The Economics Behind the Olympics
The Olympics or the Olympic games are the greatest international athletic and sporting events in the world featuring thousands of talented athletes from all around the world. Held once every 2 years, divided into summer and winter Olympics, these games are not only a premium platform to appreciate the spirit of athletics but opens new avenues for the monetary world as well. The functioning of the Olympic games is driven by several economic parameters and generates an output that alters the economy in many ways. In this article, we’ll guide you through the economics of the Olympics.
The Cost Model of the Olympics:
Before jumping onto the economic scenario of the Tokyo Olympics, let’s have a look at the cost model of the same to assimilate the situation better.
The cost of the game is shared by the IOC and the host city in the manner agreed. It can broadly be categorized into two components- the OCOG Budget and The Non-OCOG Budget. The former is privately funded where a major proportion of it comes from IOC whereas the latter is the burden of the government of the host country and the local authorities, implying that the burden is indirectly shifted to the taxpayers.
The costs can be classified under the following heads:
Submitting the bid: Costs anywhere around $ 50 million to $ 100 million
Infrastructure Costs: Establishment costs ranging from the stadium to the construction of the Olympics village.
Operational Costs: Cost of medicines, security, staff, etc.
White Elephants: This includes the cost of maintaining stadiums and the Olympics Village post the games for years to come.
Opportunity Costs: Cost of investing in alternative avenues-eg, repaying the nation’s debts
Source: Business Insider
The economic scenario of the Tokyo Olympics:
In 2013 when Tokyo won the bid, it was estimated that it’d cost around $7.3 billion. Fast forward to December 2019, this figure was increased to $12.5 billion. This ain’t a surprise as every game in the last 50 years went over the budget with the average overrun cost being 252%. Thanks to the pandemic, this figure will only worsen with the Japan National Audit Board estimating the cost to skyrocket to $22 billion, thus becoming the most expensive Summer Games ever! Hold on your breath as the postponement alone caused around $2.8 billion due to the stadium’s maintenance for yet another year, an increase in the construction cost due to the shortage of labour, and an increase in the import cost thanks to the yen depreciation and whatnot! To add to this, the preventive measures to be taken in the purview of the pandemic are adding up a solid $1 billion. Thus as observed from the spiking figures, it is evident that the Olympics is much of a daylight robbery and this lands us on an intriguing question- Is the Olympics worth it?
THE OLYMPICS AND THE ECONOMIC GROWTH
Recently, more and more cities have started bidding to host the Olympics in their land and spend a vast sum of money winning them. The reasons behind this are numerous and most of them have their roots in the plans tracing the region’s economic advancement. Recent examples of this concept take us to the 2020 Tokyo Olympics, where even before the games officially began, the Japanese economy experienced significant growth in its real GDP. The rationale behind this model can be traced by considering the following points:
Growth in Tourism:
The Olympic games are one of the most prestigious mega-international sporting events. This prestige, talent, and extravaganza lead visitors from all over the globe into witnessing this pride in the host country. In Tokyo, the factor income from abroad and the overall exports saw an increase of around 10% between the year of bidding and the year of the games. This growth had a positive impact on the GDP and briskly boosted the economy of the region.
Increase in Construction Investment:
The construction investment associated with the games plays a major role in determining the economic impact of the Olympics on the host country. This investment does not only co-relate to the building of infrastructure that is to be utilized during the games but also indirectly leads to the development of other facilities in the city. The city often witnesses a promotion of urban development with extensive stress given on enhancing the landscape and features in the urban environment. In Tokyo, the 2020 Olympics Influenced the construction of the expressway and the beginning of a plethora of developmental projects. Estimations reveal that approximately 10 trillion yen went into construction investment during this period. These investments were not only made to serve the current purpose but also aims to develop Tokyo into a flourishing business centre in the future.
Other economic benefits:
Apart from the impacts discussed above, the games also pave the way for certain other changes that are small but impact the economy significantly.
Hosting the Olympic games requires a large labour force for the purposes of development and management. This creates a requirement to recruit a large temporary labour force which further increases the opportunities within the region and facilitates the development of the economy even more.
Furthermore, hosting an event of such high repute increases the region’s global standing and opens new doors of more incredible opportunities.
CONCLUSION :
Therefore, there’s no denying that the Olympics is burning a hole in our pockets and that the inflow generated from it is far behind the expenditures incurred on the same. However, it’s quite hard to comment on whether we are going to face the death of the Olympics. So it’s safe to conclude that nations are realizing what a huge loss project it is; which is clearly evident from the decreased participation of countries in the bid and the citizens’ protests against the event, as they realize that it’s on their hard-earned money that the burden is transferred.
In the bigger picture, IOC has enacted a 2020 sustainability agenda containing the roadmap to a sustainable future by reducing the bidding and hosting costs and looking for a sustainable alternative method to host the game so that more countries will be participative in the bidding process, the impact of which, however, can be understood only from practice than on paper.
Written by Guru Priyaa PK, Rhea Mehra; edited by Alexey Dudarev
