Tuesday, March 6, 2012

Most expensive Summer Olympics

So how much will the 2012 London Games cost? Two billion pounds? Twenty billion pounds?

Original budgets for the games said two, but back in 2008 Jack Lemley, the former 2012 Olympic chief accused London’s Mayor Ken Livingstone of suppressing the true cost to win public backing for the bid. He estimated it would be at the high end of the range, which according to current exchange rates, would be $32.7 billion US, making it the second-most expensive Olympic Games.

And so goes that other Olympic sport. You know, the sport of “Understating Expenses”.

It doesn’t happen at every Olympics, but for many (Montreal, Moscow, Sydney, Athens, London) this is how you play. It’s pretty simple really.

1. Understate the expense of the Olympic Games upfront in order to sell your citizens and nation on the economic merits of hosting the Olympics.
2. Act surprised when expenses begin to escalate.
3. Act surprised when revenue and economic benefit projections aren’t met.


American sports fans are no stranger to this game. The rules are similar to the “stadium game”. You know, where city leaders and team owners overstate benefits while understating costs of building new sports facilities, and by the time construction is completed the eventual costs to the public are significantly higher than projected while benefits may not accrue as much or as swiftly as advertised.

And in the worst of scenarios (Montreal – 1976), your city is still paying down Olympic debt 30 years after the fact.

That said, hosting a Summer Olympics is not a guaranteed money loser as history has shown (Los Angeles, Seoul, Barcelona, Atlanta, Beijing).

So with the 2012 London Games a mere year away, let’s review the costs associated with each summer Olympics from 1976 through 2008. For a much more detailed historical account of Olympic costs, please read Dr. Frank Zarnowski’s “A Look At Olympic Costs” which goes all the way back to the first Olympiad…the Athens Games of 1896.


2008 Beijing Games – $40 billion
Though the most expensive games on record, there was no debt legacy in China. China had enough capital to absorb the costs of new stadiums, subways and roads to make the Games a success. Leading up to those Games, China’s tax revenues grew by 20-30 percent annually while its fiscal deficit shrank from 3 percent of GDP in 2002 to less than 1 percent by 2007.

Furthermore, less than 25 percent of the spending was devoted to purpose-built Olympic venues. The majority of the money spent accounted for permanent infrastructure that has long-term use. For example, one facility was dedicated to the China Agricultural University and another to the Beijing Science and Technology University after the Games, ensuring their long-term usability.


2004 Athens Games – $15 billion

The Greek tragedy of the Athens Games was the massive debt the Greeks were saddled with post-Games.

Partly related to being the first Summer Games post 9/11, security costs as well as infrastructural costs sent expenses spiraling. As a result, the national deficit reached 5.3 percent in 2004 which was well above the 3 percent allowed by the European Union at the time. Total cumulative debt was 112 percent of GDP, or 50,000 euros per household.


2000 Sydney Games – $3.8 billion
In 2002 the Auditor-General of New South Wales assessed that the Sydney Games had ended up costing $AUS 6.6 billion (or roughly $3.8 billion US using the prevailing exchange rates in August 2000 as a proxy), with the public paying 30-35 percent of that bill.

The same assessment, authored in 2002, predicted that the cost of a London Olympics would be higher than Sydney’s because of the enormously under-invested state of London’s sporting facilities and transport infrastructure, as well as the increased security cost due to 9/11.


1996 Atlanta Games – $1.8 billion

The Atlanta Olympics followed the financial model established by the 1984 Los Angeles Games. Government funds were used for security, and around $500 million of taxpayer money was used on the physical infrastructure.

To pay for the games, Atlanta relied on commercial sponsorship and ticket sales. Though criticized for overly commercializing the Games, the result was an operating profit of $10 million.


1992 Barcelona Games – $9.4 billion

Based on this analysis of the economic impact of the Barcelona Games, the organizing committee spent $ 1.4 billion by January 1, 1992, with 72 percent of it covering the building and renovating of Olympic facilities. Meanwhile, the city of Barcelona spent an additional $8 billion on Olympic inspired projects (the ring roads, telecommunications, hotels and apartments).

Despite a record level of spending at the time, the investment seemingly paid off. The Barcelona Games had an enormous impact on the urbanism and external image of the city. This simultaneously improved the quality of life for locals and the attraction of the city for investments and tourism. Now, Barcelona is one of the most visited cities in Europe.

And it is estimated that the Barcelona Games made $5 million in profits.


1988 Seoul Games – $4 billion
According to Dr. Zarnowski, the cost of the Seoul Games neared $4 billion. This stemmed from $848 million reported by the organizing committee and another $3.2 billion spent by the Kyonggi Provincial Government on facilities and the International Broadcasting Center.

Reported profits for these games approached $300 million.


1984 Los Angeles Games – $546 million

The Los Angeles Olympics were one of the most successful financially of any Summer Games.

According to Dr. Zarnowski, the L.A. Games made a $222.7 million profit. Television rights, commercial sponsorship, and ticket sales resulted in most of the $768 million in revenue. Total expenses came to $ 546 million, 73 percent of which were administrative costs.

Why was L.A. so successful? Where ambitious construction for the 1976 games in Montreal and 1980 games in Moscow saddled organizers with huge expenses, Los Angeles strictly controlled expenses by using existing facilities (except a swim stadium and a velodrome that were paid for by corporate sponsors).


1980 Moscow Games – $2 billion

Moscow mayor Vladimir F.Promyslov was quoted in a N.Y. Times article June 7, 1980, that Moscow had spent “about $ 2 billion” on the Games.

According to Dr. Zarnowski, “The Moscow Games did not result in an opening of tightly sealed Soviet borders. Only about a quarter of the 300,000 expected visitors showed up in Moscow and the organizers lost a considerable amount. The totalitarian state covered many of the costs, including renovation of Lenin Stadium and 69 other sports facilities, construction of hotels and the improvement of the MetroSystem. It is nearly impossible to estimate all the costs.”


1976 Montreal Games – $1.2 billion
The Montreal Games were such a financial disaster that (a) the city of Montreal did not pay its final bill until 2006 and (b) it scared many cities for years from even bidding on the Olympics.

Then-Mayor Jean Drapeau famously stated that “the Olympics can no more have a financial deficit than a man can have a baby.” Yet the debt racked up to 1 billion dollars Canadian, leaving the Quebec government no choice but to mandate that the city pay in full.

The Quebec provincial government took over construction when it became evident in 1975 that work had fallen far behind schedule. Work was still under way just weeks before the opening date, and the facility was not completed by the Opening Ceremonies.

Hailing from Potsdam, N.Y., which is a mere 30 minutes to the Canadian border and a short 2 hour drive from Montreal, I must profess that I spent at least a dozen afternoons/evenings in the late 70s, 80s, and early 90s at Olympic Stadium watching my childhood baseball team, the Montreal Expos. So I can take pride that I sat in what locals will forever remember as “The Big Owe.”

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