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When we watch the Olympics, we care about the competition, the national pride, and the gold. Underneath all of that is money. The cost of the Olympic Games for the host city is often lost on us viewers, because, unlike the Olympic Committee, we don’t care whether or not they turned a profit on renting the apartments in the Olympic Village. But here’s the thing: How financially successful the Olympics are for the host city could determine that city’s future for the next decade, or longer.

When Athens hosted the Summer Olympics in 2004, it was about celebrating the return of the Olympics to Greece no matter the cost. However, it ended up creating a multi-billion dollar debt, one that aided in creating the current Greek financial crisis. Conversely, when Los Angeles ran one of the most financially successful games in 1984, it reignited a waning interest in hosting the Olympics, and restored a sense of pride in being the host city.

There is never a shortage of cities vying to host future Olympic Games. The Games bring prestige, but do they bring financial benefits as well? No-one doubts the fact that hosting the Olympic Games allows a city to bathe in the focused spotlight of world attention for a few weeks. Less certain, however, is whether all that attention and elevated stature is matched by an economic boost for the region. Tax receipts go up, visitor numbers rise and then there is the simple fact that cities get to show themselves in their full glory. But whether those benefits continue after the athletes have packed up their medals is less certain.

One thing that everyone can agree on is that hosting the Olympics costs a lot. The Olympics financial record is mixed. Montreal emerged from the 1976 games with a gaping £1 billion deficit. Those games were funded almost entirely through public city funds, and the large amounts of money spent on infrastructure improvements and facilities construction were focused on a relatively small part of the city. Montreal 1976 is widely held up as the example not to follow, and it caused many cities to think twice about bidding for future games.

The first Olympics to turn a profit were the summer games held in Los Angeles in 1984. Since local citizens voted against public financing, those games also became the first to be almost entirely privately funded. Los Angeles marked the beginnings of commercialisation of the games and the development of Olympic sponsorship deals.

Since then, the summer Olympics have made money or at least broken even, according to a report by PricewaterhouseCoopers. Seoul in 1988 was left with a positive balance of $556 million, Atlanta in 1996 and Sydney in 2000 each broke even.

The 1992 games in Barcelona only came out around $3 million ahead, but are held up as a good example of secondary benefits that a financially viable Olympics can bring to a city or region. The Spanish city got a massive makeover for the games: its transportation and telecommunications systems were upgraded, it got new housing and retail centres that are still flourishing 12 years later.
 
Germany’s 1972 Munich games were similar. Although it emerged with a deficit, after the games Munich had a new subway system and much of the city had been renovated and rebuilt.

Analysts break up Olympics economics for a city into three phases: Pre-Game, Game and Post-Game. During the first phase, the city can benefit from tourism and a boost in construction activity. During the games, there are Olympic jobs to be had, revenues from tickets, sponsorships, etc, not to mention the masses of tourists that descend on hotels, restaurants and other local businesses.

It’s when it’s all over that the problems come. The challenge is to use all that infrastructure effectively and learn how to deal with the massive, sudden drop-off.

Massive Olympic sports arenas often remain un- or underused. Olympic villages fall into disrepair and become headaches for the city. Most cities simply do not need all the facilities.

Analysts say the evidence is just not clear on whether hosting the Olympics will bring a city an important or lasting economic boost. Thanks to new funding strategies and revenue sources, the dark high-deficit days of Montreal will most likely remain in the past. But whether the boost gained by temporary job creation and intense publicity is long-lasting is more difficult to ascertain.

I want your thoughts!

• Will the London 2012 Olympics “Inspire a Generation”? 
• The cost of the London Games is reported to be £9 billion. Will the legacy of the Games be an Economic Boost or an Economic Burden?

Leave your comments below

Tags: london 2012, London Olympics, Olympic games, Olympics, summer olympics

This entry was posted on Friday, August 3rd, 2012 at 9:20 am and is filed under Construction & Building, Olympics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.