Going for the Gold: The Economics of the Olympics

Author(s): Robert A. Baade and Victor A. Matheson

Source: The Journal of Economic Perspectives , Spring 2016, Vol. 30, No. 2 (Spring
2016), pp. 201-218
Published by: American Economic Association

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 Journal of Economic Perspectives - Volume 30, Number 2 - Spńng 201 6 - Pages 201-21 8

Going for the Gold: The Economics of

the Olympics

Robert A. Baade and Victor A. Matheson

the Games of the XXXI Olympiad, better known as the Summer Olympics.
In Unfortunately, the summertheGames
Unfortunately, price tag2016,of ofwelltheoverthe$10thebillion
XXXI forpricetheeyeseventtagisOlympiad,
adding to of of the well world over better will $10 known turn billion to as Rio for the the de Summer Janeiro event is as Olympics. adding it hosts to
the already considerable strain on government budgets in Brazil. Faced with a nasty
recession, cuts in public services, and rising unemployment, throngs of Brazilians
have turned out to protest what is seen as wasteful spending and a misallocation of
resources on the Olympics. Throw in the growing threat of the Zika virus and Brazil
may end up with larger crowds of agitators protesting the government than of sports
fans cheering on the athletes. But are these complaints about Olympic spending
justified? The quadrennial Summer Olympic Games is one of the world's premier
sporting events, with over 10,000 athletes representing 204 countries, 300 indi-
vidual events in 28 different sports, over 10 million tickets sold to spectators, and
a worldwide television audience in the billions. On a somewhat smaller scale, the
most recent Winter Olympic Games held in 2014 in Sochi, Russia, welcomed nearly
3,000 athletes from 88 countries to compete in 98 events in 15 disciplines while
generating large revenues and massive television ratings.
While most viewers tune in to watch the competition among the athletes, the
battle among cities to be selected to host these events can be just as fierce. Although
bidding cities have numerous reasons for wanting to host, none seems more preva-
lent than the desire for an economic windfall. In this paper, we explore the costs and

■ Robert A. Baade is A. B. Dick Professor of Economics , Lake Forest College, Lake Forest ,
Illinois. Victor A. Matheson is Professor of Economics , College of the Holy Cross , Worcester ;
Massachusetts. Their email addresses are [email protected] and [email protected].
* For supplementary materials such as appendices, datasets, and author disclosure statements, see the
article page at
http://dx.doi.Org/10.1257/jep.30.2.201 doi=10.1257/jep.30.2.201

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202 Journal of Economic Perspectives

benefits of hosting the Olympic Games. On the cost side, there are three major cate-
gories: general infrastructure such as transportation and housing to accommodate
athletes and fans; specific sports infrastructure required for competition venues;
and operational costs, including general administration as well as the opening and
closing ceremony and security. Three major categories of benefits also exist: the
short-run benefits of tourist spending during the Games; the long-run benefits or
the "Olympic legacy" which might include improvements in infrastructure and
increased trade, foreign investment, or tourism after the Games; and intangible
benefits such as the "feel-good effect" or civic pride.
Each of these costs and benefits will be addressed in turn, but the overwhelming
conclusion is that in most cases the Olympics are a money-losing proposition for host
cities; they result in positive net benefits only under very specific and unusual circum-
stances. Furthermore, the cost-benefit proposition is worse for cities in developing
countries than for those in the industrialized world. In closing, we discuss why what
looks like an increasingly poor investment decision on the part of cities still receives
significant bidding interest and whether changes in the bidding process of the Inter-
national Olympic Committee (IOC) will improve outcomes for potential hosts.

The Costs of Hosting the Olympics

The modern Summer Olympic Games date back to 1896, and the Winter
Games commenced in 1924. The host cities are selected roughly seven years before
the event through an open-bidding process. The host cities are responsible for the
entire bill for organizing the event, although the International Olympic Committee
typically provides some funds to help defray the costs. Historically, host cities have
come almost exclusively from rich, industrialized nations. Between 1896 and 1998,
over 90 percent of all host cities came from Western Europe, the United States, or
Canada, Australia, and Japan. Only Mexico City, Moscow, and Seoul - hosts of the
1968, 1980, and 1988 Summer Games, respectively - and Sarajevo, host of the 1984
Winter Games, bucked this trend.
More recendy, the International Olympic Committee has encouraged bids
from developing countries and has awarded the games on multiple occasions to
cities outside the regions that had traditionally served as hosts. The 2008 Summer
Games were hosted by Beijing, China, which will in turn host the Winter Olympics
in 2022. The 2016 Summer Olympics will be held in Rio de Janeiro, Brazil, the first
time the event has taken place in South America. The 2014 Winter Olympics were
in Sochi, Russia, with PyeongChang, South Korea, to follow in 2018.
As seen in Table 1 , the composition of countries submitting formal bids has also
changed dramatically in recent decades. Only 18 percent of the bids submitted for
the Summer Games prior to 2000 came from the developing world or the former
Soviet sphere of influence. Since that time, however, over half of all bids have come
from this group, including applications by Istanbul, Bangkok, Havana, Doha, and
Cape Town, as well as the successful bids from Beijing and Rio de Janiero. For

