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The multiplier effect of hosting Olympics may be exaggerated, but it can provide many intangible ben.


Date: 07-12-2023
Subject: The multiplier effect of hosting Olympics may be exaggerated, but it can provide many intangible ben
Economists have a peculiar fascination with the concept of the multiplier effect. In his classic work, The General Theory of Employment, Interest and Money, John Maynard Keynes whimsically suggested that the government could boost economic activity by burying bottles filled with banknotes and letting the private sector dig them up. This, he argued, would create employment, and stimulate further economic activity through the multiplier effect.


In a similar vein, the discussion around the multiplier effect of sporting events often sounds like a fairy tale. Economists, governments and city officials gleefully predict an influx of spending and job creation, akin to expecting a football game to magically transform into a golden goose laying eggs of prosperity. It's a charming notion. But just like in fairy tales, reality often writes a different ending, leaving economists and fans alike pondering the elusive nature of this much-celebrated ..

Ex-post empirical research has consistently shown that the actual economic impact on host economies from mega events like the Olympics is often negligible, or significantly less than the optimistic forecasts of ex ante studies. This discrepancy challenges the rationale behind the rosy predictions that typically accompany bids to host such events.

A study published by the American Economic Association found that hosting the Olympics typically results in financial loss for host cities. Profits are rare, occurring under exceptionally favourable conditions. The financial equation is even less favourable for developing cities compared to their developed counterparts. The study also raised questions about the International Olympic Committee's (IOC) bidding process and the possibility of reforms that could better serve potential host cities.
A Said Business School study looked at the cost overruns for over 50 years and found two striking patterns: every Olympics since 1960 has consistently overrun its budget, a record unmatched by any other mega project. On average, costs exceeded original estimates by 179% in real terms, and 324% nominally, far surpassing overruns in other sectors like infrastructure or ICT.


The conclusion is clear: opting to host the Olympics is one of the riskiest financial decisions a city can make, often resulting in severe financial consequences.


A study in Economic Inquiry found no significant long-term effects on population, per-capita GDP or trade openness for Olympic host cities from 1950 to 2005. Some econometric analyses, including the use of a log-linear gravity model, have, however, shown a considerable effect of mega-events like the Olympics on a country's exports. In their 2009 National Bureau of Economic Research (NBER) study, 'The Olympic Effect' (bit.ly/41bzubl), Andrew Rose and Mark Spiegel found that even countries that bi ..

The financial outcomes of various Olympic Games have often resulted in substantial losses for the host cities.


2020 Tokyo Olympics, held in 2021 during the pandemic without spectators, faced an estimated ¥90 billion loss in ticket revenue, substantially reducing the anticipated GDP boost to about ¥0.3 trillion.


2014 Sochi Winter Olympics saw costs balloon to $55 billion, a staggering increase from the initial $12 billion bid, marking it as one of the most expensive Games in terms of sports-related costs. This financial burden was largely shouldered by public funds, with little to show in terms of benefits, leading to ongoing operational and maintenance costs estimated at $1.2 billion annually.


2012 London Olympics also ended with a deficit, generating $3.5 billion in revenue against an expenditure of $18 billion.


1984 Los Angeles Olympics stand as a stark contrast to this trend. With LA being the sole bidder, the city managed to negotiate favourable terms with IOC, utilising existing infrastructure and benefiting from a surge in broadcast revenue, which led to a notable operating surplus of $215 million - a rare financial success story in the history of the Games.


Thus, purely from an economic standpoint, the pattern of losses suggests that bidding for the Olympics is often not financially prudent. The multiplier effects of hosting the Olympic Games are often overestimated. Despite this, one could argue for the Games based on intangible ..

 Source Name: Economic Times

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