Faster, Higher, Stronger: For the Economy as Well?

 

Sweat, cheering, celebrations. 

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The recent 2024 Summer Olympics in Paris gathered 10,500 competitors, with 19 days of competition and 32 sports being played, followed by 11-day Paralympics (1). 

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The Olympic Games are often seen as the pinnacle of athletes’ careers, where they give their best to achieve new personal bests, new world records, perfect comebacks, defense for back-to-back titles, and memorable sports moments. 

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More than sports and medals 

For the sports fans and audience, the focus tends to be on questions, like ‘who won the game?’, ‘how did they manage that wonderful shot?’, and ‘any techniques for improving performance?’. Yet, the quadrennial games record not only the roaring sport spirits on fields, but also bring advertisement of the host city, the sports sponsors, and commercials. 

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The Olympics are a game-changing arena for the sponsors. According to NBCUniversal and brand consultancy BAV Group, the official Olympics partners are associated with a 49 percent increase in brand loyalty and 54 percent more differentiation compared to their competitors (2). 

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Along with other sports events, the visibility of some fashion brands greatly increases during the Olympics. Algolia, a French search-as-a-service platform, shows 42 percent of consumers are more inclined to purchase products used by athletes from their own country (3). While the athletes competing for the medals, fashion brands are, at the same time, in the sprint for attention. However, the heightened visibility also exposes brands that fail to thrive and reach the finish line in time. On the Chinese social media platforms Weibo and Red, Li-Ning (worn by Fan Zhendong at the final game of table tennis of men’s single in Paris) was criticised by netizens to be more poorly designed than Uniqlo, which sponsored the Swiss team. 

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The Olympics are a double-edged sword for sponsors and advertisers; brand visibility is magnified under the global spotlight, but at the same time, it amplified any missteps. Yet, if brands succeed in making a good impression, the payoff of investing in the Olympics would be hugely profitable. 

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But are the economic benefits also pronounced for host countries? 

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Glory or Burdens? 

It used to be a prestigious glory to host the Olympics, which is a symbol of recognition for a country’s economic and organisational abilities from the International Olympic Committee. But, in recent years, worries about cost often steal the thunder of the excitement and pride. 

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Figure 1. Source: Müller, M., 2023. The massive costs behind the Olympic Games. Statista. Available at:  https://www.statista.com/chart/5424/the-massive-costs-behind-the-olympic-games/ (4). 

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Figure 1 captures the estimated inflation-adjusted cost host cities spent on the Summer Olympics. Notably, the average cost of the Games over the past decade has significant increased compared to earlier years. What is more critical than the absolute value of expenditure is the overrun rate, which records overspending as a proportion of budget. Taking this into account, Paris 2024 with an approximately 100 percent overrun rate is no way close to being financially successful. Worryingly, this is not even the worst overrun rate we have seen in the past ten years. 

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Research done by Professor Bent Flyvbjerg suggests that all Olympic Games have a significant average cost overrun of 142 percent while the average for the Summer Games reached 213 percent (5). Hosting the Olympics is estimated to be as problematic on the economy as ‘deep disasters’, such as earthquakes, wars, and pandemics. The high cost overrun is likely to put large economic burden on the host country, which can lead to long-term problems for public finance. 

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So are there any long-term benefits? 

A case study of the Salt Lake City Winter Olympics, conducted by Baumann, Englehardt, and Matheson, found a short-term improvement in the labour market, with seven thousand additional jobs created. However, that was merely one-tenth of the promised number from the government and there was no sign of long-term improvement in employment (6). 

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Another proposed advantage is boosting the tourist industry. Yet, there are only mixed results. Clark of Los Angeles Times claims that the 1992 Barcelona Olympics has ‘sparked a lasting boom in overseas visitors’ due to its investment in pre-Olympics infrastructure projects (7). But the ‘crowding out effect’, which deters regular tourists from visiting, led to a decrease in the number of international visitors in a handful of host cities and countries during the months of the Olympics, such as in Beijing and the UK (8). What if we take a long-term perspective? Does the ‘Olympic legacy’, which entails an improvement in infrastructure, tourism or even trade, really exist? 

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To examine the long-term impact of hosting the Olympics on economic growth of the hosting country, a difference-in-difference analysis is conducted for the time period at least five years before and after each Olympics. 

The control group is a neighbouring country which is also similar demographically but did not host the games in the past ten years. The pairs are shown below: 

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The regression model used is as follow: 

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where         is a vector of control variables, including population growth, government spending, foreign direct investment, inflation rate, and unemployment rate, to isolate out the impact of the Olympics on the economic growth. The data used is from the World Bank (9).  

The coefficient of the composite variable,           , is the key result here, which indicates the additional changes of GDP growth in the host country after the games, indicating the impact of the Olympics on economic growth of the host country. 

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The result from the regression is captured below: 

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The table shows the mixed success of the Olympics in promoting economic growth in host country. Positive coefficients of the 2000 and 2012 games suggest a positive impact of the Olympics on GDP growth in Australia and the UK. In contrast, the negative coefficients for Greece, China and Brazil display a negative impact.  

However, the p-values in the right column are all above 0.05 and 0.1. This suggests that the coefficients are statistically insignificant. Therefore, by performing hypothesis testing, it is concluded that there is not enough significant evidence to support the claim that the Olympics bring about a long-term impact on economic growth.  

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Beyond the ‘Olympic legacy’ 

The cost-and-benefit analysis of the Olympics is far more complex than revenue and tourism. Scandizzo and Pierleoni’s paper categorized the potential impacts of the Olympic Games into five categories: economic impacts, physical and environmental impacts, sociocultural impact, psychological impacts, and political impacts (10). For instance, the intangibility of externalities brought by a sense of solidarity, belonging and national pride among athletes and countries in the Olympic Village are difficult to quantify, making it  extremely difficult to conclude whether hosting the Olympics is truly desirable for the society.  

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For the countries that are going to host and are still willing to bid for the Games, however, these are less likely to be on the top of the list of concerns. With the increasing cost of hosting, minimising expenditure while maximising the benefits of a good Olympics game will still be a difficult balance to strike.