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 Robert A. Baade and Victor A. Matheson 203

Table 1

Number of Bids for Summer and Winter Olympic Games

Bidders Hosts

Eastern Eastern

European/ European/
Industrialized Developing Former Industrialized Developing Former
Event countries countries Soviet states countries countries Soviet states

Summer Olympics:
1896-1996 71 (82%) 9 (10%) 7 (8%) 20 (87%) 2 (9%) 1 (4%)
2000-2020 23 (49%) 21 (44%) 4 (7%) 4 (67%) 2 (33%) 0 (0%)
Winter Olympics:
1924-1998 51 (93%) 1 (2%) 3 (5%) 17 (94%) 0 (0%) 1 (6%)
2002-2022 21 (56%) 4 (9%) 12 (34%) 4 (67%) 1 (17%) 1 (17%)

the Winter Olympics, the past decade has witnessed for

Kazakhstan, Georgia, China, Slovakia, and Poland.
Bidding for the Olympics is no small undertaking. A key
involves a visit by the Evaluation Commission of the Intern
which assesses the condition of the applicant city. A signifi
expense relates to the preparations the applicant city under
uation Commission, and these plans, including detailed
financial estimates, and pre-event marketing, are likely to
be known what the preparations of the other applicant
example, spent at least $70 million and perhaps over $100
application to host the 2016 Games (Pietz 2010; Zimbalist
formal bidding process pale in comparison to the expens
it actually be selected by the International Olympic Commi
A first set of major expenses involves general infrastruc
anticipated wave of tourists and athletes that descend upon
national Olympic Committee requires that the host city for
a minimum of 40,000 hotel rooms available for spectato
capable of housing 15,000 athletes and officials. In addit
both internal and external transportation facilities that can
and then to the individual sports venues within the regi
be a major challenge. Rio de Janeiro, already one of the mo
tions in South America, still required the construction of o
for the 2016 Summer Games. While investment in the
theory pay long-term dividends once the Games are over, h
a two-week period of peak demand may result in severe
is over. For example, following the 1994 Winter Olympi
40 percent of the town's full-service hotels went bankrupt
The Olympics also require spending on specialized
Because of the somewhat obscure nature of many of the

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204 Journal of Economic Perspectives

have the facilities in place to host all of the competitions, especially if large spectator
viewing areas are desired. Even modern cities in high-income countries may need to
build or expand an existing velodrome, natatorium, ski-jumping complex, or speed
skating oval. Furthermore, modern football and soccer stadiums are generally
incompatible with a full-size Olympic track, because including space for such a track
would cause an undesirably large separation between the fans and the playing field.
For this reason, Boston's failed bid to host the 2024 Summer Games had proposed
$400 million to build an entirely new stadium for the track and field events, despite
the presence of four large existing outdoor sports stadiums in the area.
Once the facilities are in place, the Games require spending for operations
including event management, the opening and closing ceremonies, and security.
The Olympics have long been a target for terrorists and have suffered deadly attacks
in both 1972 in Munich and 1996 in Atlanta. In the era of post-September 11, 2001,
security costs have escalated rapidly. Security costs for Sydney's Games in 2000
totaled $250 million, while four years later in Athens, security expenditures topped
$1.6 billion, four times the initial budget, and have stayed near this figure for the
past decade (Matheson 2013).
An accurate financial accounting of Olympic expenditures in various cities is hard
to find for multiple reasons. It can be difficult to disentangle spending on Olympic
building projects from planned infrastructure improvements that might not be attrib-
utable direcdy to the games. Moreover, concerns about cost overruns or corruption
may prompt officials to limit the release of accurate data. The true final cost of the
1998 Nagano Winter Olympics will never be known, because the host committee
ordered a portion of the event's financial records to be burned (Jordan and Sullivan
1999). While we keep these concerns in mind, Table 2 shows some cost estimates for
recent Olympic Games as provided by the International Olympic Committee, host
committees, and various academic or public media sources with spending on sports
infrastructure and general infrastructure broken out where possible.
Finally, it is important to note the Olympics have consistently produced final
costs that exceeded their original budgets. From 1968 to 2012, every single Olympic
Games ended up costing more than originally estimated. The median Games were
150 percent over the original budget, with the worst offenders - Montreal 1976 and
Sarajevo 1984 - exceeding initial estimates by more than ten-fold (Flyvbjerg and
Stewart 2012). The 2012 London organizers originally won the bid in 2005 with a cost
estimate of £2.4 billion, which was revised upwards within two years to £9.3 billion.
Then, when the final costs came in at a mere £8.77 billion, the organizers laughably
claimed the event had come in under budget (BBC 2013).

