No city gets involved in the Olympics for the money. That's because figuring out the return on investment (RoI) is a years long exercise in advanced trigonometry.
Supporting young athletes aside, cities do it for the glory. Hosting the Olympics is as close as they'll ever get to winning a gold medal. There's no runner up. Your bid to host is either accepted by the Olympic Committee, or it isn't, as Chicago discovered when it bid to host the 2016 Summer Olympics. Rio de Janeiro beat them out, and Chicago had Oprah Winfrey and Barack Obama on their team.
From the time London bid for the 2012 summer Olympic Games in 2003, all the way to the opening ceremonies last weekend, Great Britain has spent well over the 9 billion pounds ($14.1 billion) it originally intended on getting roads and subways upgraded, to spending over 533 million pounds ($867 million) on security. Not to mention trucking in boat loads of sand for beach volleyball, and building tracks for bike racing. It is already reportedly three billion pounds ($4.7 billion) over budget. That’s the most since the 1996 summer Olympics in Atlanta, when costs overran by 147 percent.
Are the Olympics Worth It?
Anecdotally, the answer is an unflinching yes.
Economically it's more of a mixed bag, says Jonathan Willner, an economics professor at the Meinders School of Business at Oklahoma City University, and an expert on the cost-benefit side of massive sporting events.
"Companies and governments look at these games now more from a promotional element than economic, because all that investment usually doesn't pay off," he says. "It's a lot of government expense. So what you're really doing is promoting the feel good vibe of the city and hoping to get some public works projects done that would not have had public support if not for the driver of the Olympics coming to town," he says.
Take the London subway system for example, the Tube. It's been in need of repair and upgrades for over 40 years. It was updated for the Olympics. Now they can offer a train every one to two minutes, doubling the old three or four. Outdated trains have been replaced with new ones.
In East London, the apartments built to house Olympic athletes in that poor part of the city have all been pre-sold at a profit.
"A lot of people were skeptical about the government's goal to develop East London with the Olympics, but it has paid off for them," says Mike Harling, a Brit working for Olympic wunderkind, Georgia, in their overseas economic development office in the U.K.
In 2008, General Electric's president of Olympic Sponsorship and Corporate Sales at the time, Peter Foss, said that its sponsorship of the Beijing Olympics brought in $700 million of new business.
Deciphering what to invest in is like a chart outlining an electrical circuit board. Sports facilities are required. Does the city have Olympic pools? Yes? Is the quality adequate? No, then you have to spend on modernizing it. Do you have all the equipment you need to stage such a spectacular? Yes? Whew, then you rent it out. No? Then you have to build it.
Models for financing the Olympic Games different from host city. Montreal was almost 100 percent municipally financed. The federal government didn't give the city much money to cover it's ghastly overhang. Seoul in 1988 was 46 percent public, 54 percent private, according to the organizing committees.
The experience and enthusiasm of spectators and participants for the Olympics is impossible to measure in money alone. But if you must, most recent economic research on Olympic spending has been mainly based on microeconomic aspects focusing on an Organizing Committee’s revenues in selling television rights and sponsoring.
Those organizing committees are run like a non-profit. The London 2012 Olympic and Paraolympic Games, or LOCOG, is essentially an NGO responsible for ticketing, events, branding and getting sponsors. It starts up, hires people, runs for about six years, raises enough money to pay for the games, and then shuts down. If you have some money left over, like Atlanta did in 1996, you did pretty well.
But running the Olympics, whether it's a mostly public endeavor like Montreal way back in 1976, or mostly private, like Los Angeles and Atlanta, the idea is that the Olympics are not supposed to lead to debt.
The long term "legacy" aspects of the games are less obvious are often ignored. Yet these aspects, in particular, affect the citizens of a host city for years go come. For this, the best example where significant cost benefit analysis has been done by actual economists, is in the capital of the South: Atlanta. Sure the Atlanta games went vastly over budget. But that didn't hurt the games, the city or the state of Georgia on bit. In fact, the organizing committee made money on the 1996 summer Olympics.
