Does hosting the Olympics mean a gold medal for financial chaos?

The uncertainty over whether Tokyo’s already delayed Olympics can go ahead this summer amid a rising coronavirus wave in the country brings into focus the enormous financial costs of hosting such a large and diverse sporting event. Amid costs that have doubled to over $22bn since Tokyo won the games in 2013, organisers now say that the games would need a minimum of an $800m bailout if all events were held behind closed doors. Unsurprisingly, the prospect of huge financial losses, plus the risk that hundreds of thousands of visitors will bring more Covid variants into the country, means Japanese citizens have started staging loud, and growing, protests against the games going ahead at all. At least violence has been avoided; in 1968, protests against the Mexico City Olympics resulted in an army crackdown and the deaths of 400 people in several days of violent rioting.

While no one could have predicted that a respiratory virus would be the cause of financial mayhem for the Olympics, the event has a long history of cost overruns that would put the average UK infrastructure project in the shade. Alongside this are the equally grand forecasts about the long-term economic benefits of hosting the games, of which the London Olympics are often held up as a prime example. But do any of these claims really stack up?

Costs without end

The ever-rising costs of the games has recently been given a thorough analysis. One of the few pieces of research to really get up the International Olympic Committee’s (IOC) nose in recent years – the IOC as an organisation is notorious for the brass neck it normally shows its critics – was an academic paper “Regression to the Tail: Why the Olympics blow up” written by Flyvbjerg, Budzier and Lunn in 2020 that analysed the cost overruns for every Olympic event since 1960. The academics found that Olympic organisers, whether in summer or winter, should expect to overrun their budgets by an average of 172 per cent in real terms.

This was as true for the London Olympics as for any other. Though the British government put a lot of effort in trumpeting the fact in 2013 that the games came within its (heavily revised upwards) budget of £9.3bn  – this represented a doubling of initial estimates and tended to discount the discretionary support that the State gave the games. For instance, making the armed forces available after the hash that G4S made of recruiting security staff for the games. In other words, if you want to assess the true costs of the London Olympics don’t bother with LOCOG’s official accounts but look instead at the cost provisions that various government agencies had to make in the aftermath.

Are the Olympics good for the economy?

The notion that the Olympics provide a boost for the economy is the selling point that is used most frequently to justify the costs of hosting. The problem is that defining what this benefit is, particularly in terms of unquantifiable things like “feelgood factor” is very difficult. Often, the updated or new infrastructure associated with an Olympics is thought to be a long-term economic good, particularly things like transport links or redeveloped housing. However, what Flyvbjerg, Budzier and Lunn found is what economists call an “optimism bias” when it comes to the bidding process for the games.

On average, cities bid about seven or eight years before the games themselves and, by definition, at a time of relative economic confidence late in the business cycle, hence bidding in the first place. The problem is that the timeframe until the actual staging gives plenty of scope for the underlying economy to go seriously wrong; because of the business cycle, the build process tends to take place at a time of maximum costs in terms of manpower, land and materials. This is why research shows that the years in the aftermath of an Olympics there was an average decline in economic activity. Basically, if staging the Olympics has any effect at all it is only transitory, at best, and mainly a short-lived “feelgood” one at that.

Take the Montreal games as an example. Montreal finally paid the last of its debts from the 1976 Olympics 30 years later in 2006 after a disastrous financial overrun of over 700 per cent of the initial budget. The key point is that Montreal bid for the games during the late 1960s economic boom, but had to pay for them in the teeth of the inflationary chaos of the oil-shocked mid-1970s bust. Unsurprisingly, budgeting was a nightmare, and the expected visitors didn’t show up.

The cost of the 2004 Athens Olympics is often cited as a factor in Greece’s economic meltdown in 2008-10, though Greece bid for the games at a time of apparent prosperity brought about by joining the Euro at an advantageous rate. 

In summary, staging synchronised swimming, throwing javelins, or running around a track cannot overcome the primal power of the business cycle, so why bother? Any Brit in the London Stadium when Steve Redgrave brought in the Olympic flame, or at Wimbledon when Andy Murray overcame the heartache of his recent Grand Slam defeat to win the gold medal, or in the velodrome when Chris Hoy became the most decorated British Olympian of all time in his last ever race, probably has an answer to that.