Investing in the Rings

How Olympic Hosting impacts Economic Growth

The Olympic games is quite a majestic event for the host city, who outbids all other participating cities to earn the right to host it. Yes, outbids! The Olympic Games stand as a quintessential example of national investment on a global stage, prompting perennial questions about their economic justification: Do the benefits outweigh the costs incurred? Today, we delve into historical examples to discern instances where Olympic investments have proven as a boon and where they have led to financial disaster. Join us as we explore the complex interplay between national pride, economic strategy, and the lasting impact of hosting the world’s premier sporting event.

Underlying success factors:

Barcelona’s successful hosting of the 1992 Olympic Games stands as a shining example of strategic planning and visionary leadership. Several key factors contributed to its triumph, offering valuable lessons for future host cities.

• Firstly, Barcelona leveraged the Olympics as a catalyst for comprehensive urban redevelopment. Starting in 1986, the city embarked on a strategic overhaul, implementing 320 projects that revitalized infrastructure and created five new central areas. Crucially, the Olympics provided the impetus to secure funding from the central government for critical initiatives, such as a much-needed ring road, which yielded long-term economic benefits.
• Barcelona pulled off a smart move for the Olympics by teaming up with private companies to pay for more than half of the infrastructure. This saved a lot of taxpayer money and made sure the city wasn’t stretched thin financially. Even though the government managed most of the funds, they were careful about where they spent it, focusing on things that directly benefited Barcelona the most. The city council only had to cover a small part of the bill, but it had a big impact on making Barcelona a better place. Economists even say that every dollar spent during that time boosted the economy by $14! That’s like getting a huge return on your investment.
• Moreover, Barcelona’s success was rooted in fostering civic engagement and enhancing its global image through innovative communication strategies. The city embraced unconventional ideas in ceremonies and visual elements, captivating residents and fostering a sense of collective pride and ownership in the Games. This widespread enthusiasm extended beyond Barcelona, resonating throughout Spain and neighboring regions, bolstering the event’s overall success.
• Recognizing the importance of collaboration, Barcelona strategically involved other Catalan towns and cities in hosting Olympic events. This regional cooperation not only dispersed costs but also ensured infrastructure was utilized effectively, avoiding the pitfalls of oversaturation common in other host cities.
• To address the perennial challenge of post-Games infrastructure utilization, Barcelona invested in developing a sustainable sporting economy. By integrating the Olympic facilities into broader community use and constructing 4,500 housing units—of which  4100 units had been sold until 1995—the city ensured ongoing economic viability and reduced financial burden on public coffers.

Barcelona’s case illustrates that successful Olympic hosting goes beyond hosting a sporting event; it entails strategic urban planning, effective financial management, community engagement, and long-term vision. However, amidst Barcelona’s successes, the question remains: what were the true magnitudes of these benefits? To delve deeper, we must analyze the measurable impacts and economic gains derived from the city’s strategic approach to hosting the 1992 Olympic Games.

Olympic success:

Barcelona’s 1992 Olympics were a game-changer for tourism. The city went from being known for industry to becoming a top spot for travellers, thanks to its beautiful buildings and beaches. To prepare for all the new visitors, Barcelona added 30% more hotel rooms before the Games. At first, this led to fewer people staying in each hotel, but after the Olympics, things picked up fast. Within six years, even though there were 61% more hotel rooms than before, more people were visiting than ever. Hotel occupancy rates jumped back up to over 81%, showing that the city was still a hot destination. This increase wasn’t just in total visitors, but also in those staying overnight, who really boost the local economy. Barcelona became a must-see place, partially because of the Olympics.

Fig. 1

By examining changes in visitor numbers in various cities over a decade, we can see that Barcelona’s increase was exceptional and directly linked to hosting the Olympic games. This is shown below:

Fig. 2

The contrast with other cities in the same region makes it clear: while multiple factors contributed to Barcelona’s tourism boom, the Olympics played a significant role. 

Media coverage:

Another benefit of hosting the Olympics is extensive media coverage that a city receives which in turn directly leads to more marketing and hence greater tourism in the city and this was something that we observed in Barcelona as well. 

• Before the olympics in the year 1990 only 39% of the visitors came with the purpose of holidays however this number had then shot up to 50% in 1997 and 63% in 1998. Tourists naturally have much longer duration stays in a city and hence contribute a significant amount to the economy. 
• The origin destination helps us estimate the purchasing power of said tourists and that gives us a qualitative idea about benefits that the local economy then enjoys. In the case of Barcelona there was one particular origin that saw a significant change post Olympics. Americans were about 5.9% of the visitors before the games and 1 year after the games this number was 8.7%. This clearly shows how the extensive media coverage can help bring significant advantages to the economy by attracting tourists from higher income countries. 

MICE:

Another indicator of economic vitality in a city is the MICE industry—Meetings, Incentives, Conferences, and Exhibitions. In the years following the Olympics, Barcelona’s image transformation directly contributed to a noticeable uptick in business activity as shown below. 

Fig. 3

Transportation:

During the Barcelona Olympic games, eleven ships were repurposed as hotels for approximately 18 days contributing significantly to the city’s accommodation infrastructure. The port became the second-largest hub for Olympic guests, accommodating around 11,000 individuals, following the Olympic Village which housed approximately 15,000. This influx necessitated substantial investments in Barcelona’s port facilities to handle the increased demand. The impact on Barcelona’s cruise industry has been profound, evident in the subsequent growth of both cruise liners and passenger numbers. The data below illustrates this:

Fig. 4

Moreover we can look at tourist buses as another metric of tourist activity in the city. In Barcelona, during the Olympic year, there was a notable 262% increase in tourist bus passengers compared to two years prior. By the year 2000, this number surged by an astonishing 3600% compared to 1990, underscoring the significant influx of visitors drawn by the Olympics and its positive impact on the economy. 

