Olympics 2024: The Alarming Economic Reality Of The Sporting Event

Events cost money and a look at the balancesheet of the biggest sporting event on the planet reveals that they are often loss making exercises. Historically, cities that have hosted the Olympics end up spending more than their estimated budget.

The Olympics have the second highest average cost overrun of any type of megaproject at 159%, according to the study, "Oxford Olympics Study 2024: Are cost and cost overrun at the games coming down?"

In fact, every Olympic host has spent more than the estimated budget since at least 1960. This overspending has led to many cities withdrawing from the Olympics bid for hosting rights.

The expenditure has led to excruciating economic pain for some of the host countries in the past.

The paper highlighted that "cost overruns and associated debt from the Athens 2004 Games weakened the Greek economy and contributed to the country's deep financial and economic crises, beginning in 2007 and still playing out almost a decade later".

It also mentioned the startling case of Rio de Janeiro, host of the 2016 games, where the situation deteriorated to such extremes that the city had to declare a state of emergency and pull out funds from its natural disaster reserves.

Potential hosts of the Olympics 2024 withdrew from their bids on similar grounds. In 2015, apart from Paris, Budapest, Hamburg, Los Angeles, and Rome submitted their first-stage bids for hosting the 2024 Olympics. But eventually, all of them backed out amid a lack of economic support and the potential for debt.

This led to only Paris and Los Angeles remaining on the hosting platform and hence, they were unconventionally awarded the 2024 and 2028 editions of the Games without a proper bidding process.

Presently, cost escalation for the 2024, 2028, and 2032 Summer Games is already above the 10-15% level of the contingency amount that host countries set aside for the international sports gala.

Paris, the city of love and the destination of the 2024 Olympics, is in fact the first city to fully test cost-cutting reforms as introduced by the International Olympic Committee in 2019.

The city's central argument in its bid for hosting rights was that reusing existing sporting facilities would help it avoid the steep capital investment that inflicted lasting economic pain on cities such as Athens and Rio de Janeiro.

Still, it will end up spending at least $8.87 billion—about 115% above the initial estimate.

Tokyo’s budget for the 2020 Olympics, which were postponed during the Covid-19 pandemic to 2021, increased nearly fourfold, and London’s 2012 Olympic spending more than tripled its bid.

In fact, even the budgets of future games like Los Angeles 2028 have escalated from $5.3 billion to $6.8 billion.

The most expensive Summer Games to date are Rio 2016 at $23.6 billion, followed by London 2012 at $16.8 billion and Tokyo 2020 at $13.7 billion.

On the other hand for the Winter Games, Sochi 2014 was the most expensive at $28.9 billion, followed by Beijing 2022 at $8.7 billion and Torino 2006 at $4.7 billion.

"For the Summer Games, the largest cost overrun was found for Montreal 1976 at 720% in real terms, followed by Rio 2016 at 352%," the study said. "Whereas the largest cost overruns are Lake Placid 1980 at 324% in real terms, followed by Sochi 2014 at 289%."

The paper suggested some key solutions to prevent this gigantic cost overrun: 

• Better Planning Or 'Decision Hygiene': This advocates the use of historical data on costs and cost overruns. To do this, the International Olympics Committee should transparently capture data on the cost of the Games.

• Considering Inflationary Pressures: The Olympic Games are planned about seven years in advance. Therefore, inflation should also be a mandated component of future Games budgets, or the budgets will continue to be misleading.

• Realistic Vision: Planners need to be more realistic about the uncertainties that projects as large as the Olympics face.