The Short-Run Benefits of Hosting the Olympics

Although the costs of hosting can be daunting, the local Organizing Committees
for the Olympic Games point to both a short-run boost from the construction phase
preceding the event as well as tourism bumps during the Games and the long-run

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 Going for the Gold : The Economics of the Olympics 205

Table 2

Costs of Hosting Recent Olympic Games

Spending
Type of spending ( billions , 2015$) Source

Summer Olympics
Seoul, 1988 Sports infrastructure $2.067 Preuss (2004, Table 7.8
General infrastructure $3.523 and Figure 9. 1 )
Total cost $ 6.503

Barcelona, 1992 Sports infrastructure $1.485 Preuss (2004)

General infrastructure $12.457
Total cost $16.409

Atlanta, 1996 Sports infrastructure $.765 Preuss (2004)

General infrastructure $.959
Total cost $3.576

Sydney, 2000 Sports infrastructure $1.761 Preuss (2004)

General infrastructure $1.817
Total cost $6.926

Athens, 2004 Total cost $13.800 (est.) Tagaris (2014)

Beijing, 2008 Sports infrastructure $2.315 Preuss (2004)
Total cost (est.) $45.000 (est.) Fowler and Meichtry
(2008)

London, 2012 Total cost $11.401 BBC (2012b)

Rio 2016 Total cost $11.100 (est.) Leme (2015)

Winter Olympics
Nagano, 1998 Total cost $15.250 Longman (1998); The
Economist (1998)

Salt Lake City, 2002 Total cost $2.500 (approx.) US GAO (2001)
Torino, 2006 Total cost $4.350 (approx.) Payne (2008); Flyvbjerg
and Stewart (2012)

Vancouver, 2010 Sports infrastructure $.715 Vari Wynsberghe (2011)

General infrastructure $3.497
Total cost $7.556

Sochi, 2014 Sports infrastructure $6.700 (est.) Farhi (2014)

Total cost $51.000 (est.)

legacy effect of the Games as an economic justification

addition, the Olympics do generate significant spons
media revenues that can be used to offset the costs of sta
Table 3 shows data on revenues generated by th
Committee and the organizing committees for t
Games from the most recent IOC four-year budget cy
generated from the Games can be divvied up any wa
ultimately the IOC exercises complete control over
much or as little of largesse as they deem fit subject

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206 Journal of Economic Perspectives

Table 3

Direct Revenues and Hosting Costs from Olympic Games

($ millions)

Vancouver 2010 London 2012

organizing organizing
IOC 2009-12 committee committee

Revenue source

Broadcast rights $2,723 $414 $713

International sponsors $475 $175 (est.) $300 (est.)
Domestic sponsors $0 $688 $1,150
Ticketing $0 $250 $988
Licensing $0 $51 $119
Total $3,198 $1,578 $3,270

Hosting costs - $7,556 $11,401

Source: IOC (2014b).

Notes: Table 3 shows data on revenues generate
Committee and the organizing committees for the
the 2009-2012, the most recent IOC budget cycle.
Vancouver and London Games.

a city willing to host the event. Most recently, television rights have represente
nearly half of total revenues with the IOC sharing less than 30 percent of the tot
with the local Organizing Committees. Revenues from international sponsors a
split between the International Olympic Committee and the Organizing Comm
tees, while ticket revenue, domestic sponsorships, and licensing fees are kept b
the host city. Obviously, the IOC could provide more generous subsidies to citi
in order to defray the costs of hosting their tournaments, and international spor
governing bodies, including the IOC, are often known for their lavish expense
However, in the case of the London and Vancouver Games, the direct revenues
generated by the games represented only a fraction of the total costs of hosting
the event and would not have come close to covering the total costs even if the
IOC had committed all revenue streams to the host committees, so one must rely
on other sources of benefits to provide an economic justification for the events.
Any large public works project such as the Olympics can lead to a short-run
increase in economic activity in the run-up to the opening, depending on the level
of slack in a region's labor and capital markets, and act as a form of an expansionary
fiscal policy. It is perhaps telling to note that at the same time David Cameron's govern-
ment in the United Kingdom was promoting the supposed expansionary effects of
fiscal austerity in the wake of the Great Recession, the same government was touting
the stimulative effects of increased government spending on London's Olympic
preparations (Mullholland 2012). However, unless policymakers can predict reces-
sions years ahead of time - given that the International Olympic Committee awards
the Games seven years in advance - using the Olympics to pull a country out of
recession would rest more on dumb luck rather than prudent planning. Otherwise,

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 Robert A. Baade and Victor A. Matheson 207

the spending involved with the Games is as likely to redistribute spending in an

economy near full employment as it is to lift an economy out of recession. Indeed,
unless unemployment is high, employment gains in construction are not an impor-
tant economic benefit since they come at the cost of employment losses in other
industries.

