Hosting the Olympics Is a Bad Deal

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Yesterday’s Olympic opening ceremony was a year behind schedule and took place in a nearly empty stadium, during a state of emergency. The Games, which most residents of Japan would have preferred to postpone again or cancel, will be unusual at the least — and a public health disaster at the worst.

But the large amount of money that Tokyo will burn by hosting the event fits right in with the financial bonfires still burning at many former Olympic locations.

Tokyo initially said it would spend $7.3 billion, but a 2019 government audit put the actual spending at around $28 billion.

Every Olympics since 1960 has run over budget, at an average of 172 percent in inflation-adjusted terms, according to an analysis by researchers at Oxford University. They concluded that this was “the highest overrun on record for any type of megaproject,” far exceeding roads, bridges, dams and other major undertakings.

For the 2016 Summer Games, Rio de Janeiro budgeted $14 billion and spent an estimated $20 billion, according to data collected by the Council of Foreign Relations. Sochi, Russia, budgeted $10.3 billion for the 2014 Winter Olympics and spent more than $51 billion. And London, the summer host in 2012, aimed for $5 billion and spent $18 billion.

Another study, published in the Journal of Economic Perspectives, examined how rosy projections of the Games’ economic impact — usually commissioned by organizations with an interest in their city’s hosting the spectacle — stacked up to reality. It concluded that actual effects “are either near-zero or a fraction of that predicted prior to the event.”

Few researchers have studied the business of the Olympics more than Andrew Zimbalist, a professor at Smith College who has published three books about the economics of the Olympics. His research has led him to raise questions about the value to cities of hosting the Olympics — and influenced some cities to back away from bidding. He believes Tokyo has spent more on the Olympics than the 2019 government audit estimated and expects the Games to lose at least $35 billion.

“They’re going to be white elephants,” he said of many of the newly built Olympic buildings and venues. “The reason why they didn’t exist before the Olympics is because there was no economically viable use for them.”

DealBook spoke with Mr. Zimbalist about why he believes hosting the Olympics, even in normal times, is a money-pit for cities — and why they end up competing to host them anyway. He also has a clever solution to fix it all.

How do Olympic cities end up spending billions of dollars?

The budget put out by the organizing committee is for operating the Games for 17 days. In addition to the 17 days, in recent years they’ve also started to include some other expenses, like temporary venues. The figure they are using for Tokyo is about $15 billion. It doesn’t include the building of the national stadium, the construction of the Olympic Village, the media village. It also doesn’t include any of the transportation, communication and hospitality infrastructure investments that were made in order to host the Games. The number itself is very fungible depending on what you want to include.

Where else does the money go?

The security budget will be somewhere around $2 billion. Then there is transportation for the 205 Olympic teams that are coming to Tokyo. The International Olympic Committee pays for all the flights for them to get to Tokyo.

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If you look at the bid document, the I.O.C. requires a lot of hospitality expenditures — Thomas Bach and John Coates and others to stay at fancy hotels and their meals. You’ve got to pay for the 11,000 athletes and their coaches and trainers who were in the Olympic Village. You have to pay for their lodging, food, health care and so on. And another thing that’s there, by the way, is the $3 billion that it costs them to postpone.

Why are cities still bidding for the Olympics if, as you argue, the economics are so bad?

If you go back four or five Olympic Games, consistently you have several European cities dropping their bids because of a plebiscite or their residents voted, “No, we don’t want to do this.” They’re looking at the balance sheet, which is overwhelmingly negative. They’re looking at the social and environmental disruption, which is extremely problematic.

What the I.O.C. has done in response to that is introduce a few tepid reforms. One of which is putting all the bidding behind closed doors. They’re sick and tired of being embarrassed by cities dropping out. So the process is now secretive.

But some cities still do want to do this, right?

