On July 23, the 32nd edition of the Summer Olympics is due to start in Tokyo. Already postponed from last year due to the covid-19 pandemic, the event is expected to take place in the shadow of the virus. Japan spent $ 15.4 billion to host the event, although government audits suggest it could be double.
Hosting mega sporting events has both advantages and disadvantages. The benefit is an increase in infrastructure investment, economic activity, global profile and tourist traffic. The downside, especially for poorer countries, is the reallocation of public funds that could have been better spent elsewhere. As Indian cities dream of hosting the Summer Olympics in the future, money will be a major factor.
The Summer Olympics are the world’s largest and most expensive sporting event. The last seven editions, dating back to Barcelona in 1992, have generated sports costs of an average of $ 8.2 billion, according to a 2020 study by academics at the University of Oxford titled “Regression to the tail: Why the Olympics are exploding”. The study reveals that the sporting costs of each Olympic Games since 1960 have exceeded the budget, by an average of 172% in real terms. Non-sport costs, such as road, rail, airport and other infrastructure costs, often exceed sport costs.
In accordance with their agreement with the International Olympic Committee (IOC), the custodian of the Olympic Games, all cost overruns are incurred by cities and governments. This can put a strain on their savings. For example, the sporting cost of the Rio 2016 Olympics was $ 13.7 billion, a cost overrun of over 352%. This has plunged an already besieged Brazilian economy into severe contraction.
The costs incurred to host the Olympics begin with the bidding process. Host countries typically spend between $ 50 million and $ 100 million on fees for consultants, event planners, and travel. The selection itself is a multi-year process that takes place well in advance. For example, last month the Australian city of Brisbane was unofficially declared the host city of the 2032 Games.
Next come the Games themselves. The $ 15.4 billion that Tokyo spends on sport comes from two sources of funding. The first is the Organizing Committee for the Olympic Games (OCOG). This is formed by the Olympic association of the host country and is the organizer of the event. The second is the provincial and national governments, which are essentially taxpayers’ money. In the case of Tokyo, Japanese taxpayers fund about $ 8.4 billion, or 57%, just for sports. This equates to what the Indian government spent solely on health in 2019-2020, which highlights the tradeoffs at stake for developing countries.
With such high costs, trade-offs and risks, why are countries still keen to host the Olympics, especially developing countries? The revenues from the sporting side go to the OCOG (and not to the governments). In the case of Tokyo, for example, the OCOG hopes to balance its spending by $ 6.7 billion, mainly through local sponsorship and ticket sales.
Reimbursement to governments is difficult to pin down, however. There is evidence that investing in Games infrastructure will have long-term benefits for countries. However, the benefits of improved infrastructure, increased tourism or global significance are difficult to quantify.
Yet the attraction remains. In March, Delhi Chief Minister Arvind Kejriwal announced a possible bid to host the 2048 Games. In June, the Ahmedabad Development Authority invited consultants to submit proposals to evaluate sports venues possible to host the Olympic Games.
Given the controversies surrounding the Delhi 2010 Commonwealth Games (CWG), India’s latest mega sporting event, governments will need to be more careful. According to the government auditor, the final cost of hosting the CWG 2010 was ₹18,532 crore (approximately $ 4 billion, based on the exchange rate at the time). This is a 15-fold exceedance of the ₹1200 crore offered in Delhi offer. About half of this spending was spent on sport. The report highlighted “several instances of lack of financial prudence and decency across implementing agencies” as the main reason for escalating costs.
Considering the disastrous financial impact that some recent Olympics have had on host economies, it is increasingly advanced to restrict them to cities that already have the necessary infrastructure. For a developing country like India, the opportunity cost will be immense given the productive spending to which taxpayer money can alternately be allocated.
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