Olympics Host: Economic Pay-Off or Pay-Out?

Boston has just been eliminated from the short-list of U.S. candidates to host the 2024 Olympics. While the U.S. Olympic Committee begins to look elsewhere— rumors suggest Los Angeles, San Francisco, or Washington—the Boston public may have reason to rejoice at their removal from the host city running. Approval ratings for the undertaking never made it out of the 40s, a clear sign that the public was not on board with the big financial commitment. “No Boston Olympics,” an opposition group that quickly organized to fight the Olympic proposal was celebrating Monday July 27th when the news broke. The chairs stated, “We’re better off for having passed on Boston 2024.”

The United States has not hosted a Summer Olympics since Atlanta in 1996, or any Olympics since Salt Lake City in 2002. While new cities fight for the nomination, it’s reasonable to ask if the financial commitment and stress of hosting an Olympic games has any real pay-off. Brazil spent billions on stadiums for the 2014 World Cup—the Arena Amazonia cost $300 million alone. The splurge for the upcoming 2016 Summer Olympics in Rio de Janeiro may well exceed $25 billion. Brazil’s leaders seem intent on underscoring the country’s emergence as an economic power. The country’s leaders, “insist that it’s also intended to increase the nation’s prosperity.”

The Olympics and World Cup events are routinely described as economic engines for the host cities. A major justification for the cities that have flirted with bids for the 2024 Olympics was “economic development.” Boston organizers originally stated that, “A Boston Olympiad could catalyze and accelerate the economic development and infrastructure improvements necessary to ensure that Massachusetts can compete globally now and into the future.” Justifications include an influx of tourists, the potential to attract global business leaders, and develop potentially valuable infrastructure projects.

However, there is very little evidence that these events actually increase tourism or lure in new investments. Spending excessively on short-term events is a questionable long-term strategy. Corporations rarely build stadiums because they produce minimal economic benefits, which is why taxpayers cover the cost more often than not. Even when hosts, like Brazil, try to make the new stadiums more palatable by building new infrastructure like highways and airports, the cost is still more than just building the infrastructure alone.

Hosts often cite Los Angeles’s successful Olympic hosting as evidence of economic benefits. They forget, however, that Los Angeles actively avoided building new stadiums. Organizers repeatedly neglect to consider the “opportunity costs—what might have happened if a city didn’t host the Games. In some of the world’s most expensive cities, perhaps the greatest opportunity cost is the loss of scarce and valuable real estate.” Furthermore, as sports tourists flood the city, other tourists move elsewhere. During the 2012 Games, London’s British Museum received 480,000 visitors instead of the usual 617,000. In total, “Britain received 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.” While the Olympics do signify that a city or country is “open for business,” just bidding to host the Olympics seems to indicate the same idea for a lot less money. Furthermore, the Olympics also have the potential to damage a country’s reputation. The lasting picture of the Munich Olympics is a man in a ski mask, the dilapidated venues from the 2004 Olympics became a symbol for Greece’s economic crisis, and Sochi’s legacy is overshadowed by bad weather and rampant concerns about security and corruption.

Philip Porter, an economist from the University of South Florida says, “the bottom line is, every time we’ve looked—dozens of scholars, dozens of times—we find no real change in economic activity. Still, even for established cities like Boston or San Francisco, there is one clear reason to chase the Olympics or the World Cup: People like hosting major sporting events.” Just like a wedding, hosting a big sporting event won’t make you rich, but it will make you happy. A city, just like a couple, needs to decide how much that happiness is worth. Our advisors at Apex Financial are familiar with the trials and tribulations of cost-benefit analysis. If your family is trying to decide on a big expenditure, and need a plan, let an advisor help you come up with the best option to keep you and your finances happy.