That being said, various economic impact studies done in advance of the
Olympic Games have often produced large estimates of economic gains. An
InterVISTAS Consulting (2002) report on the 2010 Vancouver Winter Olympics
predicted $10.7 billion (Canadian) in new economic output and 244,000 jobs
compared to $4.8 billion (in 2002 dollars) and 35,000 job-years predicted in Salt
Lake City eight years earlier by the state government of Utah (IOC 2010). The
1996 Atlanta Games were predicted to generate 77,026 jobs and $5.142 billion
(in 1996 dollars) in economic activity, while the London Olympics promised
£1.936 billion in economic activity and an additional 8,164 full-time equivalent jobs
created (Humphreys and Plummer 1995; Blake 2005).
The variation alone in these estimates suggests some reason for concern about
their accuracy; indeed, these before-the-Games predictions are rarely matched by
reality when economists look back at the data. Table 4 shows academic studies
of various Olympic Games. Overwhelmingly, the studies show actual economic
impacts that are either near-zero or a fraction of that predicted prior to the event.
Nearly all of the analyses follow the same pattern. Researchers collect any type
of regional economic data that is readily available such as employment, personal
income, GDP, tax collections, or tourism figures, and then analyze the data before,
during, and after the Olympics in search of any changes that occur either during
the event or in the preparation stages. The observed changes in economic vari-
ables are then compared to the predictions made by the Olympic organizers prior
to the event.

For example, as noted previously, the Utah state government predicted the
2002 Winter Olympics would generate 35,000 job-years, concentrated primarily in
the year of the event itself. Baumann, Engelhardt, and Matheson (2012) examine
monthly employment overall as well as in a variety of specific industries such as
retail trade and leisure between 1990 and 2009 in Utah using employment in several
adjacent states to control for regional employment trends around the time of the
Olympics. They find no identifiable increase in employment either before or after
the Olympics, and while they find a statistically significant bump in employment
during the actual Games, the increase was 4,000 to 7,000jobs, or roughly one-quarter
to one-tenth the number claimed by Utah officials. Considering that the federal
government spent $342 million directly on the 2002 Olympics and at least another
$1.1 billion on infrastructure improvements leading up the Games, this amounts
to about $300,000 in federal government spending per job created. Other studies
listed in Table 4 find similar outcomes. Indeed, these results lend credence to a
common rule-of-thumb often used by economists who study mega-events: If one
wishes to know the true economic impact of an event, take whatever numbers the
promoters are touting and move the decimal point one place to the left.

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208 Journal of Economic Perspectives

Table 4

Academic Studies of the Economic Impact of the Olympic Games

Study Event Results

Baade and Matheson (2002) 1984 S

(Los Angeles) and 1996 B
Summer Games (Adanta)

Jasmand and Maennig (2008) 1972

(Munich) regions. Positive impact on
income.

Porter and Fletcher (2008) 1996 Summer Games No impact on taxable sales, hotel
(Adanta) and 2002 Winter occupancy, or airport usage.
Games (Salt Lake City) Significant increase in hotel prices.
Baade, Baumann, and 2002 Winter Games Taxable sales in restaurants and
Matheson (2010) (Salt Lake City) hotels up by $70.6 million but
taxable sales at general
merchandisers down by
$167.4 million.

Giesecke and Madden (201 1) 2000 Summer Games Household consumption in Australia
(Sydney) reduced by $2.1 billion.
Baumann, Engelhardt, and 2002 Winter Games Increase in employment of
Matheson (2012) (Salt Lake City) 4,000-7,000 jobs for one year
compared to predictions of
35,000 full-time equivalent job-years.

Hotchkiss, Moore, and Zobay 1996 Summer Games Increase in employment of

(2003) (Adanta) 293,000 jobs. Increase in
employment growth rate by

Feddersen and Maennig 1996 Summer Games 29,000 jobs added during month of
(2013) (Adanta) Olympics only.

These results beg the question: Why d

studies rarely stand up to after-the-Gam
economic impact studies are often comm
interest in their outcome, and these groups
favorable result. Estimates can be easily m
tions about costs and benefits. The resulti
be used to curry public favor or to justify a
Even when a highly positive estimate of O
of an economic impact study, the metho
way that biases the economic impact upw
ignore the "substitution effect" that occurs
from other goods in the local economy
purchase of a ticket by a local resident t
for what would have been purchased in
the Olympics will be overstated. For thi

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 Going for the Gold : The Economics of the Olympics 209

of sporting events on local economies often advocate eliminating expenditures by

local residents entirely.
Second, the "crowding out effect" occurs when the crowds and congestion asso-
ciated with a mega-event dissuades other regular tourists or business travelers from
visiting the host region. Even when the number of out-of-town Olympics spectators
is large, hotel rooms in the host city may normally be nearly full so that the net
increase in visitor arrivals to the region is likely to be much smaller and perhaps
even negative. For example, the UK Office for National Statistics (2015) reported
that the number of international visitors to the country fell to 6,174,000 visitors in
July and August 2012, the months of the Olympics, from 6,568,000 the year before,
and some popular shows in London's theater district actually shut down during
the Games. Similarly, Beijing reported a 30 percent drop in international visitors
and a 39 percent drop in hotel occupancy during the month of the 2008 Games
compared to the previous year. Utah ski resorts noted a 9.9 percent fall in skier days
in the 2001-02 season during which the Salt Lake City Winter Games occurred,
compared to the previous year along with a drop in taxable sales collections at these
locations (Zimbalist 2015; Baade, Baumann, and Matheson 2010). Taxable sales
and skier visits rebounded the following season, after the departure of the Olympic
fans and athletes. Other host cities that have experienced an increase in visitors
during the Olympics still routinely report net increases in tourism that are signifi-
cantly below expectations - and typically lower than the number of identified ticket
buyers. American baseball player Yogi Berra's famous quip, "Nobody goes there
anymore. It's too crowded," may apply here.
The third main failing of standard before-the-fact economic impact analysis is
the problem of choosing an appropriate multiplier for expenditures. Clearly some
level of tourist spending will recirculate in the economy as local businesses and
workers re-spend a portion of any Olympic windfall that comes their way. At a very
basic level, standard macroeconomic analysis suggests that the expenditure multi-
plier will be

