Hosting the Olympic Games -- Is It Worth it?

Now that the world’s spotlight is lifting from Rio de Janeiro and the 2016 Summer Olympics, it is time to reflect on the economic impact the Games have on a host city. Is it worth it?

Beset with political tumult, rising crime rates and the Zika virus, Rio invested heavily in the games both in terms of actual money spent and in terms of risk to its already precarious image as a travel destination.

Back in 2009, when Rio won its bid to host the 2016 Games, the Brazilian government estimated the event would cost just under $3 billion. However, by the time the Olympic torch blazed at the opening ceremony on August 5, that number had spiraled to $4.6 billion. Over the course of the 17-day event, the increase in budget surely swelled even further.

Lest you point your finger at the Brazilians, they definitely are not alone in their initial miscalculations. The 2014 Winter Games in Sochi exceeded their original budget by 289 percent. The budget for London’s 2012 Olympics soared from around $4 billion to $15 billion.

This problem is not just a 21st century problem. Barcelona’s budget for the 1992 Games went over by 266 percent. The 1980 Winter Games in Lake Placid went over budget by 324 percent, and Montreal spent about 30 years paying down its debt for the 1976 Games, which went over projected budget by a whopping 720 percent.

These figures beg the question “What happened?” How can these city officials, who have the data and the experience of other Olympic host cities to examine, keep getting it wrong?

The answer, like so many answers, lies in expectations versus reality. The Organizing Committees of the Olympic Games (OCOGs) assert that, since 1984, each city that has hosted the Olympics has broken even. How can this be? The disparity lies in the fact is that the OCOG examines only operating costs, not capital costs.

The huge capital costs of designing and building the Olympic Village, the event stadiums, the media center and other infrastructure needed for the Olympics are the greatest expenses of hosting the Games.

Then the weather and the economy can play havoc with even the most careful construction estimates. Moreover, as deadlines loom and host cities fall under intense international scrutiny to be ready for the Games, they often succumb to the pressure and, as a result, pay more than they planned.

Then there is the discrepancy of how we measure the success of hosting the Olympics? First, there are the direct financial impacts such as all the new jobs created and all the visitors to the host country.  Then there are ongoing gains spurred by the Games, such as long-term job growth and an improved infrastructure. Then there are intangible benefits, including the pride a city and a nation feel at being a host for the Games. Is the city’s future brighter as a result of hosting the Games?

While the numbers for the direct financial impact may be somewhat easy to crunch after the dust settles in Rio, these other impacts are much more subjective and much more difficult to measure.

For example, will the breathtaking views of Rio that NBC broadcast every night in its primetime coverage of the games spur more tourism to the beleaguered city?

Now that the two-week-plus extravaganza is over, will Rio find a use for the venues it built for the Games? The list of other host cities with unused or scarcely venues is long and includes Beijing's famous Bird's Nest and Water Cube (2008) and many of the structures built for the Athens games (2004).

In this research paper, the National Bureau of Economic Research (NBER) focuses on the impact hosting the Games has on trade for the host city. Using several models, the study reveals that national exports are boosted by about 30 percent by hosting the Games.

The authors conclude that the effect on trade is related more to the positive economic signal a country sends when it bids to host the Games than to the actual act of hosting such a major event.

Allison Stewart, Bent Flyvbjerg and Alexander Budzier, the authors of “The Oxford Olympics Study 2016: Cost and Cost Overrun at the Games,” which was published a month before the Rio games, discovered that the Olympics have had the highest average cost overruns of any other megaprojects. Their research found that 47 percent of Games have had cost overruns of more than 100 percent.

Given their research, the authors suggest that staging the Olympic Games is taking on one of the most financially risky endeavors that a country or a city can do, and they state in no uncertain terms that the decision can backfire.

So what is the answer? What can the International Olympic Committee (IOC), Pyeongchang (2018 Winter Olympics) and Tokyo (2020 Summer Olympics) take away from the Rio games?

The IOC reportedly is considering proposals that the Olympic Games be held in several permanent locations and/or that two successive Games should be given to the same host city, so that the expensive, elaborate facilities built for the Games could be used at least twice.

As for Brazilians, it will be some time before we will see whether they are better off, worse off or just about the same as before the Summer Games. London is still sorting out is collective answer to the same question.

One of the intangibles Londoners seem to agree on, however, is the pride aspect of serving as a host city. An estimated 70,000 people volunteered their time to help the London Games run smoothly. According to londonist.com, they did so with “unfaltering cheer and good humor.” In fact, the good will associated with the London Olympics volunteers encouraged around 100,000 people to donate their time for charitable causes.

Rio faced different challenges, however. Violence and political unrest in Brazil preceding the Games prompted Brazilian soccer star Rivaldo to post a severe warning on his Instagram account last May.

The soccer superstar, who rose to international fame as the star of Brazil's national soccer team, advised his followers throughout the world to stay home, describing the tense situation in Rio as “ugly” and saying that people would be putting their lives at risk if they attended the Games in Rio.

In an interview with The Guardian last summer as Brazil, the first South American country to host the Olympics, was furiously preparing for the Games, Cláudia Uchôa, planning secretary in the Rio state government, said she hoped the legacy of the Games would ultimately be a shift in attitudes for and about Brazilian society.

Acknowledging that her multicultural country has more killings than most war zones, Uchôa said that the Olympics could help put an end to racial prejudice within her country and to help create a more tolerant global perspective toward race relations.

Are these goals too lofty for the Olympic Games, which are designed to celebrate athleticism and friendly international sports competition? Maybe.

For Brazil in general and for Rio in particular, the cost – in terms of money spent and media scrutiny delivered -- may not have been worth the advantages gained of being a host city.