What impact do the Olympics have on a city’s economy?

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According to professionals, the costs of hosting the Olympics outweigh the profits. Here’s why.

After a year of waiting due to the Covid-19 pandemic, the Tokyo Olympics 2020 is finally underway. The event had a rocky start, as 71 athletes tested positive days before the games. Japan also witnessed a sharp rise in the overall Covid cases across the country. If that was not enough, the organizing committee fired their creative director, Kentaro Kobayashi, just one day before the event, over an offensive remark he made in 1998.

Though riddled with controversy, the event was able to make the most out of sports in bringing people together. People from all over the world tuned in, watching the Olympics from their homes — bereft of its usual zeal, cheering fans and thundering applause.

It is evident that Tokyo 2020 is a large-scale event, even without its crowds and chaos. But it is important to note that hosting an event of this magnitude impacts a city’s economy significantly — and not always for the best.

To understand why it is worth a host country to risk their economies for the Olympics, it is essential to consider the reasons why a country would volunteer to host it. Here are a few reasons:

To put themselves on the map

By bidding to be the host of the Olympics, countries make it clear that they mean business. Cities spend millions on upping their infrastructure. Case in point: the 1992 Barcelona games wherein the city spent 17% of their expenditure on sports and 83% on urban improvement. These upgrades indicate to the world that the city can accommodate large-scale business needs. Plus, it helps create a positive image of the city.

To boost tourism

During the Olympics, fans pour in from different parts of the world to support their favorite teams. It also allows them to explore the city, visit landmarks and purchase souvenirs. It helps countries make up for a portion of the money they spend on hosting the Olympics. For instance, after hosting the 1992 Olympics, Barcelona saw a surge in its hotel room occupation. It rose from 71% before the games to 84% after.

To improve the quality of life of local communities

The London Games of 2012 put the spotlight on the lower-income communities living in East London. The games propelled the city’s infrastructure forward while also helping it reach its educational targets and expand local transportation.

There are also some negative impacts of hosting the Olympics:

  • It is expensive

Tokyo spent about 75 million US$ on its bid to the International Olympics Committee (IOC) to host the games. Then, it spent another 26 billion US$ approximately on building the infrastructure and 2.8 billion US$ on postponing the event from 2020 to 2021.

According to an Oxford study, cities that host the Olympics always spend more than their designated budget. For instance, while the budget for the 2016 Rio de Janeiro Summer Games was 14 billion US$, they ended up spending 20 billion US$.

  • Debt

Cities, sometimes, end up spending so much that they go into debt. Montreal — who hosted the 1976 games — was 720% over-budget. They paid off their debt 30 years later, in 2006. Rio de Janeiro, too, took a 900 million US$ federal bailout for police needs during the Olympics. Debt also affects other operations of a city, like healthcare, education and the like.

  • Maintaining and using the infrastructure after the game

Beijing’s “Bird’s Nest” stadium, which took 460 million US$ to build, is barely in use now. It takes 10 million US$ annually to maintain. These structures, while magnificent to behold, have little to no usability once the Olympics ends.

  • No long-term impact on the GDP

According to a study by Andrew K. Rose and Mark M. Spiegel, international trade is around 30% higher for countries that have hosted the Olympics. But, another research dispelled this claim stating that there is no long-term impact of hosting the Olympics on the GDP. In the end, there is no way to know for sure if the Olympics will positively impact a country’s economy.

  • The social impact

Besides the economic downturn that comes with hosting the Olympics, there is also the social impact of the Olympic games that countries must address. As they use a portion of the taxpayers’ money or public funding to pay for these events, they risk losing the trust of the voters by going into debt or not breaking even.

Hosting the Olympics is a double-edged sword. While it can boost a city’s image, it can also result in its financial downturn. So, when deciding to bid on hosting the Olympics, a country must make sure that it is fully equipped to deal with the outcomes.

Image Courtesy: Unsplash

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