30 years of debt and a lifetime of memories—what you get when you host the Olympics

If you build it, will they keep coming?
If you build it, will they keep coming?
Image: AP Photo / Matt Dunham
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When the UK reported 1% economic growth for the third quarter, the Olympic Games were credited for a boost that helped take the country out of a double-dip recession, its longest since World War II. There’s debate over what the preliminary GDP number really says—as Quartz’s Matt Phillips has reported, it’s become part of a political proxy war between economic “austerians” and neo-Keynesians. But it raises a point that has been asked over almost the entire history of the Olympic Games: what impact do they really have on host countries and the larger economy?

Fewer people travel. About 400,000 fewer travelers went through London’s main airport in July and August, compared to last summer, as UK residents stayed home for the festivities and foreign travelers avoided flying to London to avoid the traffic, Heathrow Holdings Ltd said. The fall in traffic hit the company’s profits and it will likely miss its full year earnings estimate of £1.27 billion ($2.04 billion), forecast in June.

Qantas cut its capacity in the United Kingdom by a third before the games, inviting criticism from people who said the company was missing an opportunity. British airlines like Virgin Atlantic and British Airways expected little to no benefit from the Olympics. The Games weren’t great for US airlines either. Transatlantic traffic, which includes continental Europe and the UK, was down an average of 2.6% for US carriers American Airlines, Delta Air Lines, United Airlines and US Airways.

Debt that can take decades to pay. It is estimated that the Olympics cost the UK around £11.3 billion in infrastructure, security and other costs. The 2008 Olympics cost Beijing at least $40 billion in preparation. Debt on its main Olympic stadium, colloquially known as the Bird’s Nest, which the city has struggled to make use of since the Games, could take almost three decades to pay off. Canada’s Montreal hosted the summer Olympics in 1976, which left the city with $1.5 billion in debt that was not paid off completely until 2006.

In a group of studies on mega sporting events, researchers Robert Baade and Victory Matheson concluded that windfalls from events like the summer Olympics of 1984 and winter games of 2002 as well as the World Cup hosted in South Korea and Japan in 2002 did not materialize as predicted by host cities championing the events. Residents of host cities were usually the losers as they faced higher taxes to fund sporting infrastructure and disruptions to their daily lives, according to a literature review of the topic (pdf, p. 17).

But sometimes the costs and gains can cancel each other out. UK Olympic officials have said they expect to break even. While the UK property market may not have been helped by the games as some had hoped, on Oct. 30 major London hotels said they saw a boost from the Olympic months. In their case study of the 1996 Atlanta games, Baade and Matheson concluded that spending on the Olympics simply replaced more efficient forms of economic activity (pdf). The 1972 Olympics in Munich, best known for the massacre of 11 Israeli athletes, were also a big economic loss at first; yet the investments made helped attract tourists over the following years, according to one study (pdf). The study concludes that ”the consensus among most academics is that most mega-events have negligible economic impact, with few statistically significant measurements found in a multitude of events.”

It’s the taking part that matters. Hosting the Olympics is about status. Developing countries host the games to signal policy reform, openness or modernization and developed nations also use the mega event to bolster their international standing. For China, the Olympics served as the country’s appearance as a world power. In South Korea in 1988, the games spurred democratization.

Even if the Olympics boosted UK GDP temporarily, the more important gain is sentiment. We don’t know the full monetary benefits, or losses, of the games yet but they did give a country that is fighting deflation and high unemployment some much needed reasons to be cheered. Even Brits, many of whom had been skeptical of hosting the Olympics in London, admitted they were a little sad it was over.