The 1920 Antwerp Summer Olympics were staged right after two parallel global disasters – World War I and the Spanish flu pandemic. The resumed Games were a ‘ consolation for the world’suffering from the loss of millions of lives in the war and from the deadly disease, and were a way to ‘heal a wounded society’. A century later, there was no surge in optimism from the opening of the Summer Olympics in Tokyo in 2021, which had to be postponedfor a whole year due to the coronavirus pandemic. On the contrary, the ceremony was accompanied by thousands of protestsby residents, who were overwhelmingly against it. The Tokyo Olympics (that took place between 23 July and 8 August 2021) have by now become much-maligned Gamesin modern Olympic history since 1896. It was opposed by Japanese doctors, its official sponsor, large corporations ( Toyota refusedto pay for advertising in competition broadcasting), and even& individual Olympic officialsand some athletes refusedto compete for safety reasons, and others were deterred by empty stands or the ban on relativesto travel along with them. For all the unprecedented safety measuressupporting the event, the idea of uniting nations fell victim to the threat of the new pandemic spreading around the world.
On the one hand, the strong attack on the Tokyo Olympics is explained by the circumstances around it: the pandemic remains to be defeated, a number of the country's prefectures and Tokyo itself have enacted a state of emergency, which Japan’s chief public health officer called to extend country-wide as cases were increasing. On the other hand, the pandemic-linked risks are just another reason to blame the Olympics, which have in recent decades been the subject of criticism for their huge and fast-growing costs– to the extent that many sceptically minded analysts, including economists, claim that such mega projects are beyond economic purpose. The Tokyo Olympics are among the most expensive Olympic Games, too. According to preliminary estimates by The Wall Street Journal, the cost of the event is over $25 billion, compared to the $1 billion (in 2015 prices) the first Olympics Tokyo held in 1964 cost.
The past 50 years saw the number of teams, competitions and athletes double, with special infrastructure required for many sports, which is built specifically for the Olympics and often remains abandoned thereafter. The Games has become a victim of its own success and turned into burdensome ‘white elephants’, according to a reportin the July issue of the IMF Journal Finance and Development by Rob Baade, former head of the International Association of Sports Economists, and Victor Matheson, Professor of Economics at the US College of the Holy Cross. They propose, as an option, that the Olympic Games return to their historical homeland – that is, that they always be held in Athens, where whatever necessary should be built once and for all.
Many academic papers published over the past two decades have found that national economic effects of the Olympics were close to zero, with some researchers going as far as to warn that the staging the Olympics may result in a subsequent economic slowdown. It is not the astronomical cost of the Games that is to blame: rather, it is huge overspending of the initial budget, sometimes forcing the host country into unforeseen debt.
In September 2020, the academic communityand mediahad an intense discussion of the ‘Oxford Report’, a study of the economics of the Olympics over the past 80 years. It was prepared by Bent Flyvbjerg, Alexander Badzier and Daniel Lann, economists at the University of Oxford. In a summary of the article for the university website, the authors argued that expenses for the Olympics are comparable to financial losses from disasters such as earthquakes, tsunamis or wars. According to the Oxford economists, the average cost of the Olympic Games since the second half of the 2000s was$12 billion, excluding the construction of roads, railways, airports, hotels and other infrastructure, the costs of which exceeded this figure by multiple times in many cases. The economists calculated that the cost of the Olympics went up more than 2.5 times on average relative to the average cost between 1960 and 2016 ($4.5 billion). The authors called the Olympics the ‘most costly mass event’ for any country.
Importantly, none of the Olympics over the past 80 years has fit in its estimate. The only event close to an exception here is the 2008 Beijing Olympics with a mere 2% overrun, the ‘Oxford Report’ says. However, according to 2021 calculations by the Council on Foreign Relations (an independent US think tank and publisher of Foreign Affairs) the Chinese Olympics in fact cost more than double the estimate. The Olympics are especially expensive for emerging economies. The Beijing Games Opening Ceremony alone cost $100 million, whereas at least 100 million Chinese people live on less than $1 a day, write Andrew Rose of the University of Berkeley, California and Mark Spiegel from the San Francisco Federal Reserve Bank.
