For many cities, the idea of hosting the Olympic Games is a dream. Leaders in these cities are willing to go through an extensive approval process in hopes of being selected by the International Olympic Committee (IOC). And when a winner is announced, the people of these cities break out in cheers. They’re excited, they’re proud and they’re apparently un-phased by the significant financial risks and burdens of hosting. And often, when it’s all said and done, there’s significant debt to consolidate.
What drives cities to want to bid on the Olympics? For starters, public interest. Communities take pride in having major events on their home turf. Among the cities that bid on the 2016 Summer Games, at least seven out of 10 people wanted their city to win. The winning city, Rio de Janeiro, had 82 percent public support for the bid.
Economic development is another motivator. The private sector loves the Olympics due to the amount of work it can generate in the short term. Boston, Los Angeles, San Francisco and Washington, D.C. all want to host the 2024 Summer Games, and all cite economic development as a main reason.
For political leaders, having their city or country selected induces a great sense of pride. They know many cities end up with financial problems, but they’re often bullish on the notion that they, finally, will show everyone how to get it done right. Russia spent a whopping $51 billion on the Olympics in 2014 and China wasn’t far behind at $45 billion in 2008, as indications of how much is at stake in some of these displays of economic and political prowess.
Only three of the Olympic Games held in the past 40 years have stayed on budget––Moscow (1980), Los Angeles (1984) and Seoul (1988). The Summer Games in Montreal in 1976 saw the worst cost overruns, going 1,266 percent over budget. The average Olympics cost overrun is a whopping 324 percent.
How do these losses even happen? Well, when cities put together their bids, they often underestimate the true costs of the project in their eagerness to convince the committee they can handle the grand task. Unfortunately, chosen cities must cover cost overruns no matter the accuracy of their original estimates.
The negative financial impact wasn’t as severe in some early games. For instance, Amsterdam lost just $18,000 back in 1928. Los Angeles reportedly earned $1 million in 1932, and Rome broke even in 1960.
But when cost overruns happen, they seem to do so exponentially. Montreal paid off its debt for the 1976 Summer Games in 2006––30 years later. Part of the delay in paying off the debt was due to its Olympic Stadium being in ongoing disrepair after the games and unable to produce financially. Meanwhile, the Athens games of 2004 ended up requiring far more extensive development than budgeted, putting significant pressure on an already struggling national economy.
It remains to be seen what will happen with Rio de Janeiro this year, but there are already some signs of potential overruns. While Rio started with a modest budget compared with some other cities, there have been significant construction delays and health concerns related to the Zika virus, which can be contracted through mosquito bites.
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