On July 23rd, 2021, Japan’s Emperor Naruhito officially declared Tokyo Olympics open amid protests and fewer than 1000 people in attendance in a stadium designed to seat 68,000 people.
Hosting the Olympics games is supposed to enhance the city’s economy, create jobs, and promote tourism for the hosting city while bringing in revenues from games played to reinvest in the economy. So, why would the people of Japan protest the hosting of the Olympics?
It turns out that the economics of hosting the Olympic games is a bit more complex than it seems on paper.
It all starts with bidding:
A city interested in hosting the Olympic games must submit a bid to the International Olympic Committee (IOC), who selects the city in which the games will be held in a given year.
Bidding, however, does not come cheap. Cities have to spend hundreds of millions of dollars on consulting firms, city planning, event organizing, and architecture firms to ensure it meets the requirements set by IOC.
In the case of the Tokyo Games, the Japanese Olympic committee spent $150 million to bid to host the 2016 Olympic games. But, that bid was won by Rio de Janerio. However, Tokyo’s bid was successful for the 2020 games but spent an additional $75 million for an updated evaluation and planning.
Building a village:
After being selected to host the games, the city has an enormous task of virtually building an entire village from scratch that contains the various stadiums and arenas and facilities like apartments, transport infrastructure, broadcasting, and communications infrastructure maintenance and security related to it.
These things come with a hefty price tag, and IOC does not invest in the construction or maintenance of any infrastructure, and the entire cost has to be borne by the hosting city.
The national stadium for Tokyo games with 68,000 people is built for $1.4 billion using steel and wood from every single one of Japan’s 47 prefectures.
There are a total of 43 venues to be used in Tokyo games, out of which 8 are new venues, and 10 are temporary structures, and all these costs add up quickly. Costs of some of the arenas and infrastructure for Tokyo games are:
- Gymnastic center: $200 million
- Plaza for badminton & pentathlon: $330 million
- Aquatic center for swimming and diving: $540 million
- Volleyball arena: $320 million
- Canoe & Kayak center: $65 million
- • 21 buildings to host teams: $2 billion
The organizer’s estimate for the total cost for Tokyo games is around $15.4 billion, and all these costs have to be incurred even before a single match is played.
Revenue generation:
The Olympic games draw millions of viewers around the world. It had come a long way since 1896, when it became a truly international competition.
The 1936 Berlin summer games were the first games to be broadcasted live around the city, and the 1960 Rome summer games were the first of its kind international broadcast reaching millions of viewers.
IOC’s total revenue from 2013 to 2018 comprises 73% broadcasting rights, 18% TOP (The Olympic Partners) program, which grants sponsorships and exclusive marketing rights, and 9% of other revenues.
The revenue from selling broadcasting rights has increased over ten times since 1984, generating $2.9 billion in Rio summer games in 2016 and $1.4 billion in PyeongChang winter games in 2018.
The host cities also generate revenue from selling tickets to stadiums and arenas.
Cost Overrun:
The trend of spending more than what was budgeted earlier for hosting the Olympics game is not new. Every game hosted since 1960 has gone over budget except for 1984. Los Angeles summer games had an operating surplus of $215 million as it was the only bidder and had the necessary infrastructure in place, which significantly reduced costs.
In 1976, the Canadian government spent $1.5 billion in overrun costs well over their estimated budget of $120 million for Montreal games. The Canadian government finally paid off its debt in 2006.
The 2014 Sochi winter games, with its $10.3 billion budget, spent an additional $40 billion, bringing the total to over $50 billion to host the Olympics game.
The problems have only worsened since 1960 as IOC has increased its share in total revenue generated from 4% to as high as 70% in the 2016 Rio games. This leaves host cities with a lesser share in revenue and higher overall costs.
The pandemic effect:
The COVID-19 pandemic has been disastrous for Tokyo as the costs have far exceeded the initial budget of $7.3 billion. Some experts believe the total cost to be as high as $26 billion, making it one of the most expensive summer games ever to be hosted.
Factors like labor shortages and decreased value of the Japanese Yen against dollars increased the already over-budgeted costs by $1.6 billion. In addition, the estimated loss of ticket sales due to pandemic is $850 million, and additional costs related to safety and covid precautions are expected to be $900 million. The total cost of delay of one year from the original schedule of 2020 comes to around $3 billion.
The heavy spending and the rising risk of virus spread became the reasons for protests where people of Japan feel that the money could have been spent on covid relief. In contrast, the organizers think that the show must go on as Japan would lose billions of dollars in revenue if the games are canceled.
Degrading venues and decreasing bids:
After the games are conducted, the stadiums, arenas, and other infrastructure which are not meant to be temporary and not easily capable of being dismantled are either left to degrade due to no use or have to be maintained, which costs millions of dollars.
So why would any city decide to host the Olympics?
The hosting of Olympic games is a sporting event and an opportunity for the hosting countries to showcase their soft power. It is strategically used to present a political statement at an international level.
Although, the heavy amount of hosting costs has forced cities to reconsider their decision to host the Olympic games, and four cities have even withdrawn their bids for hosting the 2022 winter games. The number of bidders has decreased from 11 for 2014 games to 5 for 2020 and just 2 for 2022.
Considering this, IOC decided to forego the bidding process by selecting Paris for the 2024 games and Los Angeles for 2028, effectively placing a pause on the bidding process, hoping that the Los Angeles games will provide a much-needed boost to the games and its declining viewership.
Speaking of viewership, The opening ceremony of the Tokyo Olympics was viewed by 16.7 million in the USA on NBC’s broadcast, which is at a 33-year low and a 36% decline from the Rio games in 2016. The cost of all the fireworks, laser light shows, and all performances is estimated to be $118 million.
Future of the Olympics:
In 2014, IOC President Thomas Bach released the Olympic Agenda 2020, which suggested a list of 40 actions that IOC could take to shape the event’s future. It included, among other things, lowering the cost of bidding and sustainability in all aspects of the Olympic games. But, how much of it would be realized, only time will tell.
Germany, Australia, and India expressed their interest in hosting the 2032 summer Olympic games, and Brisbane (Australia) is selected to host the games.
The Olympics are not dying, but the question here is how fast IOC can implement the helpful guidelines, which can help create an actual net positive outcome for the host countries and bring back its glory and get even more people to watch the event.
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Sources:
- Going for Gold: The Economics of Olympics – Robert A. Baade. & Victor A. Matheson
- Why Tokyo Is Hosting the Summer Olympics Despite COVID-19
- The Economics of Hosting the Olympic Games – Council on Foreign Relations
- How the Olympics became so expensive for host cities – CNBC
- How The Tokyo Olympics Became The Most Expensive Summer Games Ever – Business Insider