The Olympian Rise of Atlanta
In the early 1980s, a Georgia real estate attorney named Billy Payne got bitten by the Olympic bug in Calgary. When he returned from their winter games, he had the idea to bring the summer Olympics to a city few in America paid any attention to. Not that Atlanta was a fly-over, but it wasn't on most Americans' radar, let alone foreigners.
"People thought Billy was off his rocker. I thought he would never pull it off. He put the weight of selling Atlanta to the Olympics on his shoulders and it was all surprisingly worth the effort," says Chris Cummiskey, commissioner of the Georgia Department of Economic Development.
By the Atlanta Chamber of Commerce's estimate, the city was on the receiving end of a $5 billion return on a roughly $3 billion investment because of its hosting of the 1996 Games. Other economic studies, like on conducted by German sports economist Holger Preuss, put the operational expenditures of the Atlanta games at $1.2 billion in 1995 dollars, with revenues of $1.7 billion.
What's happened to Atlanta since? It's gone on to host the XXXIV Super Bowl in 2000. Has 15 of the country's Fortune 500 corporations headquartered there. And is now home to the world's busiest airport. Yes, the world's busiest airport is in the American south, not London, not New York, not Chicago, and not even Beijing.
Julie Hotchkiss, a research economist at the Federal Reserve Bank of Atlanta, headlined with two other economists what is arguably the gold standard paper on the RoI of Olympic host cities.
This is where proving the return on investment looks like masters level trig. In short, she used the labor market as a means to gauge the benefits. Hiring rose by more than 17 percent. It doesn't last. But what the Olympics did for Atlanta was showcase it as an international city, and the major sponsors headquartered there had a hand in that. Atlanta was a sort of privatized Olympic Games.
"Coca-Cola was a huge sponsor for us and I'm sitting here right now looking out my window at their corporate offices," says Cummiskey. "We didn't raise any taxes. We didn't raise any fees on hotels. The money spent on the Olympic Arena eventually got sold to the Atlanta Braves. The money invested into Georgia State University to house athletes turned what was once a pure commuter school into one of our leading overnight colleges. These are all positive impacts of investments that were made during the Olympics."
Cities Post-Olympics
Salt Lake City hosted the winter games in 2002. It cost the city an estimated $2 billion and was one of the most expensive ever. But when the Olympics left, the city went into a deep recession. The good news was that no debt was built up after the games. The Olympic committee there actually made a profit and used it to create endowments to keep some of the venues running and Utah became one of the new hubs for large winter sporting events. Since 2002, there has been 62 large sporting events, seven world championships, 90 Olympic related events and in terms of money -- over $1 billion pumped into the economy because of those hosted events. The state's governor, Gary Herbert, liked the outcome so much he told the press there that he was launching an exploratory committee to bring the games back to Salt Lake in 2022.
Many Olympic host cities have brought in more revenue than they've spent running the thing thanks to sponsorships and broadcasting rights. Munich, Montreal, Los Angeles, Seoul, Barcelona...they all made money. The organization and staging of the Olympics do not incur costs for the city or the tax payers. On the contrary, they have earned reveneus of $500 million on average, according to Preuss.
The "legacy" of the London 2012 Summer Olympics is expected to live on for a long while, says Hugh Robertson, Minister for Sport and the Olympics.
Exactly 118 sporting events have been staged in the U.K. from 2007 to 2012, covering Olympic and Paralympic sports in new venues. Robertson says they've brought in around 105 million pounds to the economy over the last five years.
Beyond 2012, the U.K. will be hosting at these new and upgraded venues the Rugby World Cup, Commonwealth Games, and the Cricket World Cup to name a few.
Nearly all of the one billion pounds ($1.56 billion) of LOCOG contracts have gone to local British companies. Four million new visitors to the city are expected between now and 2015.
"A lot of the investments are infrastructure spending from governments and you wonder if they would have spent that money now, if not for the Olympics," says Willner. "But if you're riding in a newer subway, or the airport is better because it was modernized to host the games, the public isn't going to complain and in that regard, it was worth it."
See The Guardian's Infographics: What's The Real Price Of The London Olympics?