A Y/ A spending = Ał/Olympic spending = 1/(1 - marginal propensity to consume),

so that a $1 increase in spending due to the Olympics will result in 1/(1 - MPC)
extra dollars in total output for the host city. While every city and industry is different,
it is common to see multipliers of roughly 2 applied to visitor spending, so that an
initial increase in direct spending leads to a similar level of indirect spending and a
doubling of the total economic impact.
Several tools can be used to potentially produce more precise economic impact
estimates including the Regional Input-Output Multiplier System (RIMS II) provided
by the US Bureau of Economic Analysis and IMpact for PLANning (IMPLAN), a
commercially available software package. Both models use input-output tables for
specific industries grounded in interindustry relationships within regions based
upon an economic area's normal production patterns. But as Matheson (2009)
notes: "During an event like the Olympics, however, the economy within a region

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21 0 Journal of Economic Perspectives

may be anything but normal, and therefore, these same inter-industry relationships
may not hold. Since there is no reason to believe that the usual economic multi-
pliers are the same during mega-events, any economic analyses based upon these
multipliers may, therefore, be highly inaccurate."
The hotel industry offers case in point. Even critics of the Olympics like Porter
and Fletcher (2008) concede that the Olympics typically cause a substantial increase
in room rates. The wages paid to a hotel's desk clerks and room cleaners, however, are
likely to remain roughly unchanged. As a hotel's revenue increases without a corre-
sponding increase in labor costs, the return to capital rises while the return to labor
falls as a percent of revenues. To the extent that hotels (as well as chain restaurants,
car rental agencies, airlines, and similar firms) are nationally or internationally owned,
this increase in corporate profits doesn't stick in the host city but instead leaves the
area in which the profits were earned. In effect, due to these increased leakages,
the MPC in the host city falls, thus reducing the multiplier effect during mega-events.
Replacing input-output models with computable general equilibrium (CGE)
models that account for capacity constraints, displacement, expenditure shifting,
price changes, and changing economic conditions can lead to improved estimates
for the economic impact of the Olympics, although the use of these models is a much
more difficult undertaking. As one example, Giesecke and Madden (2011) carried
out a retrospective examination of the 2000 Sydney Olympics using a CGE model.
They found a reduction in total consumption for Australia of $2.1 billion; in contrast,
before-the-Games estimates that didn't account for the degree of slack in labor
markets and assumed no displacement of international tourism predicted increases
in consumption of $2.5 billion over the same period.
While spending directly associated with the Olympics is typically insufficient
to cover the costs of staging the Games, short-run intangible benefits must also
be considered. Host cities frequently experience a "feel-good effect" both in the
run-up to and in the wake of mega-events. For example, 80 percent of respondents
surveyed by the BBC (2012) immediately after the 2012 Olympics reported that
the event "made them more proud to be British." Several studies have attempted
to quantify the intangible benefits of the Olympics through the use of contingent
valuation methodology, which constructs a set of survey questions that are designed
to elicit the monetary value people place on whether certain events occur or do not
occur. Using this approach, both Atkinson, Mourato, Szymański, and Ozdemiroglu
(2008) and Walton, Longo, and Dawson (2008) undertook sophisticated contingent
valuation surveys using best practices for the 2012 London Olympics and found that
persons both within London and throughout the United Kingdom expressed a will-
ingness to pay to host the Games over and above any costs associated with actually
attending any of the events. The total intangible value identified to UK residents in
the studies was approximately £2 billion (or roughly $3.4 billion at the exchange
rates at the time of the study) . This amount is clearly substantial, but it is well below
the cost of hosting the Games.
Given the expenses associated with specialized venues and event opera-
tions, especially security, it is difficult for the revenues directly generated by the

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 Robert A. Baade and Victor A. Matheson 21 1

Olympics or the surrounding tourism to cover the cost of the event. Allowing for a
"feel-good effect" doesn't close the gap, either. Thus, an economic justification for
the Olympics must rest on including additional benefits from the long-run legacy
of the Games.

