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Opportunity Cost: Winning the 2020 Olympics

by Elaine Schwartz    •    Sep 10, 2013    •    1987 Views

First, Doha and Baku were eliminated and then Madrid. Competing against Istanbul in the final vote for the 2020 Summer Olympics, Tokyo won.

Here are the IOC voting results:

Round 1

  • Tokyo: 42
  • Istanbul: 26
  • Madrid: 26

Round 1 tie-breaker

  • Istanbul: 49
  • Madrid: 45

Round 2

  • Tokyo: 60
  • Istanbul: 36

Submitting (close to) a $5 billion price tag, Japan plans to construct 11 new and 10 temporary sporting venues for a total of $3 billion and an Olympic Village for another $1 billion. History though suggests they will spend more. For its upcoming games at Sochi, Russia said the cost would be $12 billion but the total appears to have topped $50 billion. London too was not quite on the mark, having bid $3.9 billion while they spent almost $15 billion.

The expense has people citing Japan’s 230% debt to GDP ratio–the highest among the developed nations. But Tokyo projects $30 billion in economic benefits just from direct spending for the Olympics. (The 1964 Tokyo Olympics even elevated Japan’s TV sales. Now the industry is projecting what sounds like irresistible tech improvements to again stimulate sales.) Beyond that, Japanese leaders hope that a psychological boost will buoy an aging nation with a massive debt and a recent nuclear disaster.

Are they right?

It depends.

Barcelona (1992) and Atlanta (1996) fared well. Preparing for its games, Barcelona replaced a commercial waterfront with 2 miles of sand, sea and marinas. The beaches led to restaurants, a new port, hotels, a rejuvenation. Atlanta also figured out the formula to make it work. Home of Coca-Cola, they had a deep-pocketed sponsor that made the finances viable. They built stadiums that were used afterwards—by the Atlanta Braves, for example– and Georgia Tech uses the former Olympic Village to house students.

Athens (2004) and Sydney (2000) are a different story. After their Olympiad, the Greek venues deteriorated with 21 of 22 abandoned. Tourism was not fueled. Urban renewal failed to materialize. Spending was massive and debt remains. Even the Sydney Olympics about which Bill Bryson said, “I don’t wish in my giddiness to overstate matters, but I invite you to suggest a more successful event anywhere in the peacetime history of mankind, ” has had little long-term benefit. Its re-development projects did not materialize and the taxpayer cost was considerable.

What happened?

Sports economist Andrew Zimbalist says the big problem is realistic planning. Starting with a bidding process that cost a losing city like Chicago close to $100 million, private interests that will bear none of the expense propose a lavish design. During the construction phase, with little cost/benefit analysis and the siren song of overbuilding, short-term excitement can override all fiscal responsibility and planning discipline. Some say that only after the 17-day extravaganza ends does sobriety return when the new infrastructure is all that remains. Others remind us though that morale cannot be quantified as a benefit.

We can though refer to morale when we judge opportunity cost–the sacrificed alternative. If Japan were not the 2020 host, they would forgo a long list of potential benefits. The decision is well worth its opportunity cost of refusing the honor.

You might also enjoy this 2 1/2 minute Olympic animated history from The Guardian:

Sources and resources: Quartz has an excellent article that summarizes Japan’s pros and cons as the IOC 2020 winner while this Japanese source and the IOC itself provide further insight. Meanwhile, for the academic side, you can look at this OECD paper on Japan’s economic challenges. Also, dating back to 2008, this article from the Independent provides detailed stories of why Olympic cities have won and lost and for even more of the Barcelona story, you will enjoy this BusinessInsider article and this sports economics Atlantic article is excellent.

Please note that several above sections were first in this econlife post and you can read more econlife on the impact of sports events here.

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