Is It Worth It?

• Author: Andrew Zimbalist
• Position: Is Robert A. Woods Professor of Economics at Smith College

WHEN Rio de Janeiro won the bid last October to host the 2016 Summer Games, thousands of jubilant Brazilians danced on Copacabana Beach and the news made headlines around the world. Chicago’s failed bid for the same games reportedly cost that city about $100 million. Why do countries place so much value on hosting the Olympics or similar mega sporting events?

Hosting a large sporting event potentially offers both direct and indirect economic benefits. Direct benefits include capital and infrastructure construction related to the event, long-term benefits such as lower transportation costs thanks to an improved road or rail network, and spending by tourists who travel from out of town to attend the games. Indirect benefits may include advertising effects that showcase the host city or country as a potential tourist destination or business location in the future and an increase in civic pride, local sense of community, and the perceived stature of the host city or country. But there is also a potential downside, resulting from possible cost overruns, poor land use, inadequate planning, and underutilized facilities.

The Olympic Games are much like other large sporting events, such as the World Cup, Super Bowl, or World Series, but they involve many more participants, officials, and fans; require more infrastructure construction; generate many more out-of-town visitors; and generally have a much higher profile.

Potential benefits

Of the direct economic benefits generated by mega sporting events, tourist spending is probably the most highly touted. An average of 5.1 million tickets were sold for the past six Summer Olympic Games, and an average of 1.3 million tickets for the past five Winter Olympics. Even though many of the tickets are sold to local residents, especially for the Summer Games, which typically take place in large metropolitan areas, a sporting event of this size and scope has the potential to attract a significant number of visitors from outside the host city. Also, since the games are spread over more than two weeks, these visitors may spend considerable time in the host area, generating substantial spending in the lodging and food and beverage sectors. Additional visitors for the games, however, are likely to be at least partially offset by fewer visitors for other purposes (tourism or business), as the latter seek to avoid the higher prices and congestion associated with the Olympics. Further, even if hotel occupancy rates and room prices rise during the games, the extra revenue often leaves the local economy as hotel profits are transferred to the company’s home office.

Hosting a mega event like the Olympic Games often requires expansive infrastructure to move the participants, officials, and fans to and from the venues. A majority of past transportation infrastructure construction has been on roads. But host cities and regions have also spent considerable sums on airport construction as well as on the renovation and construction of public transportation systems (Essex and Chalkley, 2004). The bullet train built for the Nagano Games greatly reduced the travel time between that city and Tokyo.

In less-developed cities, building modern telecommunications capacity also represents a substantial investment. The construction of this infrastructure generates appreciable economic activity in the host community. Many construction workers must be hired and large quantities of construction materials must be purchased and transported.

Beyond the construction period, sports-event-generated infrastructure can provide the host metropolitan area or region with a continuing stream of economic benefits. The venues built for these events can be used for years or decades afterward. More important, upgrades to the transportation infrastructure can provide a significant boost to the local and regional economy, if local businesses are able to make use of the improved transportation infrastructure.

The indirect economic benefits generated by mega sporting events are potentially more important than the direct benefits, but are more difficult to quantify. One possible indirect benefit is the advertising effect of such events. Many Olympic host metropolitan areas and regions view the Olympics as a way to raise their profile on the world stage. In this sense, the intense media coverage before and during the Olympic Games or other big events is a...