The Long-Run Benefits of Hosting the Olympics

The arguments that the Olympics bring long-term benefits fall into several cate-
gories. First, the Games might leave a legacy of sporting facilities that can be used
by future generations. Second, investments in general infrastructure can provide
long-run returns and improve the livability of host cities. Third, the media attention
surrounding the Games can serve as an advertising campaign that serves to promote
the area as a destination for future tourism. Finally, the Olympics can promote foreign
direct investment and increased international trade, as the Olympics causes investors
and companies worldwide to become familiar with the area.
A positive legacy of sporting facilities is the least promising of these claims.
Academic studies of sports facilities on host communities are nearly unanimous in
finding little or no economic benefits associated with stadiums and arenas (Coates
and Humphreys 2008). Furthermore, due to the nature of the sporting events spon-
sored by the Olympics, host cities are often left with specialized sports infrastructure
that has little use beyond the Games, so that in addition to the initial construction
costs, cities may be faced with heavy long-term expenses for the maintenance of
"white elephants." Many of the venues from the Athens Games in 2004 have fallen
into disrepair. Beijing's iconic "Bird's Nest" Stadium has rarely been used since 2008
and has been partially converted into apartments, while the swimming facility next
door dubbed the "Water Cube" was repurposed as an indoor water park at a cost
exceeding $50 million (Farrar 2010). The Stadium at Queen Elizabeth Olympic
Park in London, the site for most of the track and field events as well as the opening
and closing ceremonies in 2012, was designed to be converted into a soccer stadium
for local club West Ham United in order to avoid the "white elephant" problem.
Before the Games, the stadium had an original price tag of £280 million. Cost over-
runs led to a final construction cost of £429 million, and then the conversion cost to
remove the track and prepare the facility to accommodate soccer matches topped
£272 million, of which the local club is paying only £15 million (Sky Sports 2015).
General infrastructure improvements clearly have the potential for better
returns. The athletes' villages in both Atlanta and Los Angeles were converted into
new dormitories for local universities in their respective cities, and Utah wound up
with expanded highways between its major population center in Salt Lake City and
the popular ski resorts in the mountains to its east. But here, too, a caveat is in order.
It is often argued that the Olympics can serve as a catalyst for urban redevelopment
and to generate the political will required to undertake needed infrastructure invest-
ments. However, there is no reason to believe that the investments required to host
the Olympics will provide higher returns than alternative infrastructure projects that

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21 2 Journal of Economic Perspectives

could have been carried out instead. Also, while the firm deadlines provided by the
Olympics may constrain cities to follow projects through to timely completion,
the same deadlines may raise costs due to time pressures and labor constraints.
The Olympics can serve to "put a city on the map" as a tourist destination. In
1990, Barcelona was the 13th most popular tourist destination in Europe with fewer
than half the number of bed nights as its neighboring rival, Madrid. Following the
1992 Summer Olympics that also highlighted many nonsports venues in the region,
the city experienced the fastest growth in tourism among large European cities, so
that by 2010 the city was the fifth most popular destination on the continent and
had eclipsed Madrid in bed nights (Zimbalist 2015). Similarly, ski resorts in Utah
experienced a 20.4 percent increase in skier visits between the year before the Salt
Lake City Games in 2000-01 and 2014-15, outpacing Colorado's 8.0 percent growth
over the same period.
However, the results in Salt Lake City and Barcelona have not been replicated
in other host cities. The explanation for their success may be that both of these
locations can be seen as "hidden gems," locations that are highly attractive to tour-
ists but that had been previously passed over for their better-known neighbors in
Colorado and Madrid. This strategy won't necessarily work for many other poten-
tial host cities. Lillehammer, Norway, the venue for the Winter Games in 1994,
offered few attractions to tourists outside of the Olympic events and was therefore
unattractive to tourists after the Games left town. By 1997, the increase in inter-
national guest-nights in Lillehammer was only 8 percent higher than the increase
in foreign tourism in Norway overall (Tiegland 1999). Similarly, the 1988 Calgary
Winter Olympics significantly raised international awareness of the city, but without
a lasting ability to attract tourists, the enhanced image of the city rapidly faded
(Richie and Smith 1991). Conversely, London, with over 18 million international
visitors per year, was already the most popular tourist destination in the world prior
to the 2012 Olympics, and it was never likely that the event would raise its already
impressive profile. The success of the Olympics in developing a city as a tourist desti-
nation should not be rejected out of hand, but neither is it a surefire way to ensure
a steady stream of visitors after the closing ceremonies.
A final economic justification for hosting the Olympics is that the Games can
serve as positive signal to businesses and consumers about the future state of the
economy. Using regression analysis of time-series panel data, Rose and Spiegel
(2011) examine exports from 196 countries and territories between 1950 and 2006
and find that countries that host the Olympics experience an increase in exports of
over 20 percent. Using a similar methodology, Brückner and Pappa (2015) examine
consumption, investment, and output data over a similar time frame and range of
countries and discover that all three measures of economic activity rise significantly
around the time that the host country makes its initial bid as well as two to five years
before the event actually takes place. On the surface, these results appear to vindi-
cate the massive expenditures that are routinely incurred when hosting the Games.
However, the same studies also show that unsuccessfully bidding for the Olympics
appears to have similar effects on these economic variables.

