Olympic Games: Cash Cow or Money Pit? | Business| Economy and finance news from a German perspective | DW | 13.08.2004
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Olympic Games: Cash Cow or Money Pit?

When bids are requested from cities to host future Olympic games, there is never a shortage of municipalities vying to welcome the world's athletes. The games bring prestige, but do they bring financial benefits as well?


The Olympics are pretty, but are they worth it?

No one doubts the fact that hosting the Olympic Games allows a city to bathe in the focused spotlight of world attention for two weeks, or longer if the build-up is included. Less certain, however, is whether all that attention and elevated stature is matched by an equivalent economic boost for the region or even the country, or if in many cases the Olympics bring lots of cachet, but little cash.

Olympia-Schwimmstadion in Athen

A swimmer dives in the Olympic natatorium in Athens.

One thing is clear, in the often heady -- and sometimes panicked -- days preparing for the games and then watching athletes run, jump, swim and perform feats seemingly beyond the abilities of mere mortals, the financial consequences of all that work and capital put into hosting the event appear worth it.

"There are direct economic advantages to the Olympics while the games are on," Wolfgang Czepiczka, a sports economist on the board of Germany's Association of Sports Economy and Sports Management, told DW-WORLD.

"Tax receipts go up, visitor numbers rise and then there is the simple fact that cities get to show themselves off."

But whether those benefits continue after the athletes have packed up their medals and tourists have packed their bags is less certain. The Olympics' financial record is mixed.

Financial tragedy and triumph

Verkehr Athen Olympia 2004 U-Bahn Bauprojekt Stau

Construction crews work at a metro extension worksite at Vouliagmenis Avenue in Athens, which is getting a face-lift thanks to the 2004 Games.

One thing that everyone can agree on is that hosting the Olympics costs a lot and it's getting more expensive all the time. For the games in Greece, operating costs have soared from €500 million to €2 billion ($611 million to $2.4 billion). The total cost of Olympic spending is estimated to approach €10 billion ($12 billion).

However, there was little research into the wider economic impact of the Olympics until Montreal emerged from the 1976 games with a gaping deficit of $1.2 billion (€1 billion), an amount local residents are still paying off through a supplementary tax on tobacco. 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 commercialization of the games and the development of Olympic sponsorship deals.

"In 1984, organizational and economic strategies were introduced which meant the city could hold magnificent games that wouldn't bankrupt the city," Martin-Peter Büch, an economist at the German Sport University in Cologne, told DW-WORLD in an interview. "1984 showed that it was actually worthwhile to hold an Olympics."

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 centers that are still flourishing 12 years later.

Leichtathletik Europameisterschaft im Münchener Olympicstadion

Competitors in 2002 dash off from the start at the Olympic stadium in Munich, built for the 1972 games there.

Germany's 1972 Munich games were similar, according to Wolfgang Czepiczka. 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.

"If done the right way, the games can bring a city many long-term benefits, as they did in Munich," he said.

Olympian hangover

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, sponsorshops, 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," Markus Kurscheidt, a sports scientist at the Ruhr University of Bochum, told DW-WORLD. "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.

Even Sydney -- which many Australians tout as an economic success story -- has had day-after problems. It's huge Olympic Park stands mostly silent and empty, too big to be sustained by regular sporting events alone. It will require an investment of at least €15 million to turn it into the "living precinct" its designers envision.

Not an economic driver

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, say experts.

Das neue Olympia Logo zur Bewerbung der Stadt Leipzig 2012

Leipzig's Olympics logo

In May, the German city of Leipzig, population 500,000, was eliminated from the running to host the 2012 games. While the medium-sized city showed spunk it is race for gold, it could not meet the infrastructure requirements of the International Olympic Committee. German officials at the local and federal level were disappointed, since they had hoped that an Olympics in Leipzig could bring a powerful boost to the ailing eastern German economy.

But sports economist Kurscheidt warns against such an approach, saying things probably turned out for the best for Leipzig. He says the Olympics' powers of economic rejuvenation aren't exactly Olympian. "They might have a nice secondary effect on the economy," he said. "but they aren't a primary driver."

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