Do the Olympic Games generate profits?

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No. Unfortunately, they do not. That's straight from the mouth of the head of the International Centre for Olympic Studies, Robert Barney. A city might see a surplus of cash post-closing ceremonies, but if you include all those (at every level) who help fund the Olympics in any given games, he says no city has profited in the long run from its hosting role in a purely bottom-line sense. Many cities like to boast of mega-profits, but they often gloss over all the money that the federal government, among other contributors, poured in. And that tends to add up to a lot.
So that being said, Olympic cities do usually have an increased amount of international trade -- to the tune of roughly 30 percent. On the other side of the coin, though, lots of the Olympic-related developments can end up as future money pits. Some venues end up underused following the games, and incur lots of costs in upkeep. While many facilities remain in use after the Games or are converted for new purposes, quite a few sit virtually as empty as the original in Olympia, Greece.

By the same token, many Olympics leave a city with some serious debt. Montreal, for example, took about 30 years to pay off the debt incurred from its 1976 summer games. The original budget for the Athens 2004 games was $1.6 billion. In the end they cost the public about $16 billion.
It’s also misleading to calculate how much money is spent in a city during the Olympics. A fair comparison requires some estimate of how much would have been spent without them. When the Games come, after all, other kinds of tourism go. During the 2012 Games, the Adelphi Theatre in London’s West End suspended performances of “Sweeney Todd.” The British Museum received 480,000 visitors that August, down from 617,000 the previous year. Indeed, Britain received about 5 percent fewer foreign visitors in August 2012 than it did in the same month the previous year. Those who showed up spent more, sure, but London spent billions of dollars to lure them. “If Boston hosts the 2024 Olympics, there’s no doubt that the city is going to be overrun with sports tourists,” said Victor Matheson, an economist at the College of the Holy Cross in Massachusetts. “But Boston is already overrun with tourists in the summer.”

There is strikingly little evidence that events such as the Olympics or World Cup increase tourism or draw new investment. Spending lavishly on a short-lived event is, economically speaking, a dubious long-term strategy. Philip Porter, an economist at the University of South Florida who has studied the impact of sporting events, said that the evidence was unequivocal. “The bottom line is, every time we’ve looked — dozens of scholars, dozens of times — we find no real change in economic activity,” he said.
Stadiums, which cost a lot and produce minimal economic benefits, are a particularly lousy line of business. (This is why they are usually built by taxpayers rather than by corporations.) And even though Brazil, like other recent hosts, has sought to make stadium spending more palatable by also building general infrastructure, like highways and airports, the public would derive the same benefit at far less cost if the transportation projects were built and the stadiums were not. And while Brazil may be eager to signal its economic might, the Games can also tarnish a host country’s reputation. What has been highlighted above anything else is the crime rate in Rio, a reflection of the economic inequality of a country that can’t afford to feed the majority of its people, being a country of immense poverty.

The problem starts with the bidding process. Getting to host the games is an Olympic event in itself -- a marathon that starts ten years before the opening ceremonies. Cities form local organizing committees that first compete nationally to become their country's candidate, then internationally to be chosen as host. At each stage, they must convince the selection committee that the city will orchestrate the most effective, elaborate, safe, and convenient athletic blowout of the myriad competitors. As the bidding proceeds, the plans become more and more detailed, spectacular, and expensive.

If the process were rational, each local organizing committee would have a notion of how much their city stood to benefit financially from the games and would cap their bid below that dollar figure. Since the Olympics are likely to generate roughly similar amounts of business activity in any given city, the competition among would-be hosts would drive all of their proposals up to the limit, and whichever town was chosen would reap close to zero net benefit from the event. Local committees, however, invariably are motivated and run by private business interests which individually stand to gain from the massive construction associated with the events. These interests include construction companies, construction unions, architectural firms, investment bankers, and lawyers, among others. They come together to form a coalition and bring politicians on board.

The result is what economists call a principal/agent problem. The city (principal) is not properly represented by the local organising committee (agent). The committee that nominally represents the city really represents itself and bids according to its sense of the private benefit (of its members) versus the private cost, rather than the city's public benefit versus public cost. Since the private cost is diminutive and the private gain extraordinary, the local organising committees, on behalf of the cities, are bound to overbid, wiping out any modest, potential economic gains.
Meanwhile, during the bidding process cities spend tens of millions of dollars to win the hosting competition. Chicago spent a reported $100 million in its losing campaign to host the 2016 summer games. It is, surely, money that could be better invested. Olympic Committee members in almost all countries are wealthy people with lucrative business interests. None of these people has been elected. None of them is accountable to the public. A large proportion of event tickets, especially to things such as the opening ceremonies, are allocated to business associates and the social elite. Sometimes only 50% are made available to the public. Most poor people are never given a chance. Meantime, the rich are getting ready to party. Corporate sponsors are doling out tickets as bonuses to staff and ‘hospitality’ to clients. The elite intend the Games to be a celebration of class privilege and corporate power in world where they are getting richer and the rest of us poorer.

Then there is the public cost of investment in athletic programs in an effort to wins Olympic medals. In Rio this year for example, Australia's underwhelming performance is set to come at a cost of as much as $11 million per medal to the taxpayer. It is expected to prompt fresh questions about the effectiveness of the funding model introduced after London and overseen by the Australian Sports Commission. In all, $340m has been injected into summer Olympic sports via the ASC's Winning Edge program in the four-year cycle leading up to the Rio Games. Using the national lottery funding model adopted by Great Britain in the lead-up to its home Olympics as an inspiration the money has been distributed with an enhanced priority on winning and sports in which Australia has historically been strong. But is the outlay of public monies of this magnitude worth the “glory” of a medal? What’s it really all about? It’s obvious that the countries with the most available capital will reap the best competitive results. But were the Olympic Games ever meant to be a reflection of wealth over commitment? I think not.

Of course, in our world today, corporate organisations are the huge benefactors of events such as the Olympics through sponsorship, TV rights and advertising revenue. There is a limit of twelve major sponsors, and for Rio these include McDonalds and Visa. Every effort is made to court these organisations. For example, all alternative fast food outlets were banned from the stadium and nearby areas to accommodate McDonalds. All ATM’s within and around the stadium were changed to Visa. These merchandising advantages and the proven success of exclusive advertising deals, makes the cost very much worth it to sponsors. Small business in host countries benefits little. The poor do not benefit at all. And, surely, they deserve major consideration when cities vie for hosting rights. Surely such events are meant to have an overall social benefit.