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 Going for the Gold : The Economics of the Olympics 213

There are several possible explanations for these surprising results. Rose and
Spiegel (2011) suggest that it is not the event itself or the resulting tourism or
advertising that increases exports, but rather that the very act of bidding serves
as a credible signal that a country is committing itself to trade liberalization that
will permanently increase trade flows. Brückner and Pappa (2015) theorize that
the announcement of a bid for the Olympics represents a news shock predicting
increases in future government investment.
While signaling and news shocks may be important drivers of modern econo-
mies, it is a bit hard to swallow the claim that the mere act of a single city within a
country bidding for the right to throw a three-week party seven years in the future
can result in enormous nationwide increases in trade, investment, and income.
A more plausible answer is that countries are not randomly chosen to bid for the
Games, but rather that bidding nations are almost exclusively drawn from a set
of countries with sound economies and bright prospects for the future - a clear
case of selection bias. To test for spurious correlation, Maennig and Richter (2012)
and Langer, Maennig, and Richter (2015) note that when bidding countries are
appropriately compared with countries that are otherwise similar but did not bid for
the Games using propensity matching techniques, the significant Olympic effects
on trade, consumption, investment, and income all disappear. Again, the long-run
benefits of hosting the Games prove to be elusive.

Why Do Countries Continue To Host?

If the Olympic Games tend to offer only a low chance of providing host cities
with positive net benefits, why do cities keep lining up to host these events? At least
three possibilities arise. First, even if the overall effect of holding the Games is typi-
cally negative, large projects will still create winners and losers. Boston's ultimately
unsuccessful bid to host the 2024 Summer Games was spearheaded by leaders in the
heavy construction and hospitality industries, the two sectors of the economy that
stood the most to gain from the city hosting the Olympics.
Second, economic concerns may only play a small role in a country's decision
whether or not to stage the Olympics. The desire to host the Games may be driven
by the egos of a country's leaders or as a demonstration of a country's political and
economic power. It is difficult to explain Russia's $51 billion expenditure on the
2014 Sochi Games or China's $45 billion investment in the 2008 Beijing Summer
Olympics otherwise. In countries where the government is not accountable to
voters or taxpayers, it is quite possible for the government to engage in wasteful
spending that enriches a small group of private industrialists or government leaders
without repercussions. In the bidding for the 2022 Winter Olympics, four of the
cities in liberal western democracies that initially indicated interest in staging
the Games - Oslo, Stockholm, Krakow, and Munich - withdrew from the bidding
after local voters expressed opposition to the bids, leaving the International Olympic
Committee to choose which autocratic regime would hold the event: Beijing, China,

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21 4 Journal of Economic Perspectives

or Almaty, Kazakhstan. In the bidding for the 2024 Summer Olympics, both Boston
and Hamburg withdrew their bids in the face of public opposition.
Finally, it is possible to ascribe a portion of the economic failings of the Olympics
to the "winner's curse," the result in auction theory that when parties are bidding
on an asset of uncertain value (like rights to offshore oil leasing tracts) , the winner
will tend to be the bidder who is most prone to overestimating the value of the
asset - which means that the winner is likely to be systematically disappointed (for an
overview of the "winner's curse," see Thaler 1988). The 1970s witnessed a decline in
enthusiasm among cities willing to host the Games. In 1972, voters in Denver, after
having been initially awarded the 1976 Winter Olympics, rejected a $5 million bond
referendum that would have been used to finance the Games, requiring the Interna-
tional Olympic Committee to rescind its offer. Following the financial debacle of the
1976 Montreal Olympics, by the time it came to award the 1984 Summer Games, Los
Angeles was the only bidder. Given the resulting bargaining position, the Los Angeles
Organizing Committee was able to dictate the terms of bid to the International
Olympic Committee. For example, it insisted on utilizing the area's existing sports
infrastructure, including the 60-year old Los Angeles Coliseum for the premier track
and field events as well as the opening and closing ceremonies, and the heavy use of
corporate sponsors to finance the Games. The focus on restraining costs resulted in
total expenditures for the Games of a "mere" $546 million ($1,244 million in 2015
dollars), less than one-quarter of that spent by Montreal eight years earlier. The 1984
Los Angeles event managed to become one of the only profitable Games in Olympic
history, with a final profit of $232.5 million (Walker 2014).
When Los Angeles had shown the possibility of profits from the Games, it led
multiple cities to enter the bidding process, each hoping to cash in on the potential
Olympic windfall. However, this crop of new entrants meant that bargaining power
shifted back to the International Olympic Committee. No longer could cities design
bids based solely on expected revenues and the expenses necessary to stage the
event. Instead, applicant cities needed to consider how to beat competing bids from
other potential hosts. Not only did the competition among cities to host create a
bidding environment prone to corruption, but it became commonplace for bidders
to attempt to impress the International Olympic Committee with spectacular new
architectural monuments like Beijing's Bird's Nest or the £269 million London
Aquatics Centre. The estimated cost of the new, ultra-modern National Olympic
Stadium in Tokyo, planned as the centerpiece of the 2020 Games, eventually rose to
$2.02 billion - which for perspective was nearly twice the cost, even after accounting
for inflation, of the entire 1984 Los Angeles Games - before public outcry led to a
massive redesign (Ripley and Hume 2015).

