Economics of the Olympics

…AND THE ECONOMIC$ BEHIND THEM

Knowledge sharing

The Costs of Recent Games

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10

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9

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51

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“Sochi cost more than every other Winter Olympics put together.” – Jurryt van de Vooren in NRC Newspaper

Source: Russia Blows $51bn on Sochi Winter Olympics as Costs Spiral ; * estimated and unconfirmed

*

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“Every Olympic Games from the past 50 years has gone over budget…Each overshot its initial budget by an average of 179%.” – Oxford University research

Reasons Why Costs Exceed Budget

The games are bid on

and awarded

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

The games are played

1) Initial infrastructure plans become more detailed and grandiose 2) Local organizing committees represent private, not public, interests 3) Security costs are underestimated

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If You Build It, Will They Come?

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9 11

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15

2006 - Torino 2008 - Beijing 2010 - Vancouver 2012 - London 2014 - Sochi

Number of New Permanent Sporting Venues Built for Recent Olympic Games

Source: Wikipedia; London 2012 Olympics: venue guide ; All about the 2014 Sochi venues

White elephant – (noun) A possession that is useless or troublesome, especially one that is expensive to maintain or difficult to dispose of

“It could take 30 years to pay off the $471 million bill for the Bird’s Nest, while the Water Cube lost about $1 million [in 2011]” – Mark Byrnes, The Atlantic

Beijing Olympics

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“The Games overrun with 100% consistency…Other project types are typically on budget from time to time, but not the Olympics.” – Bent Flyvbjerg, researcher

Some Olympic Financial Disasters

Why: • Poor project management – main

stadium was unfinished at time of Opening Ceremonies and was never completed. It was torn down in 1991 after it became structurally unsound

• Required only public funding – private sponsorship and investment, a major factor nowadays, was not permitted until the 1980 games

• Lingering debt – The $1+ billion debt as a result of the Games took 30 years to pay off

Why:

• Lacked preexisting infrastructure – Sochi was not the obvious choice as host for a Winter Olympics given its geographic location and lack of infrastructure already in place

• Added bravado – Dubbed “Putin’s

Games”, Russia’s prime minister made it clear that he was not going to let money stand in the way of showing the world what Russia is about

TBD…but likely deserving of this spot

Source: How Much Will the London Olympics Cost? Too Much; Which have been the most and least successful Olympics in terms of economic impact?

Why:

• Poor cost and revenue projections – Overspending on the Olympics left Athens with a multi-billion dollar deficit

• Poor infrastructure utilization - Greece built many hotels, which are now largely vacant, in anticipation that the Olympics would drive increased long-term tourism (which they failed to do)

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“The IOC couldn’t lose money if it tried. If making money were an Olympic event, Team IOC would lap the field.” – Doug Robinson on Desert News

THE IOC’s Cut

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1.0

1.5

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3.5

Broadcast Parterships Other InvestmentIncome

MixedIncome

Total

1.7

0.4

0.2 0.0 0.0

2.4

2.6

0.5

0.2 0.1 0.1

3.5

2008 2012

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Source: International Olympic Committee Tax Filings

Food for Thought:

• The IOC is not responsible for funding the infrastructure, security or marketing for the Olympics – that is the responsibility of by the host city

• The IOC, which is headquartered in tax-haven Switzerland, is registered as a nonprofit sports club and therefore avoids the 20% income tax on their profits

• From 2009-2012, the IOC took in $8 billion in revenue

• Of the $8 billion, about 10% (or $800 million) pay for operations at the IOC with the remainder allocated to Olympic organizing committees (70%) and athlete organizations (20%)

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So Why Do Countries Want To Host?

Source: The Impact of the Summer Olympics on its Host City: The Costs Outweigh the Tangible Benefits

“Do countries really gain from organizing the Olympic Games? The answer is: It depends, but don’t count on it.” – Andrew Zimbalist, The Atlantic

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