According to Flyvbjerg and his colleagues, the actual expenses for the Summer and Winter Olympic Games since 1960 were on average 2.7 times higher than estimated, and once we take only the more expensive and larger-scale Summer Games, the average overrun is 3.1 times.
These numbers are for any potential host of the Olympics to think over, especially if the host is a small fragile economy with limited capabilities to offset rising costs and raise debt, Flyvbjerg and his colleagues argue. Even the low risk of real costs exceeding the estimate by half is enough to become a concern for authorities and taxpayers, since such costs may have decades-long repercussions for national finances.
It took the Government of Canada 30 years to repay its obligations after the 1976 Montreal Olympics that cost 8.2 times more than initially budgeted. The debt Greece had to raise in order to cover the costs of the 2004 Olympics (1.5 times the estimate) proved to be an aggravating factor in the 2008–2010 financial and debt crises in the country, the Oxford researchers note.
Move the decimal point to the left
While an estimate for the Olympics needs to be multiplied to see their real cost, the expected positive effect needs to be divided, economists conclude. ‘It is commonly assumed that the scale of such an event and the scale of the preparation for it will create large and lasting economic benefits to the host city. Economic impact studies confirm these expectations by forecasting economic benefits in the billions of dollars. Unfortunately these studies are filled with misapplications of economic theory,’ wrote Jeffrey Owen of Indiana State University, a famous Olympics researcher, in 2005. According to him, large-scale investment in the Olympics may ultimately bring adverse effects, crowding out private investment.
Other best-known papers on Olympic economic impact include a 2016 study by Baade and Matheson (their article in the IMF journal was mentioned above), published in the Journal of Economic Perspectives. Just like Owen, the authors argue that the legend of Olympic benefits is none other than the product of consultants that are brought in by stakeholders. Based on an analysis of the 13 Olympic Games from the 1988 Seoul Olympics to the 2014 Sochi Winter Olympics, Baade and Matheson conclude that the Olympics do not make a positive impact on the economy and – where in some exceptional cases there is such an impact – it meets only a small part of the expectations.
‘If one wishes to know the true economic impact of such an event, take whatever numbers the promoters are touting and move the decimal point one place to the left,’ Baade and Matheson advise. According to their data, the Winter Games in Salt Lake City in 2002, for example, were expected to bring about an increase in employment equivalent to 35,000 jobs per year, but added only 3,000–7,000 jobs.
The ‘ modest, or perhaps non-existent’ economic gains of the Olympics were also mentioned more than once by Andrew Zimbalist, a well-known sports economist and the author of Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup. Just like Baade and Matheson, Zimbalist strongly criticises the Olympics overall and the Tokyo Olympics in particular, making the case for change in the very format of such events. In his joint articlewith Matheson, Zimbalist discusses, for example, the option of using a group of cities as a permanent venue for competitions so as ‘not to rebuild the Olympic Shangri-La every four years in a new city’. Another option could be, Baade and Matheson suggest, that events of the Games be hosted by a large group of countries with suitable stadiums and a sufficient number of hotels for spectators (similar to 2021 World Cuparrangements).
However, research also provides evidence on how the Olympics could often be a springboard for economic success for cities and even entire countries. Incidentally, an example of the Olympic economic miracle is the Tokyo Olympics held almost 60 years ago. The 1964 Tokyo Olympics, which involved llarge-scale investment in infrastructure, is consideredthe starting point of Japan’s rapid post-war recovery and transformation from a developing to an advanced economy. A similar effect is attributed to the 1988 Seoul Olympics. While providing a huge boost in infrastructure investment, it helped South Korea accelerate its journey from a developing economy to the league of newly industrialised countries.
In 1992 the Olympic miracle came about in Spain. The preparations for the Olympics that started in 1986 transformedBarcelona, the capital of Catalonia, from an industrial hinterland into one of the most modern cities of the world and to an international tourist destination. In those years the city’s bleak shoreline with its winding railway was replaced by a 3 km strip of beach, a port and a yacht club – and the quantity of green spaces increased by 75%, new roads by 15%, and new sewer systems by 17%, while unemployment halved.