The main answer is that you have the construction industry executives deciding that this would be a wonderful thing for their industry. They’re going to get billions of dollars of contracts. They can line up, of course, the trade unions, and some investment bankers. They hire a consulting firm to do an economic impact study, which uses a faulty methodology and makes some unrealistic assumptions. And they come out with “By golly, this is going to put our city on the map.”

So this is about misalignments?

If, say, Deloitte were to come out, having been hired by a chamber of commerce, and say, “This is a crazy idea. Your city should never do this,” they are never going to do another economic impact study for a megastar sport event. So this is their modus operandi.

What about the $4 billion the I.O.C. gets from broadcasters?

Individual members don’t make anything, except that they’re treated to hospitality. The I.O.C. has an immense and elaborate operating structure with all sorts of subcommittees and subagencies. So their operating costs are quite substantial. It’s probably somewhere in the order of 15 percent of their total revenues over a four-year Olympic cycle.

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    Do you think the broadcasting rights will gain or lose value in the future?

    Well, are we going to start betting on the Olympic Games? Certainly the Supreme Court decision invalidating the Professional and Amateur Sports Protection Act is an indication that sports betting is going to hit all of the sports leagues. This could be a big revenue-generating item for broadcasting rights fees.

    The next Olympic Games will be in Beijing this winter. How do you expect it to fare?

    I imagine there’s an enormous amount of political pushback to the I.O.C. for having selected Beijing. Of course, they only had a choice between Beijing and Almaty, Kazakhstan. It was a Hobson’s choice.

    Will Beijing make money?

    They’re doing some really crazy, crazy things. They’ve selected two venues 60 and 120 miles to the north of Beijing to host the Nordic and Alpine skiing events. Both of those areas are arid — not far from the Gobi Desert. They have to invest tens of billions of dollars in a water transfer system because they’re going to have to use artificial snow. None of that’s going to appear in the Olympic budget. It’s extremely stupid to spend that kind of money to promote skiing in the north of China when it’s not a very popular sport. They admitted to spending $44 billion for the 2008 Summer Games.

    How much are the Olympics about countries and cities demonstrating political power?

    It’s hard for me to imagine that President Xi thinks that this is going to put Beijing on the map. One of the things we learned in 2008 was that Beijing was horrifically polluted, and we learned much more about repression in China because of the Games’ being broadcast.

    So why did Japan bid?

    Back in 1964, one of the things that Japan was so happy about when it hosted the Olympics was their opportunity to say to the world: “We’re not part of the Axis powers anymore. We’re a young, growing capitalist society.” To some extent it worked, because they were transforming dramatically.

    When they bid in 2013, they promulgated these ideas within Japan: “We were going to be able to show the world that we have recovered from Fukushima and that the economic miracle — which stopped in the early 1990s and was followed by three decades of stagnation — that we’re now over that.”

    You’ve identified lots of problems. Do you have a solution?

    If we were living in a rational world, we would have the same city hosting the Games every two years. There’s no reason to rebuild the Olympic Shangri-La every four years. It doesn’t make sense for the cities. It certainly makes no sense from the standpoint of climate change. When the modern Olympics were created in 1896, we didn’t have international telecommunications and international jet travel. So in order to have the world participate in and enjoy the Olympics, you had to move it around. We don’t have to do that anymore.

    Do you think the I.O.C. would ever do that?

    They are not going to respond positively to that idea. Their role in the world and their prestige in the world, and their definition of themselves, revolve around their power to decide where the Olympics are going to happen. Why would they give up that power?

    What about the feel-good part of the Olympics? Don’t you buy the argument that the Olympics bring the world together?

    I like some of the symbolism of the Olympics. I’m not sure how penetrating it is, but I like the idea that you bring the world’s best athletes together from 205 countries, and you have them compete against each other on the playing field rather than on the battlefield. That resonates for me. I like it. Now, how far does that take us? I don’t think very far. It’s very expensive symbolism.

    What do you think? Are the Olympics good or bad for the cities that host them? Let us know: [email protected]

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