The End Of The Olympics?

Authored by Laura Arce via The American Institute for Economic Research,

Everyone seems to like the Olympics. Every two years, people rally behind their country’s athletes and root for them even in the most unusual sports we usually don’t pay much attention to. This year, though, it seems like everyone likes the Olympics except the French, since 44 percent of Parisians believe hosting the Olympics is a bad idea. You might not be too surprised about that, after all French people have rarely been characterized for staying quiet when they don’t like what their government is doing. 

There seems to be a repetitive pattern in which citizens of the host city for the Games usually are not their biggest fans, 83 percent of Japanese didn’t want the games in Tokyo when they were less than a month away either. Cities are constantly going over budget when it comes to organizing them and taxpayers are the ones left to pay the bill. If people don’t like them and host cities struggle to keep them under budget, are we seeing the beginning of the end for the Olympics? You could think so, but probably won’t be the case as long as the International Olympic Committee (IOC) can avoid it. 

Many of us love sports and enjoy watching the best athletes in the world do their thing to bring glory to their nations. However, hosting the Olympics takes years of preparation and millions of taxpayers’ dollars. It used to be something countries would fight over who would get to host it, but lately we have been seeing more and more people discontent. Los Angeles was awarded the 2028 summer games without any competition and it seems like the 2030 and 2034 winter games will go to France and Salt Lake City, again, without other bidders.

Hosting the Olympics, for the longest time, was seen as a privilege and a great way to showcase your city to the world. This, according to many politicians, made the huge public investment more than worth it, claiming also it represented a boost for the economy in terms of tourism and exposure. Many others claimed the infrastructure would be beneficial for the population for years to come after the games were held. 

One of the most recent examples were the 2016 Rio Olympics that, even though the mayor claimed would be a great economic boost, ended up costing over $13 billion, going more than 51 percent over budget, not to mention the huge cost in human lives. Pyeongchang claimed they would generate about $40 billion with their winter Olympics but went about four billion dollars over budget. 

So, if it seems like neither the citizens nor the cities are benefiting from hosting the games, why do we still have big cities like Los Angeles, Milan, and Brisbane committed to hosting the next editions? Public choice may give us a simple answer: because the economic incentives are still there. 

You may ask, but how?

Didn’t you just say it was way too costly to host the Olympics? It is, but it is also lucrative for both the politicians and stakeholders involved, especially the biggest player in this game: the IOC. 

For starters, the International Olympic Committee (IOC) makes a lot of money out of the games. Even though they claim to be a non-profit organization, they made over 7.6 billion dollars out of the last two editions of the Olympic games (PyeongChang and 2018 and Tokyo 2021). Politicians, at least when they pitch the idea, also seem to be buoyed by high public support for the bids. 65 percent of citizens in Tokyo, 78 percent in Rio, and 82 percent in London supported their bids for the 2020, 2016, and 2012 summer games, respectively. It’s not until the games are around the corner that citizens turn sour when they start to notice the high price they actually are paying to host the Olympics. 

Seems like this is another case of private interests pushing for high dispersed costs in order to benefit a few. We see this constantly when it comes to big NFL team owners threatening to leave cities unless taxpayers contribute millions of dollars in exchange for a new stadium. How is this happening in the Games? Politicians frequently claim getting ready to host them will boost economic activity, but taxpayers usually are the ones who end up paying for it. For example, Los Angeles recently got $900 million in federal funds to improve public traffic before the Games. That federal money going to LA means Americans from all over the country will help subsidize the 2028 Games. Eric Garcetti, former mayor of LA, promised it was realistic to expect a $1 billion profit from the Games, even though no city has stayed under budget since the 80s. 

But it should all be okay because there are other ways to fund the Olympics and the real money is in the broadcasting rights, right? That is why Oklahoma and Texas moved to the SEC just in time to collect that 3 billion dollar deal with ESPN. That might be the case, but the host city of the Olympics does not get to collect all these revenues, the International Olympic Committee does. The IOC claims this is key in order to “fund and grow the popularity of the games.” That already limits competition, because the IOC created the Olympic Broadcasting Services in 2001 in order to “ensure the high standards of Olympic Games coverage.” Still, broadcasting companies bid on who airs coverage in each region. In the US, NBC paid over seven billion dollars to have Olympic Games broadcasting rights from 2021 through 2032. 

Okay then, what about the sponsors? Massive companies like Airbnb, Coca-Cola, Samsung, and Visa are some of the super recognizable names we will see around the venues at the Olympic games this year. Knowing more than three billion people around the world watch the Olympics every year, the sponsors must be willing to pay a lot of money in order to have their brands exposed to so many people. But it is the IOC that ends up bagging most of that money, somewhere around three billion dollars. 

It seems clear the winner of the Olympic Games is not a country, but the IOC and the politicians or companies that get the funding towards their own projects. So even though it may seem like fewer cities are willing to host them in the future, it’s likely the IOC will keep finding places to play the Games. Fewer cities might be able to risk incurring these costs because they haven’t found a way to capitalize on the concentrated benefits, but the bigger ones seem to have cracked down the code of profitability for the IOC, politicians, and aligned companies. Politicians and profit-seekers will continue to follow the money, usually at the expense of the taxpayers.