The Barcelona Olympics faced a barrage of criticism for their huge expenses and debts: to hold the Olympics, the Spanish government had to borrow $4 billion, while more than $2 billion was further borrowed by the city and region. Some estimates showed that the Barcelona Olympics cost 5 times more than initially budgeted, and the event had been ranked the most expensive Olympics on record for twenty subsequent years. To this day, Barcelona, for which the Olympics were the starting point of the transition from recession to economic boom, is held up as a prime example of the successful deployment of an Olympic budget.
Researchers acknowledge that the Olympics have multiple positive macroeconomic effects, such as an increase in investment, including in foreign investment, growth in consumption and production, mounting employment, stronger chances of subsequent structural changes in the economy, and expansion in international trade.
In 2011 Andrew Rose of the University of Berkeley, California and Mark Spiegel of the San Francisco Federal Reserve Bank calculated that host countries were able to increase imports and exports more than 20% on average: a country’s bid for the Olympics is perceived by its trading partners as a signal of its readiness to expand international economic ties. Moreover, in countries with trade restrictions, preparations for the Olympics tend to drive trade liberalisation. Even unsuccessful applications to host the Games, as Rose and Spiegel found, lead to an increase in trade turnover of the country. The researchers believe that an application for this mega event is no less than an indicator that the country is prepared to ‘become a responsible member of the international community’: the country will signal its readiness to hold the costly event only if it is indeed willing to open up its economy. The associated benefits may very well make up for the staggering costs of staging the Games, the authors argue.
Where to look for macro effects
According to some papers analysing the macroeconomic effects of the Olympics, economic growth in some countries may accelerate after the Games, but nationwide the result remains low indeed. In 2016, the Bank of Japan’s economic impact studies ahead of the Olympics explained this by the fact that researchers tend to focus& on direct effects, whereas the Olympics provide many indirect benefits; both are extended over time.
Based on an analysis of GDP per capita in 48 advanced and developing countries that had held the Olympics and major football championships between 1970 and 2016, Marcel Prijs of Lund University found that weak growth in national economies occurs only after the summer Olympics.
Other findings were reported by Marcus Bruckner of the National University of Singapore and Evi Pappa of the European University Institute, who wrote one of the few papers to prove a statistically significant impact of the Olympics at national level. They came to the conclusion in 2013 that investment, consumption and production in would-be host countries grow substantially 2–5 years ahead of the event. Therefore, GDP acceleration is essentially observed not after the Olympics or during the event, but several years before its opening (see the text box).
The publication exposed the wide discrepancy in economic impact studies of the Olympics in the academic community and caused strong criticism. Specifically, soon came the answerfrom economists at the University of Hamburg with their counter-calculations based on economic levels and the size of national economies being compared. And a positive impact was nowhere to be found.
The hard-to-find Olympic impact is further explainedby the fact that even a substantial acceleration in someindustries serving the Olympics is not comparable to the scale of the entire economy, so it is pointless to measure direct impacts of the Olympics on GDP. Moreover, the Olympics are normally hosted by large countries, and only a very strong regional effect can produce a statistically significant change at national level, writesMatthias Firgo of the Austrian Institute of Economic Research, who studied regional (GRP), rather than national, economic data related to the seven summer and eight winter Olympics since 1992.
Firgo explains that to increase national GDP by 0.1%, for example, the Olympics are required to generate additional economic activities of around $20 billion in the United States. Meanwhile, regional economies are generally too small for the impact to be seen at a national level. To cite one example, when Salt Lake City applied for the 2002 Olympics in 1995, Utah (the state where the city is located) generated a mere 0.6% of US GDP, while the State of Georgia (where Atlanta is located) accounted for 2.5% (1996 Summer Olympics) at the time of application submission. The Krasnodar Territory of Russia (Sochi 2014 Winter Olympics) and the Korean province of Ganwon (Pyeongchang 2018 Winter Olympics) accounted for similar proportions in national GDP.
