{"id":118685,"date":"2021-07-24T12:26:09","date_gmt":"2021-07-24T12:26:09","guid":{"rendered":"https:\/\/fin2me.com\/?p=118685"},"modified":"2021-07-24T12:26:09","modified_gmt":"2021-07-24T12:26:09","slug":"hosting-the-olympics-is-a-bad-deal","status":"publish","type":"post","link":"https:\/\/fin2me.com\/business\/hosting-the-olympics-is-a-bad-deal\/","title":{"rendered":"Hosting the Olympics Is a Bad Deal"},"content":{"rendered":"

The DealBook newsletter delves into a single topic or theme every weekend, providing reporting and analysis that offers a better understanding of an important issue in the news. If you don\u2019t already receive the daily newsletter, <\/em>sign up here<\/em>.<\/em><\/p>\n

Yesterday\u2019s 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 \u2014 and a public health disaster at the worst.<\/p>\n

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.<\/p>\n

Tokyo initially said it would spend $7.3 billion, but a 2019 government audit put the actual spending at around $28 billion.<\/p>\n

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 \u201cthe highest overrun on record for any type of megaproject,\u201d far exceeding roads, bridges, dams and other major undertakings.<\/p>\n

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.<\/p>\n

Another study, published in the Journal of Economic Perspectives, examined how rosy projections of the Games\u2019 economic impact \u2014 usually commissioned by organizations with an interest in their city\u2019s hosting the spectacle \u2014 stacked up to reality. It concluded that actual effects \u201care either near-zero or a fraction of that predicted prior to the event.\u201d<\/p>\n

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 \u2014 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.<\/p>\n

\u201cThey\u2019re going to be white elephants,\u201d he said of many of the newly built Olympic buildings and venues. \u201cThe reason why they didn\u2019t exist before the Olympics is because there was no economically viable use for them.\u201d<\/p>\n

DealBook spoke with Mr. Zimbalist about why he believes hosting the Olympics, even in normal times, is a money-pit for cities \u2014 and why they end up competing to host them anyway. He also has a clever solution to fix it all.<\/p>\n

How do Olympic cities end up spending billions of dollars?<\/strong><\/p>\n

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\u2019ve also started to include some other expenses, like temporary venues. The figure they are using for Tokyo is about $15 billion. It doesn\u2019t include the building of the national stadium, the construction of the Olympic Village, the media village. It also doesn\u2019t 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.<\/p>\n

Where else does the money go?<\/strong><\/p>\n

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.<\/p>\n

Latest Updates<\/h2>\n

If you look at the bid document, the I.O.C. requires a lot of hospitality expenditures \u2014 Thomas Bach and John Coates and others to stay at fancy hotels and their meals. You\u2019ve 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\u2019s there, by the way, is the $3 billion that it costs them to postpone.<\/p>\n

Why are cities still bidding for the Olympics if, as you argue, the economics are so bad?<\/strong><\/p>\n

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, \u201cNo, we don\u2019t want to do this.\u201d They\u2019re looking at the balance sheet, which is overwhelmingly negative. They\u2019re looking at the social and environmental disruption, which is extremely problematic.<\/p>\n

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\u2019re sick and tired of being embarrassed by cities dropping out. So the process is now secretive.<\/p>\n

But some cities still do want to do this, right?<\/strong><\/p>\n

The main answer is that you have the construction industry executives deciding that this would be a wonderful thing for their industry. They\u2019re 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 \u201cBy golly, this is going to put our city on the map.\u201d<\/p>\n

So this is about misalignments?<\/strong><\/p>\n

If, say, Deloitte were to come out, having been hired by a chamber of commerce, and say, \u201cThis is a crazy idea. Your city should never do this,\u201d they are never going to do another economic impact study for a megastar sport event. So this is their modus operandi.<\/p>\n

What about the $4 billion the I.O.C. gets from broadcasters?<\/strong><\/p>\n

Individual members don\u2019t make anything, except that they\u2019re 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\u2019s probably somewhere in the order of 15 percent of their total revenues over a four-year Olympic cycle.<\/p>\n

Summer Olympics Essentials<\/h4>\n