Supporting this assertion, data from the London Olympics reveals a correlation: as visitor numbers rise, so does total spending. This relationship is illustrated below:

Fig. 5

The data above shows that in an Olympic year the spending from visitors spikes and the data displayed above once again proves that gains from hosting the games last beyond just that year. 

The Macro-economy:

There is further evidence in terms of macroeconomic gains that gain can be made for a country as a whole rather than just the city. A research paper published by the Bank of Japan indicates how when a country wins the bid for hosting the Olympics there is a significant change in its macroeconomic policies that in turn boosts the trade and investment sector bringing tangible benefits in terms of real GDP. 

Fig. 6

There are a number of examples that help show how when countries win the bid to host olympics they participate more openly in the global economy in an effort to open themselves up to the world in order to fully realize the economic gains associated with hosting the games (examples and effect on real exports shown above. Diagrams sourced from BOJ research paper). This coupled with increased investment into the economy also helps create a situation where there are gains in headline figures like GDP growth that can also be observed (this is seen below).  

Fig. 7

Olympic failure:

We have seen from the above examples that success cannot be guaranteed despite utmost certainty regarding a solid plan and execution. Such is also the case with several of the olympics such as the 1996 Atlanta olympics and the 2016 Rio olympics. 

Underlying factors that lead to the failure of the Rio olympics:

• Safety and infrastructure are critical pillars for the success of any major event, especially one as globally significant as the Olympics. However, during the Rio Olympics significant challenges tarnished its image and impacted its overall success. The reported incidents of crime, including the robbery of Australian Paralympic team members and the alleged kidnapping and robbery of a New Zealand athlete by the police, raised serious concerns about safety and security. These incidents not only endangered participants but also marred the event’s reputation and undermined its ability to project a positive image internationally—a crucial aspect for the Olympics’ success in fostering goodwill and tourism.
• Moreover, the poorly built infrastructure, particularly the substandard conditions at the Olympic Village, compounded these issues. Upon arrival, several countries, including Australia, expressed dissatisfaction with the living conditions, citing plumbing and electrical problems that rendered many buildings uninhabitable. Australia even relocated over 700 athletes to hotels due to these deficiencies, highlighting the severity of the infrastructure shortcomings.
• The water in venues like Guanabara Bay and the Rodrigo de Freitas Lagoon was heavily polluted. Tests showed that viral levels in the water were up to 1.7 million times what would be considered hazardous on a California beach. Efforts to clean the bay fell short, with only 50% of the sewage being treated as opposed to the promised 80%.
• The Rio Olympics left a haunting legacy with images of empty apartment buildings meant for delegations. Studies reveal Rio faced a staggering 51% cost overrun, totaling $6.9 billion, consistent with median cost overruns of Olympic Games since 1999. This pattern isn’t isolated; a report before the Tokyo 2020 Olympics highlighted that 47% of Games historically experienced cost overruns exceeding 100%.

Underlying factors that lead to failure of other olympics:

• The Centennial Olympic Park bombing on July 27, 1996, killed 2 people and injured 111 others. This tragic event highlighted lapses in security planning and execution.
• Athletes complained about substandard accommodations in the Olympic Village, with some rooms lacking basic amenities like air conditioning.
• Atlanta only ended up creating a tenth of the jobs that it promised to create during its bid, severely minimizing the potential economic benefits. 

These issues collectively diminished the excitement and positive buzz typically associated with the Olympics. Instead of showcasing destinations as a capable and welcoming host, these incidents and infrastructure failures highlighted organizational and logistical challenges, detracting from the event’s overall success and legacy. These incidents not only endangered participants but also marred the event’s reputation and undermined its ability to project a positive image internationally—a crucial aspect for the Olympics’ success in fostering goodwill and tourism.

Conclusion

The analysis above underscores several key points. It demonstrates that the Olympics have not been an economic certainty of failure in the past, nor are they so in today’s modern economy. When executed effectively, this national investment can yield significant returns. Moreover, it highlights that the Olympics transcend mere sport, serving as a potent catalyst for local economies, infrastructure development, and global visibility.

However, the analysis also underscores the complexity inherent in hosting the games. Successful execution demands meticulous planning and years of preparation. Conversely, as seen with Rio de Janeiro, hasty or inadequate planning can lead to economic disaster.

By examining the contrasting outcomes of Rio and Barcelona, we have identified critical factors that influence Olympic success or failure. Barcelona’s success was rooted in comprehensive urban planning, strategic partnerships, and sustainable post-Games utilization of infrastructure. In contrast, Rio’s challenges stemmed from financial mismanagement, unmet legacy promises, and inadequate planning for sustainable use of facilities.

As anticipation builds for the Paris Olympics, it becomes imperative to maintain a vigilant focus on economic viability. We must scrutinize whether the Games can indeed deliver on their promise to “generate returns,” both in economic terms and in lasting benefits for the host city. 

So you see, being an Olympic host is much like being a smart & strategic investor.

They both: 

• Need to realize nothing is guaranteed. 
• Must refrain from jumping into an opportunity just because it has done well in the past.
• Need to weigh the risks & decide if the opportunity is apt.
• Need to have a long-term investment view & implement in a well thought out way.

Source:

Fig. 1-4: Research paper authored by Pere Duran, Published in 2002, Titled “The impact of Olympic games on tourism, Barcelona: The legacy of the games 1992-2002”.

Fig. 5: ONS, International passenger survey, 2012: UK Tourism Survey. 

Fig. 6-7: Research paper published by Bank of Japan, Published in 2016, Titled “Economic impact of Tokyo 2020 Olympic games”.