Solutions to the Economic Viability Problem

The Olympic Games as currently conducted are not economically viable for
most cities. The most important reasons include infrastructure costs relating to the

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 Robert A. Baade and Victor A. Matheson 215

venues hosting the events; the monopoly rents that flow to the International Olympic
Committee; poor management; corruption; and the specter of unreasonable and
unrealizable economic expectations for the host city and nation. Concerns about costs
are nothing new. Even Salt Lake City's $1.9 billion in expenditures in 2002 ($2.5 billion
in 2015 dollars), which seem almost quaint by today's standards, raised concerns
among organizers. Then-President of the International Olympic Committee, Jacques
Rogge, expressed the "need to streamline costs and scale down the Games so the host
cities are not limited to wealthy metropolises. . . . The scale of the Games is a threat
to their quality," he said. "In a way, they risk becoming a victim of their own success"
(as quoted in Roberts 2002).
Costs of staging the Games have skyrocketed in the years since those comments
were made. The Olympics have reached a tipping point where the majority of
potential host nations and cities in the industrialized, democratic West have come to
the realization that hosting is more likely to drain rather than to enhance financial
resources. Even before Boston and Hamburg's withdrawals as applicant cities for
the 2024 Summer Olympic Games, and even before only two applicant cities
emerged as contenders for the 2022 Winter Olympic Games, the International
Olympic Committee had been considering major changes to its strategic vision.
Its Olympic Agenda 2020 , which was unanimously passed at the IOC's 127th Session
in Monaco in December 2014, included 40 recommendations for reform, many of
which promoted increased economic sustainability for host cities.
The recommendations provide at least some semblance of solutions to the
problems relating to the economic viability of the Olympic Games. Specifically,
they propose to: 1) shape the bidding process as an invitation; 2) evaluate bid cities
by assessing key opportunities and risks; 3) reduce the cost of bidding; 4) include
sustainability in all aspects of the Olympic Games; 5) include sustainability within
the Olympic Movement's daily operations; and 6) reduce the cost and reinforce the
flexibility of Olympic Games management (IOC 2014a). In addition, Olympic Agenda
2020 seeks to reduce corruption by increasing transparency.
Recommendations, of course, must be translated into action. The International
Olympic Committee has yet to complete a full bidding cycle under their new guide-
lines, but some cities are taking its recommendation seriously. Los Angeles, which
emerged as the US bid city for 2024 following Boston's exit, has proposed using
existing college dormitories at UCLA and the University of Southern California for
athlete housing during the Games, thus eliminating over $1 billion in costs for an
athletes' village from their original plans. Of course, if the IOC again finds itself
lured into selecting the city with the fanciest accommodations for athletes (and,
of course, for IOC executives), the most glamorous new stadiums, and the most
elaborate ceremonies over simpler but more economically rational bids like what
may be emerging in Los Angeles, then the clear signal will be that it is business as
usual for the Olympics. Furthermore, blame for such an outcome should not be
directed solely at the International Olympic Committee. Managing expectations
is critical. Promising that hosting the Olympics will provide a significant boost to a
host city and nation's economy is very likely to result in disappointment. Host cities

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216 Journal of Economic Perspectives

and nations have to be more proactive, rather than permitting economic interests
who stand to benefit from the Games to serve as the primary spokespersons for
economic impact. Officials from national Organizing Committees should do more
hands-on-management to ensure that the promises of vested interests are reason-
able and achievable.

The problem posed by the extraordinary sports facilities costs can be solve
through one or a few permanent locations for the Olympic Games. The origina
home of the Olympics in Greece is sometimes proposed. Alternatively, the IOC
could designate, perhaps, four Summer Olympic and three Winter Olympic venu
throughout the world that would rotate the staging duties. As yet another altern
tive, the IOC might award two successive Games to the same host, so that faciliti
could at least be used twice. Any of these proposals would serve to ensure that
Olympic sports venues have a useful life of more than just one three-week event.
The fact that Los Angeles profited from the Olympics in 1984 and Barcelona
experienced an economic revival of sorts as a consequence of hosting the Games
1992 has added currency to claims that the Games can be economically transform
tive. But hosting the Games has become an increasingly expensive gambit; indeed
as the rules for bidding currently stand, the entire structure of the Olympic Games
shouts "potential host beware." Issues start with the excesses of the bidding proce
and are then followed by the construction of expensive and ostentatious sports
infrastructure and the expensive opening and closing spectacles. If the commerc
dimension of the Games has become too embedded to eliminate, then the costs
must be managed better; infrastructure has to be made less expensive and reused;
host nations and cities have to play the lead role in defining and achieving reason-
able economic outcomes; and corruption has to be targeted through increased
transparency and broader involvement. The goal should be that the costs of hosting
are matched by benefits that are shared in a way to include ordinary citizens who
fund the event through their tax dollars. In the current arrangement, it is often far
easier for the athletes to achieve gold than it is for the hosts.

■ The authors are thankful to Robert Baumann and Andrew Zimbalist for useful discussions
in previous projects that have informed much of the analysis here and to Gordon Hanson ,
Enrico Moretti , Ann Norman , and Timothy Taylor for useful comments on earlier drafts.
Responsibility for interpretation of the data , as well as for any errors , is the authors1 alone.

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 Going for the Gold : The Economics of the Olympics 217

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