ECONOMICS OF OLYMPICS

– Penned by Aishwarya Choushetti

Tokyo Olympics 2020 will be unlike any other Olympics, the quadrennial event that  has  survived  wars,  boycotts,  and  pandemics  throughout  its  125-year modern  history.  On  July  23,  2021,  the  Tokyo  Games  began  with  a  lavish opening ceremony in Tokyo’s Olympic Stadium.

The Tokyo Olympics have already broken new ground because of the 12-month delay caused by the coronavirus pandemic, pushing it into an odd-numbered year for the first time. However, because fans are not permitted in Japan, it is the first Olympic Games without spectators.

Let us try to understand the economic impact of the Olympics Games.

WHO PAYS TO HOST THE GAMES?

The essential principles of funding the Games can be divided into two distinct budgets. However, the budget for the Olympic Games has developed over time and changes from edition to edition based on the current context of the host city.

  • Organising Committee for the Olympic Games (OCOG) Budget:

This is primarily self-funded, with a sizable contribution from the IOC, which comes from various revenue streams, including The Olympic Partner (TOP) programme and the sale of Olympic broadcast rights.

  • Non-OCOG Budget:

This budget is generally under the control of the local authorities and comprises of:

  1. Capital Investment budget (Competition and Non-Competition venues): This is directly tied to the construction of long-term competition and non-competition venues. The governmental sector and/or  the  business  sector  usually  are  responsible  for  financing  such investments.
  2. Operations budget: This includes the operational services of public authorities in support of the Games (such as security, transport, medical services, customs and immigration, etc.).
  3. In addition, each city/region/country has a long-term investment plan for general infrastructure, which addresses investments in roads, airports, and train lines that the host country and city are making independently of the Games.
Image : Cost and revenue streams to the host nation for the game organization

HOW DOES THE GAME GENERATE REVENUE?

All of the IOC’s and Olympic Movement’s funds originate from private sources.

The selling of broadcast rights (TV, radio, and new media), international and national sponsorship, and the sale of tickets and licenced items are all sources of money for the Olympic Movement.

BUT…

According to an analysis by Oxford University researchers, every Olympics since 1960 has gone over budget by an average of 172 per cent in inflation- adjusted terms. They found that this was “the highest overrun on record for any type of megaproject,” far surpassing roads, bridges, dams, and other significant projects.

The 1976 Summer Olympics in Montreal became a symbol of the financial dangers of hosting an event. The estimated cost of $124 million was billions lower than the actual cost, owing to construction delays and cost overruns for a new stadium, which saddled the city’s taxpayers with a $1.5 billion debt that took nearly three decades to repay.

As a result, Los Angeles was the only city to bid for the 1984 Summer Olympics in 1979, giving it the advantage of negotiating highly favourable terms with the International Olympic Committee (IOC). Rather than promising expensive new facilities to persuade the IOC selection committee, L.A. could depend, almost entirely, on existing stadiums and other infrastructure. L.A. was the only   city   to   make   a   profit   hosting   the   Olympics,   with   a   $215   million operational surplus, thanks to this and a dramatic increase in television broadcast revenue.

As a result of L.A.’s success, the number of cities bidding increased from two for the 1988 games to twelve for the 2004 games. The IOC was able to select the cities with the most ambitious—and expensive—plans resulting from this.

The countries, however, spent huge amounts of money to build the essential infrastructure. The 2008 Summer Olympics in Beijing cost over $45 billion, the 2014  Winter  Olympics  in  Sochi  cost  over  $50  billion,  and  the  2016  Summer Olympics in Rio de Janeiro cost $20 billion. The local government in Pyeongchang, South Korea, paid over $13 billion for the 2018 Winter Olympics, up from the original $7 billion estimated originally.

Tokyo as well is no exception, it had previously stated that it would spend $7.3 billion, but a government audit in 2019 estimated that the actual spending was closer to $28 billion.

These expenditures have sparked renewed concerns, and several cities have withdrawn their bids for the 2022, 2024, and 2028 games due to financial worries. Both Oslo and Stockholm withdrew their bids for 2022 after realizing that expenses would be higher than expected. Boston dropped out of contention for the 2024 Olympics, citing a mayor who “refuse[d] to mortgage the future of the city away.” Budapest, Hamburg, and Rome, the other candidates for 2024, withdrew as well, leaving only Los Angeles and Paris. The IOC decided the 2024 and 2028 locations simultaneously in 2017, in an unusual move given the shortage of applicants, with Paris and Los Angeles taking turns hosting.

WHERE DOES THE MONEY GO?

The organising committee’s budget covers the cost of running the Games for

17 days. In recent years, they have started to incorporate certain other expenses, such as temporary sites, in addition to the 17 days. For Tokyo is about $15 billion. It does not include the construction of the national stadium, the Olympic Village, or the media village. It also excludes any investments in transportation, communication, or hospitality infrastructure prepared for the Games. The number itself is very fungible depending on what one may want to include.

The outlay for security is around $2 billion. Then there is the transportation for the 205 Olympic teams who are visiting Tokyo. All of their flights to Tokyo are paid for by the International Olympic Committee. According to the bid document, the IOC expects many hospitality expenditures, such as Thomas Bach and John Coates staying in lavish hotels. It covers the needs of the 11,000 athletes, coaches, and trainers who are staying at the Olympic Village, including lodging, food, and health care. By the way, there is also the $3 billion in expenditures associated with the postponement of the event. And this pandemic has also affected the revenues from ticket sales.

Because of these problematic balance sheet figures, in recent years, the IOC has started conducting the bidding process behind closed doors. The IOC selection process has also been marred by corruption. The 1998 Nagano and 2002 Salt Lake City Olympics were tarnished by bribery allegations. The chairman of Rio’s Olympic committee was prosecuted with corruption in 2017 for allegedly arranging bribes to secure the Brazil games, and there have been claims of illicit payments in the 2020 Tokyo selection.

CAN OLYMPICS BECOME MORE MANAGEABLE?

A consensus has grown among economists that the Olympic Games need reforms to make them more affordable.

Many have claimed that the IOC bidding procedure encourages, leading to overinflated bids, wasteful spending by giving preference to potential hosts who submit the most ambitious proposals.

As a result, the IOC, led by President Thomas Bach, advocated for process improvements known as the Olympic Agenda 2020 and recent Olympic Agenda 2020+5. Reduce the cost of bidding, give hosts greater freedom in using existing sporting facilities, encourage bidders to produce a sustainability strategy, and increase independent auditing and other transparency measures, keeping up with the trends in the post-coronavirus world are among other ideas.

With Olympic Agenda 2020 and Olympic Agenda 2020+5 norms, the host cities have full flexibility to find solutions without building venues and infrastructure they don’t need. For instance, they can use venues in another city, region, or country. If anything is being built, it should be a part of the existing developing plan so that it is useful to the city and its people in the long term. This long term legacy can take shape in several forms:

  • Measurable: A huge injection of fresh revenue into the city through the workforce employment, GDP, trade and investment in tourism with most of the money being spent in the economy.
  • Meaningful: Sport   development,   community   cohesion,   culture and education,   venues being given a new lease on life, a workforce with new levels of experience and a city elevated in its brand and global profile
  • Unquantifiable: Heath and wellness, inspiration, pride of playing host to the world-class athletes and a city enriched & invested with new dreams, new optimism and new purpose.

CONCLUSION:

With these new norms in place, we hope to represent this international multi- sport event celebrated as a global sports festival by people all over the world – the Olymics Games – in a sustainable and affordable way.

REFERENCES:

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