Firgo’s analysis showed that in the year when the Summer Olympics are held, GRP per capita increases on average by 4.5pp to a GRP reading for the year the International Olympic Committee satisfies the application for the Olympics. However, the regional economy may in some cases post much higher growth: for example, the 2014 Sochi Winter Olympics and the 2004 Athens Olympics both increased GRP of their regions by 16.2pp and 15.4pp respectively. Once regional GRP data are compared with nationwide growth, it is clear that one year before the Summer Olympics and in the year of the Games, the host region’s economy grows faster than the entire country’s by 3–4pp. At the same time, unlike Bruckner and Pappa, who showed that the Olympics make an overall positive nationwide impact, Firgo finds that acceleration at the regional level lasts for another five years after the Games.
Similar findings were presented& in 2017 by Gregg Dimkoff, professor at Grand Valley State University (USA) in collaboration with his student Michael Overmyer. According to their calculations, the net economic impact of the five consecutive Summer Olympics from Atlanta 1996 to London 2012 was negative for host cities and surrounding areas only in one case – the 2008 Beijing Olympics, which was essentially an image-building project intended to boost the standing of the ruling Communist Party of China (and was probably a success from this point of view).
More than just three weeks of sports
The difference in the results of economic impact studies of the Olympics is further explained by the complexity of calculations due to a huge number of factors influencing such results, which makes the task, economists admit, extremely difficult. The Olympics are not only assessed for effectiveness in terms of their commercial success and financial revenues. Returns also include benefits associated with city popularisation and urbanisation, which subsequently not only improve business conditions, but also the quality of human capital and the quality of life.
The physical and immaterial legacy the Olympics leave behind would hardly have been created in normal conditions. The construction of sports facilities and the ongoing Games help to promote sports and sports investment. The Olympic Games brought money to Barcelona to build sports facilities and support sports that had not seen investment before, sports columnist Juan José Paradinas told;The Atlanticin a 2012 interview about the impact of the 1992 Games: ‘By the end of the decade, we saw the results. Now Spanish sports make money’. Real Madrid topped the list of the best football clubs of the 20th century, according to FIFA, with the fourth place taken by FC Barcelona. Having left infrastructure and top-class coaches behind, the Olympics inspired a generation of children of the time to then win international victories in the 21st century and not just in football, wrote the Independent in 2011: ‘One of the greatest legacies of the Barcelona Games has been their effect on Spanish sport’. And former London Mayor Ken Livingstone admittedthat he had lobbied for the city to stage the Olympics, not because he ‘wanted three weeks of sport’, but because it was the only way to get the billions of pounds out of the government to develop the East End of London – money that had been out of reach for 30 years.
However, whether the Olympic legacy will be positive depends on how the city manages it. For example, Los Angeles and Atlanta are still capitalising on sports facilities of the 1984 and 1996 Olympics. Olympic venues built in the 1970s in Montréal are still making money too; they have also become hallmarks of the city.
On the other hand, some Olympic venues may become abandoned thereafter. Accordingto Andrew Zimbalist, such white elephants include Stadium Australia built 20 years ago, which costs the city $30 million annually, and the Beijing National Stadium called the Bird’s Nest, built for the opening of the 2008 Olympics, worth $460 million, designed for more than 90,000 spectators, which cannot be filled at normal times (its maintenance costs are $10 million a year). Among the worst Olympic legacies are the 2004 Athens Games: 21 out of the 22 sports facilities built for the Olympics lied abandoned several years later.
The Olympic project is efficient if it is driven by more than a short-term goal of staging international competitions in a spectacular manner, Zimbalist notes. As the cases of Barcelona, Tokyo and Seoul have shown, the best investment for the Olympics is not the construction of breath-taking mega venues, but general infrastructure improvement in the city hosting the Olympics and investment in its urban redevelopment, notes Gregor Pfeifer of the University College London and his co-authors. The Olympics may only last three weeks, but if the infrastructure they leave behind is intensely used afterwards, investments made once will work for decades.
If we escape the temptation to just show-off and instead assess the long-term development goals of the region preparing for the Olympics, the event can really become a catalyst for economic growth through project investment that might otherwise not have received funding for decades, Zimbalist admits. The Games really have the potential to generate a long-term positive economic impact, as Jeffrey Owen, another critic of Olympic construction projects, admits. However, it all depends on whether the host country will be able to integrate investments made at the time of the Olympics into its national economic strategy.