What Is The Economic Impact of The Olympics?

Cost of gamesToday the world turns its attention to London to take in one of the most prestigious (and ancient) competitions in human society – the Olympic Games. And as Canadians tune into the motherland to catch the 2012 Opening Ceremonies in London (or set those PVRs, for the office-bound), they’re contributing to just a fraction of the billions of dollars exchanged in the commercial and marketing hoopla surrounding the Games.

There’s no question that the Olympics are a massive cash cow – the marketing dollars generated from national pride are staggering. Does the promise of profit hold true, however, for the hosting city? It’s no secret that that it costs a pretty penny (or in this case, pound) to get a metropolis up to snuff for the roughly month-long celebration. So – just what is the economic impact of the Olympic games?

 One Heck Of A Party

First off, you can’t dismiss the cost to those picking up the bill – and that’s the tax payers.  For the London Games, it’s reported that these costs kicked off at 3.4 billion pounds for the initial bid in 2005. Tonight’s opening ceremony alone, rumoured to rival the standard set by Beijing’s Games (and possibly to include the Queen), cost 27 million pounds to produce. Directed by Slumdog Millionaire Danny Boyle, tickets range from 1600 pounds (US $2510) to 2012 pounds (US $3157).

 When Cities Take a Loss

According to the UK Public Accounts Committee, the estimated cost of the Games in total will reach 11 billion pounds – that works out to roughly US $640 per UK household.  And that’s just an estimate –many a past Olympic city has overshot their initial spending promises in order to host.

Let’s consider, for example, the costs incurred by Vancouver during the 2010 Winter Games. Despite initial promises to cap Olympic spending at $600 million, the final reported costs came to a whopping $925 million – and many have since criticized that this number is, in fact, lowballing it, failing to include various infrastructure costs as “Olympic” spending.

And then there’s the risk of incurring “legacy debt”, where a host city is heaped with lingering infrastructure costs. Take, for example, the financial disaster of the Montreal 1976 Olympics. The city was left with 30-year debt after the province stepped in to boost lagging construction efforts to the tune of about a billion dollars.

There’s also what’s known as the substitution effect, where retailers not specializing in Olympic-themed merchandise take a loss, as their goods and services are passed up for anything game-related.

 All That Glitters and Gold

Not every Games has been a financial bust, as proven by the $146 million raked in by the Beijing Games. After all, once you set aside the swagger and national pride (and amazing athletic competition), isn’t the whole point of the games to be an economic stimulus?

First of all, the games generate billions of income in tickets, sponsorships, broadcasting rights and marketing efforts – some of which is bound to trickle down to the host city. Second, hosting the games provides unprecedented opportunities for foreign market access, ushering in previously untapped business opportunities from abroad.

However, while the Games undoubtedly raise the profile of a host city, it has been seen that nations with already strong tourism sectors see much of a boost in those areas.  Stimulus to employment rates and job markets can also be contested – while the extra hands needed for building, organizational and pr efforts certainly boost employment numbers during the prep for the Games, it’s often seen as a bandage solution. One surprising advantage that London might have on this, though, is due to its current recession – income generated by games efforts may help alleviate those economic costs short term.

 

 

 

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