XXX Olympiad: Time Well Spent

...money, not so much.

This is an Olympic event in and of itself

Economics recognizes time as a valuable resource. We spend it just like we spend money (and if you're fortunate, you've been endowed with more time than money!). As with any resource, it's scarce and thus, valuable; so we should be mindful of how we use it.

Athletes, coaches, sponsors and event staff are putting in unimaginable amounts of time to ensure that those of us at home can indulge in the XXX Olympiad for virtually no cost*. So who pays to put on the Olympics and is it worth it?

Hosting an international sporting event is big business. However, most of the "boom" is temporary: employment, construction, security, tax revenues and local retail sales are well-documented examples. In 2010, the World Cup in South Africa (read my take on it here) was an economic "bust." FIFA, the governing body for soccer on the planet is a not-for-profit group that took in $4 billion that year at the expense of the South African economy. The International Olympic Committee (IOC), also not-for-profit, will laugh all the way to the bank too.

Let's start with the bidding process. A decade before an olympiad, (the 4-year period surrounding the Olympic season) cities begin drafting plans to put on the biggest, brightest most efficient games. But in the bidding process, efficiency is often overshadowed by the minority goals of the local organizing committee. They are motivated by the private benefits rather than public costs! And never mind receiving the bid, just campaigning for it is a significant expense in and of itself. Chicago lost the 2016 bid to Rio de Janeiro for the Olympics, but still spent $100 million in the process.

After the IOC chooses a winner, an already bloated budget blows up even more as city planners hustle to make it happen. In some cases, such as South Africa and Athens (2004), the construction infrastructures are sorely needed to bring a city up-to-date. But in the wake of the event, the buildings often go unused, surrounded by weeds and dust rather than people and commerce. Beijing's energy efficient Bird Nest is the latest white elephant on the world stage.

Beijing's green & white elephant

Total revenue from an Olympics is about $4-5 billion these days, about half of which goes to the IOC, (who in turn distributes 90% to support the staging of the games). Even still, public financing (government borrowing) is almost always necessary. A notable exception is Los Angeles in 1984. L.A. was the only city on the planet willing to host the games, so they could bargain with the IOC for a more reasonable budget that didn't require taking on new debt. In contrast, the costs of the Olympics typically reaches into the tens of billions ($16 billion in Athens, $40 billion in Beijing) most of which is financed by debt and reasonably spent on security. No surprise there, after the horrific 1972 Munich games and the 1996 blast that ripped through Atlanta's Centennial Park. In the days leading up to the opening of such a high-profile event, terrorism fears can greatly increase the size of the budget.

And finally, we can't forget about sponsors. The Olympic Partner (TOP) program will bring in about $2 billion of the total revenue. Business' bid for the right to use the 5-ring Olympic symbol and basically capitalize off the games. This year, the world has witnessed the construction of the largest Mickey D's ever in London which will seat 1,500 and employs scores of people, only to be recycled and razed in six weeks. A waste or a good idea?

The world's largest McDonald's opens 7/28/2012

Without a doubt the Olympics are worth the time and effort to bring together the people of the world, and they are fun! But do you think the financial costs outweigh the feel good benefits? I'd love to hear your thoughts!

Here's a link to the official website of the Olympic Movement for more information on the nuts and bolts of the games.



Prosperity,

@RogueEconomista







*Save the costs of cable, internet, satellite and/or gas to get to your favorite pub to watch the games