THE ECONOMICS OF OLYMPICS - NO MEDAL WINNER HERE!

By Ruma Dubey

Olympics’ is a world event and its purpose, as signified by the five rings, symbolizes the coming together of the world, represented by five continents then. It is THE MEGA  EVENT and yet, in India, it remains smaller than the Cricket World Cup or even the IPL matches.

The Games start today at Rio and all the work, which the country had undertaken for the past seven years, since the time it won the mandate to hold it, has reached culmination. Japan, which will hold the next Olympics, in 2020, will watch these Olympics ever so carefully, so that it can outdo Brazil when it plays the host.

Olympics is great for the economy of the country hosting the event. The build of infrastructure, the influx of tourists, the brand building; all collectively helps the host country recover some money. But it is just some money, not all of it. But after the Games are over, the image of ghost towns, gigantic structures lying in decay and ruins; somehow this is what first comes to mind. The Commonwealth Games and Asiad where India played host have shown us just that. Yes, the country will have new roads, new bridges, new railway connections, more flights, new stadiums, new Games villages or housing, new employment opportunities; simply like a swanky new city taking shape.

But the big question is – does hosting Olympics really boost the economy? First let us look at the benefits. This is segregated into three sections  - before the Games, during the Games and after the Games.  Before the Games there will obviously be the benefit of building the infrastructure as mentioned earlier. But here, one needs to see how much infra was built because of the Games and how much was already scheduled and it just got bundled with the Olympics. This helps us a better perspective on the costing of the Games. China’s Olympics has been the costliest at $70 billion and Russia’s Sochi coming in at a staggering $51 billion. Athens had cost $11 billion in 2004 and London spent $14.8 billion in 2012. The bill as of now for Rio stands at $12 billion but at the end of it all, it could cost $20 billion in all and economists say that it could recover only $4.5 billion, at the most, in revenue. Tourists are expected to bring in more money but that given the security, pollution, crime and Zika issues, seems like an unlikely happening.

Then comes ‘during the Games’ phase. This is the time when all the money spent will bring forth fruits. The economic benefit from the arrival of thousands of visitors in the form of spectators, sponsors, athletes, media helps add to the coffers. Last and the most difficult is the ‘after the Games’ phase. How does one quantify the productivity due to new roads and bridges into the GDP? What would be the benefits of the Games Villages, the giant stadiums and athletic facilities? More importantly, there is the loss on Opportunity cost – the piece of real estate where the stadium was built could have been used for a much better purpose and that now stays lost permanently.

Pricewaterhouse Cooper had conducted a study of the economic benefits of hosting the Olympics between 1984 and 2000. And it has stated that all the hosting cities had a positive economic benefit from hosting the Olympics. In terms of GDP, Barcelona had an estimated economic benefit of 0.03% of regional GDP, Sydney had an estimated economic benefit of 2.78% of regional GDP, Atlanta had 2.41% of regional GDP, Seoul had 1.4% of national GDP, and Los Angeles of 0.47% of regional GDP. 

The short term benefits are immense but long term? That is the big question. The one very big positive of this Games is that the Olympic stadium, which later stands like a forlorn and lone sore thumb, like Beijing's spectacular Bird's Nest, which today one can go and visit on a Segway for a $20 ride is just that and not much else. London did a good thing though – its stadium during the Olympics could seat 55,000 but was later brought down to 25,000 seats, only permanent seats being built in the stadium. Yet, as we said, the loss of opportunity cost is immense.  

There is tonnes of research done on the economic cost and benefits of hosting the Olympics and really, there is no precise study which says that its good or it helped apart from the build of infra. But the only reason why countries chase Olympics or a World Cup or  Fifa is because people like to host these events. Economics pays attention to only money not to the happiness quotient. There is enough research to prove that the sense of patriotism, the unity of the hosting country during and after the Games is unmatched. It is like the entire country is celebrating a festival; it does not make the country rich but surely very happy. Now that is something which economists do not know how to count!