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WASHINGTON -- Brazil can't seem to catch a break. It's suffering the worst economic slump in decades; its president may be thrown out of office; it's contending with the zika virus. Now, to add to these indignities, come the huge subsidies to pay for this summer's Olympics. The costs exceed $10 billion, with only a fraction to be covered by revenues from the games.
Once upon a time, hosting the summer or winter Olympics was considered a national trophy and global status symbol. Sure, costs were high, but with rapid economic growth, they seemed bearable.
No more.
Hosting the Olympics has become a financial sinkhole, made less attractive because economic growth and tax revenues have slowed. By one estimate, Russia's Sochi winter Olympics cost $51 billion. The estimated price tag for Beijing's 2008 summer Olympics was $45 billion. These expenses dwarf the income from television rights, tickets and licensing sales.
We know this because a recent paper by two economists -- Robert Baade of Lake Forest College and Victor Matheson of College of the Holy Cross -- has reviewed public data and scholarly studies of recent Olympics. "In most cases the Olympics are a money-losing proposition for host cities," they write in the spring issue of the Journal of Economic Perspectives.
For instance, they report that London's 2012 summer Olympics cost $11.4 billion. But television rights ($713 million), ticket sales ($988 million), corporate sponsorships ($1.45 billion) and other receipts raised only $3.27 billion. Similarly, Vancouver's 2010 winter Olympics cost $7.56 billion against revenues of $1.58 billion.
Costs are high in part because the International Olympic Committee imposes stiff demands on cities that host the games. These include an Olympic Village capable of housing at least 15,000 athletes and officials, as well as 40,000 hotel rooms (Rio de Janeiro had to construct 15,000 rooms). After 9/11, security costs also soared. In 2000, they were $250 million for the summer Sydney games; by the 2004 Athens games, they had climbed to $1.6 billion and "have stayed near that figure."
For the Olympics to make financial sense, Baade and Matheson argue, the short-term and long-term economic benefits have to fill the gap between immediate costs and revenues. But their review of academic studies, including some of their own, reveals that this is rarely the case.
One purported benefit is a construction boom, as cities build stadiums and swimming pools as well as hotels. In reality, say Baade and Matheson, this construction often substitutes for other projects that are crowded out or postponed. Tourism poses the same problem. Many visitors come for the games, but others stay away to avoid the crowds. For the 2012 London games, visitors to the United Kingdom dropped 6 percent from a year earlier.
"The actual impacts [on short-term economic growth] ... are either near-zero or a fraction of that predicted," say Badde and Matheson.
Long-term benefits are also skimpy, they contend. The new stadiums are often unneeded once the games are over. "Beijing's iconic 'Bird's Nest' Stadium has rarely been used since 2008 and has been partially converted into apartments," they write. Some projects are put to good use after the Olympics (in Atlanta and Los Angeles, Olympic villages became college dormitories), but they are exceptions.
An increasingly expensive Olympics has a harder time attracting bidders. For the 2022 Winter Olympics, four cities (Oslo, Stockholm, Krakow and Munich) dropped out. For the summer 2024 games, two cities -- Boston and Hamburg -- withdrew. There are ways to control costs. One idea is to designate a permanent site or several sites that would be reused. But does the world have the will to do something so obvious?
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