The Olympics are upon us, and it is an exciting time for the world. Whether you regularly watch the sports or not, the Olympics are a good excuse for people to celebrate and watch the world’s best compete. While it is no secret that the Olympics bring immediate retail benefits, the real question is whether being a host country is economically beneficial in the long run.
It’s pretty obvious that a retail spike for a host city from the Olympics is massive. With hundreds and thousands of visitors in attendance, the Olympics provide economic growth only comparable to the World Cup. With consumer spending only a fraction of the benefit that the Olympics bring, countries can also expect tremendous exposure, international trade and capital flows. While this seems great on paper, this large influx requires substantial investments in infrastructure, arenas, highways and airports.
The whole process begins with a bidding event that immediately weeds out the small players. To put things into perspective, Chicago has been reported as spending nearly $100 million in their efforts to host the 2016 Olympics. Once a city’s selection process is complete, the host country must begin developing and repositioning infrastructure to support this massive increase. This usually works best with cities with underdeveloped infrastructure in hospitality and service.
While its pretty obvious that retail operations must be substantially built out, what many overlook is the amount of transit and transportation improvements required to host the games. Even the world’s best transportation systems have a hard time handling this influx. The trick is to try to build somewhat reasonable infrastructure that will actually be used after the games end.
When you think of flying on private jets, the idea of having trouble with parking doesn’t come to mind. However for the Sochi olympics, Russia decided to moderately expand their airport operations and instead required aircraft to simply drop off passengers and station the jet elsewhere. While this sounds great in concept, it is the execution that has created problems. Time slots are in such high demand that the airport authorities have actually begun fining people up to $43,000 for showing up late for their landing slot.
After the infrastructure has been built and the games are finally upon us, host countries can expect $5 to $6 billion in revenue. While there are indirect benefits of hosting the event including 17 days of straight media with high viewership, international trade and capital flows, these numbers are hard to track. With $40 billion spent on the Olympics and a reported $50 billion spent recently in Sochi, the question has become whether a country can find long term use for this newly built infrastructure.
In the majority of circumstances, many countries end up experiencing a pretty severe economic loss. The most recent example is Greece, who hosted the Olympics in 2004 went bankrupt shortly there after. Purportedly, Greece spent nearly $11 billion on infrastructure, nearly double the initial budget, which severely outweighs the revenue gained from the event. What’s worse is nearly a decade later, half of the infrastructure is completely unused or barely used at all.
In contrast, there have been two examples of economic success in the Olympics both taking place in Los Angeles that have ended in an economic surplus for a city. For example, in the 1984 Olympic Games Los Angeles represented the most recent success story. Much of this can be attributed to the Olympics being ran by a privately held group rather than the government. This group was lead by Peter Ueberroth, later the commissioner of Major League Baseball. Because this was a private group, they were more concerned with keeping the event within the budget rather than being focused on making the event the best ever. Prior to these games, the Olympics were viewed in a negative light in the eyes of potential host countries; however, this event went so well that countries recently have begun bidding to host the Games.
The most interesting cases is the upcoming 2016 Olympics in Brazil. While on paper these games should be relatively easy to predict as a loss, being an emerging market and also hosting the World Cup within a two year span will provides an intriguing case study for potential economic success. With Brazil already developing much of the overlapping infrastructure required for the Olympics, the country can have the ability to cover the expenses for both events with one city renovation.
Historically, the majority of the host countries have ended in the red. With this being said, almost every country in the world is jumping at the opportunity to host the games. While it is hard to pass up one of the best marketing opportunities in the world, it must be somewhat rationalized to fit within your budget. There is no silver lining when looking at whether this event makes sense, every variable must be taken into consideration and evaluated on a case by case basis.
This article was written by Johnny Sengelmann, COO and co-founder of Fresh Jets. Fresh Jetsaggregates private jet schedule and pricing information in real-time matching inventory to the travel needs of businesses and individuals instantly. Want to know what is so great aboutflying private? Find out for yourself here.