there is a possibility of the city mounting huge debts or becoming bankrupt. During Montreal Olympics(1976), the actual cost went ten times over their proposed budget and, it took 30 years for Montreal to pay off their debts.
The year 1972 boasts of paramount importance to Economists who are involved with the Olympics. To celebrate 200 years of America’s independence 1976 Winter Olympics was awarded to Denver, Colorado. The 1972 Winter Games in Sapporo had cost $1.3 billion USD so, IOC was adept at making the 1976 Denver games Economical. In 1972, Denver did the unimaginable by rejecting the offer to host the 1976 Winter Olympics. Hitherto Denver holds the distinction of being the only city to do so. During the early days, DOOC (Denver Olympic organizing committee) informed IOC that this decision was taken out of environmental concerns. The actual reason was DOOC felt conducting the Olympics could prove costly for the state as the state was reeling from a recession. Out of 30 million USD allocated for the Olympics, 1.1 million USD was spent without building a single structure. All these factors combined with public discontent ultimately led to the withdrawal of Denver’s offer.
Now looking at why cost overrun occurs, we come across four factors
1.Shortage of labor resulting in corporations granting even more money as labor charges to retain the workers and to recruit new workers,
2.As the Olympic Park signifies national pride for the country hosting maximum care is taken to ensure the structures built invokes surprise from all quarters of the world. The government imports lot of products and construction equipment from other parts of the world, increasing the cost of building structures.
3.Cost of planning, for instance, Tokyo spent a whopping 150 million USD in 2016 for planning and bidding to host the 2016 summer Olympics which, it lost to Rio de Janeiro back then. They had to spend an additional 75 million USD again to modernize their plans to join the bidding race again for hosting the 2020 Olympics.
4.Legacy builds are structures that are designed to remain forever in the city. This includes revamping the public transport system, road connectivity, security systems, tourist places, and other entities that are built or renovated to improve the lives of people who are dependent on the city. For example, IOC demands the city to have at least 40,000 rooms for accommodating athletes and their coaches which, could be sold to the people once the games get over. It is easier said than done. In reality, it initiates a chain reaction in which the city after spending tons of money into building and improving its infrastructure becomes debt-ridden. To save the City from bankruptcy, the city levies higher taxes from its citizens resulting in the decline of purchasing power and making them unable to invest in assets.
Any discussion on this topic would be incomplete without looking at Rio De Janeiro, the City of The Future as it stands witness to what hosting mega-events could cost. From 2007 to 2016, Rio de Janeiro hosted four such events, Pan American games (2007), the UN Earth summit (2012), the FIFA world cup (2014), and The Olympics in 2016. Along with 11 million Reals debt, Rio de Janeiro also suffered social inequality from the Olympics. The impact the games left on the Richer section of people and the people living in Favelas (slums of Brazil) is widely studied by economists. When the City won the bidding process, the whole City broke into jubilant smiles hoping the Olympics could entirely change their lives forever. As the preparation started, the city started diverting its public fund from essential activities such as public health, education, and security into improving Infrastructure. From 2.8 USD billion, the actual cost skyrocketed to 13 billion USD. Some economists estimate this at 20 billion USD. Entire communities were displaced from their homes to make way for the games. The situation went into a terrible state when salaries of teachers, police, doctors, firefighters were stopped. More and more people started taking to the streets to protest against this, along with inflation and corruption charges against members of the organizing committee pushed the country to its biggest crisis. The biggest dent Olympics left on Rio de Janeiro is the failure of the Pacification process. The pacification process was started by the government of Brazil to end violence in the streets and to find a truce between street gangs of the city. During the initial stages, things were going on the right track but as construction of Olympic structures started progressing, the security forces were diverted and the funds used by military police for procuring necessary equipment such as armored vehicles diminished. It resulted in the derailing of the pacification process. Fights between gangs and police have become so common nowadays to the extent of people using a real-time tracking app to track crossfires happening in the city. For Rio de Janeiro citizens who hoped Olympics would change their lives for the better, it neither lifted people out of poverty nor improved their standard of living. Olympics just ended up reinforcing the status quo between rich and poor.
As more and more cities started dropping out of the bidding race, the Olympics mooted its usual practice of selecting cities to host the games and went unconventional and selected Paris, Los Angeles, and Brisbane to host 2024,2028 and 2032 Olympics.
Sport is a fundamental right for every individual on the planet irrespective of religion, color, creed, gender, and nationality and events like the Olympics ensures all individuals receive a chance to represent their nation in the international arena without any discrepancies and promote integrity among people of the world. It is saddening to find the Olympics becoming more and more unattractive to cities due to its high financial cost. IOC should negate the negative externalities and come up with a model to revive the failing business model and make Olympics more sustainable, inclusive, and profitable for the betterment of society and eventually of the event and sports.
