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Why hosting the Olympics leaves cities in massive debt

The majority of Olympics host cities begin with exaggerated predictions and finish with millions and billions in debt. So, why do cities continue to compete with one another to implement these enormous urban planning projects?

When I began my studies in European urbanism, one trend stuck out to me, and that was the fascinating trend of world ranking lists.  Lists were emerging on every topic possible; It was a sprint of countries and cities to commission any list that would put their names at the top.  It was an industry in and of itself. Today, you have your choice of how you want to rate and classify the world.

I began to see an image forming of what cities and countries of the world had started and, for me, it painted a grim picture of what could become of our governments and cities in the future.

Today, the world races to complete massive urban planning projects without considering the consequences, just to be number one on a virtual map or list.  A perfect example that illustrates how cities and countries use these colossal urban planning projects to compete with one another is the Olympics.  But in this curious case, cities don’t usually win, they lose.

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Time and time again, the Olympic Games have proven themselves to be a money-losing proposition.  For example, London spent $18 billion to host the Olympics, but made only $3.5 billion – leaving the city with a debt of $14 billion.  The Socchi Olympics had predicted costs to be around $12 billion, but ended up paying over four times more than expected at $55 billion. On top of that, maintenance costs are still over $1 billion per year, meaning this debt will only increase.

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(If you would like to know about other cases where researchers found the Olympics unviable, read on here, here, and here.)

Seeing as the Olympics have often ended up being a money-losing proposition for host cities, we have to ask ourselves:

Why do cities compete with one another to implement these enormous urban planning projects?
One reason is expected (direct or indirect) revenue for the city. For example, the city of Los Angeles, California is estimated to make $9.5 billion by hosting the Games in 2024.  But can we really trust estimates that say hosting the Olympics brings in economic revenue? Especially considering that, in the past, these estimates have been so incredibly wrong.

Cities have, indeed, taken actions to estimate and predict the outcomes of hosting the Olympic games: calculating, consulting, and urban planning. But why were the majority so grossly overestimated, unrealistic, and inaccurate? And who are the people organizing the Games, making these estimates and what were their interests?

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One study on this topic explored the case of Salt Lake City, Utah, by gathering readily available economic data such as: GDP, tourism figures, tax collection, etc. They took numbers from before, during, and after the Games and compared them with the predictions of the Olympic organizers’. They found that, during the games, job creation only reached about one-tenth of what the planners predicted.  The increase of jobs during the event was between 4,000 – 7,000 jobs, while the planners predicted about 35,000 “job years”.  This study also found that there was no increase in jobs before or after the events.

According to the study, three possible reasons for why predictions are so grossly overestimated are:

  1. Every city and industry is different and often times the formulas used in calculating the outcomes are based on a one-size fits all model
  2. Even though the majority of cities are losers, there is still that small chance of hitting the jackpot
  3. The hired actors involved in making these estimates have self-interests

“It is difficult to explain Russia’s $51 billion expenditure on the 2014 Sochi Games or China’s $45 billion investment in the 2008 Beijing Summer Olympics otherwise. In countries where the government is not accountable to voters or taxpayers, it is quite possible for the government to engage in wasteful spending that enriches a small group of private industrialists or government leaders without repercussions.” – Baade and Matheson

So, what can we do to prevent these over-estimations…?

Baade and Matheson propose that cities need to be more dedicated and proactive in choosing who predicts these outcomes.  If cities let the most economically interested parties lead the committees for these large events, then there will be no balance or reason in the planning and predictions of the Games.  What about all the excessive urban planning and infrastructure involved? Baade and Matheson suggest designating a small number of permanent locations for re-use. But this decision is up to the International Olympics Committee (IOC) (and what they want would be the topic of an entirely different article).

Why do cities still have hope despite the numbers?

As stated above, there are several reasons to explain this. For one, cities think they can win big thanks to the rare examples like the city of Los Angeles (who made a lucrative profit from the 1984 Olympics) or Barcelona (who had an economic revolution clearly connected to the hosting of the 1992 Olympics). For me, the Olympics has become just another way to get a city’s name on the top of a list and increase its tourism.

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What these over-estimations reveal to me is that the world’s cities are diversely complex. And a profitable Olympic games in one place won’t necessarily lead to the same outcome somewhere else.  For as big as the world is and for how diverse cities and cultures can be, people all over the world behave in very similar ways and seem to want the same exact thing when it comes to the Olympics…

 


April Lipatan studied landscape architecture, environmental design, and European urbanism.

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