Whatever the virtues of the Olympics, economics is not one of them. As we enjoy this year’s Winter Games in South Korea, we ought to ponder the possibility that the Olympics will one day price themselves out of existence. It will cost so much to host the Olympics extravaganza that no one will want to do it.
Although that may seem far-fetched, the number of cities vying for future Olympics has already dropped dramatically. Here is what Andrew Zimbalist of Smith College, an expert in sports economics, has to say:
“Not so long ago, cities lined up to bid the moon and the stars to secure the Games. But daunted by the escalating demands of Olympic organizers and a recent history of huge budget deficits, environmental and social dislocations, and rampant corruption, bids to host both the summer and winter Olympics have sharply declined.”
The numbers are (as they say) eye-popping. In 1997, there were 12 cities competing for the 2004 Summer Games, which were ultimately hosted by Greece. By contrast, the bidding for the 2024 Games ended with two contenders — Paris and Los Angeles — after Boston, Toronto, Rome, Hamburg and Budapest dropped out.
The story is the same for the Winter Olympics. In 1995, there were nine candidates for the 2002 Winter Games. By 2011, there were only three for the present 2018 Games.
What has happened is no secret, writes Zimbalist in the current issue of the Milken Institute Review. To host either the Summer or Winter Games requires massive construction projects for new stadiums, dormitories and local transportation systems. But the prospective revenue from the Games doesn’t come close to covering the costs. As a result, the Games impose a permanent burden on the host country’s taxpayers.
Zimbalist roughly calculates the cost of the next Summer Olympics at $15 billion to $20 billion against prospective revenue of $4 billion to $5 billion. While costs are going up, the prestige and long-term economic benefits — in increased tourism and investment — seem to be going down.
What about the funds from selling television rights and corporate sponsorships? It turns out that they don’t go primarily to the host cities but to the International Olympic Committee (IOC), which channels most of its money to national Olympic committees and international sports federations. Zimbalist says that host cities now get 20 percent to 25 percent of the sales of TV rights.
Confronted with these unhappy realities, the IOC has taken steps to curb costs. But they’re not sufficient, Zimbalist argues. The basic problem, he contends, is that the facilities constructed for each Olympics are largely obsolete once the Olympics are over. These huge investments can’t generate returns to cover their costs.
One solution touted by Zimbalist and others is to reduce wasteful investment by designating permanent locations for the Summer and Winter Games. The potential for savings is considerable, as the case of Los Angeles shows. Designated host for the 2028 Summer Olympics, it has managed to keep its projected budget below $6 billion.
“Since L.A. is home to many professional sports teams and several universities that invest heavily in athletics, Los Angeles already has a full complement of sports arenas and stadiums,” Zimbalist writes. The same is true of dormitories. The need for new construction is modest.
It’s not clear that Los Angeles would want to be a permanent host to the Olympics — or that any American city would satisfy global opinion. Still, this is a problem with a solution: Build one or two permanent sites. The obstacle is politics. It may be impossible to construct a new system unless the current system breaks down by failing to produce a host city.
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