Many studies have been conducted to examine the economic feasibility of hosting the Olympic Games. As organizer of the world’s largest sporting event, the host city bears most of the direct and indirect costs. However, there is no consensus on the net impact of mega events like the Olympic games on the economy, as countless variables and causalities contradict each other and distort the relationship. 

Pre-hosting analyses, usually sponsored by the organizers, tend to highlight the benefits while downplaying the additional-borne costs. Conversely, outraged public opinion might drive some studies to exaggerate the negative impact of such events. 

In this article, I will try to strike a balance between these extremes. Nevertheless, I have no expectations of obtaining a precise estimation for the indirect externalities of hosting the Olympics, as they account for most of the net outcomes.

Socio-economic Impact of Hosting the Olympics

Host cities usually experience a positive social and psychological impact, whether during the period preceding major events or in their aftermath. For example, a BBC poll conducted immediately after the Olympics in 2021 revealed that 80% of respondents felt “prouder to be British” due to the event. 

Several studies have attempted to quantify the intangible benefits of the Olympics using a probabilistic valuation methodology. This approach constructs a set of survey questions designed to estimate the value people place on an event. Utilizing this method, Atkinson et al. (2008) and Walton, Longo, and Dawson (2008) conducted sophisticated valuation studies of the London 2012 Olympic Games, using best practices. They found that people in London and across the UK were willing to pay more for hosting the Games than for any actual costs associated with attending any Games-related activities. 

The total intangible value identified for the UK population in these studies was approximately £2 billion. While this is undoubtedly a substantial sum, it falls short of the cost of hosting the Games. 

The disparity between the success of an Olympic event and its economic impact can be significant. This was particularly evident in the case of the Sydney Olympics in 2000. Despite receiving almost universal praise from spectators worldwide, a lack of foresight and legacy planning has left Sydney residents questioning whether Olympic economics spelled boom or catastrophe. As is often the case when hosting the Olympic Games, the New South Wales government was compelled to spend far more than it had intended. By the time the first medals were awarded, the total investment had risen to almost $5 billion, with $1 billion funded by public money.[i]

A Point Where Hosting the Olympics Became a Burden

Economist Andrew Zimbalist, author of three books on the economics of the Olympics, identifies the 1970s as a turning point in Olympic history. The games were rapidly expanding, with the number of Summer Olympics participants nearly doubling since the early 1900s and the number of events increasing by one-third during the 1960s.

However, two major incidents deterred countries from taking on the huge costs and debt associated with hosting the Games: the killing of protesters by security forces before the 1968 Mexico City Games and the September attack on Israeli athletes at the 1972 Munich Games.

In 1972, Denver became the first and only host city to “reject” the opportunity to host the Games, after voters passed a referendum opposing additional public spending for the event. A 2024 study by Oxford University estimated that since 1960, the average cost of hosting has been three times the bid price. This discrepancy suggests that hosting countries are incurring significant losses, as it is financially irrational to bid so far below the break-even point.

Montreal Vs. Los Angeles: Two Different Models

The 1976 Summer Olympics in Montreal drew attention to the growing financial risks of hosting the Olympic games. The city initially projected the cost of hosting the games to be around $124 million. However, the actual cost ballooned to billions of dollars above that estimate, largely due to construction delays and the expense of building a new stadium. As a result, Canadian taxpayers shouldered a debt of about $1.5 billion that took nearly three decades to pay off. 

Los Angeles, on the other hand, was the sole bidder for hosting the 1984 Summer Olympics. This unique position gave the city the privilege to negotiate favorable terms with the International Olympic Committee. More importantly, Los Angeles was able to rely almost entirely on existing stadiums and infrastructure, rather than the pledge to establish new facilities, in an attempt to win the hosting ticket. 

Furthermore, TV broadcasting revenues soared for the 1984 Games, allowing Los Angeles to achieve what no previous city had accomplished: making a profit. The city ended the year with an operating surplus of $215 million, marking a stark contrast to Montreal’s financial struggles.

Surging Costs of Hosting the Olympics

Costs have soared to staggering levels for recent Olympic games: more than $50 billion for the 2014 Winter Olympics in Sochi, $20 billion for the 2016 Summer Olympics in Rio de Janeiro, and $39 billion for the 2022 Winter Olympics in Beijing (generating only $3.6 million in revenues), according to estimates by Business Insider.  The delayed Summer Olympics in Tokyo incurred $13 billion in expenses while bringing in only $5.8 billion in revenue.

These escalating costs have driven some cities to withdraw their bids for subsequent games. In 2021, Brisbane, Australia, the host of the 2032 Summer Games, became the first city to win an unopposed Olympic bid since 1984.

Many economists argue that the estimated benefits of hosting the Olympics are exaggerated if not nonexistent, as the Games often leave host nations deeply indebted and burdened with maintenance obligations beyond their means. However, the International Olympic Committee and its supporters contend that hosting can improve city’s global profile and generate extraordinary economic benefits through tourism and infrastructure investments. 

The 2004 Summer Olympics in Athens, Greece were suspected of exacerbating the country’s financial imbalance for years.  Excessive and imprudent spending—more than $15 billion at the time—helped fuel the major Greek financial crises of the 2000s and 2010s. Cost overruns and mounting debts were never paid off, and several sports arenas erected for the games saw little use in subsequent years.

Economists claim that “implicit costs” of the Olympics should also be considered while weighing the cost-benefit of hosting the Olympics. These include the opportunity cost of public spending on other priorities, that were neglected or postponed due to the focus on organizing the Games. Servicing the debt that accrues after hosting the Games can weigh on public budgets for decades. It took Montreal until 2006 to pay off the last tranche of its debt from hosting the 1976 Olympics, while billions of dollars in debt accelerated the process of Greece's bankruptcy.

Macro-economic Perception of Hosting and Participating in the Olympic Games

At the macroeconomic level, economists Stephen Billings and Scott Holladay found no long-term impact of hosting the Olympic games on a country's GDP. However, other economists have identified positive effects on international trade.

A study of the 2002 Salt Lake City Games by Matheson,  Robert Baumann, and Bryan Engelhardt revealed a short-term boost of seven thousand new jobs—roughly one-tenth of the number promised by officials—but no long-term increase in employment figures. According to research conducted by the European Bank for Reconstruction and Development, jobs created by Olympic construction are often temporary. Moreover, unless the host region is experiencing high unemployment, these positions are typically filled by already-employed workers, diminishing the impact on the broader economy.

Economists have also discovered that the influence on tourism is uneven. The Olympics' heightened security measures, crowds, and increased prices often deter regular visitors. While Barcelona, which hosted the Olympics in 1992, is regarded as a tourism success story- rising from eleventh to sixth most popular destination in Europe following the Summer Games- and Sydney and Vancouver witnessed minor increases in tourism after hosting, Baade and Matheson found that Beijing, London, and Salt Lake City all experienced declines in tourism figures during their respective Olympic years[ii].

The economic impact of the Olympics extends beyond host countries. Participating nations also bear the direct costs of preparing, equipping, transporting, and accommodating their teams, as well as expenses related to honoring the medal winners.

Perhaps the most significant benefit that countries may seek from participating in the games is the good psychological impact of winning medals or advanced rankings in other competitions, which would be reflected in individual productivity. This is closely tied to the reputational and commercial advantages gained when a country’s flag is flown and national anthem played repeatedly on screens during the events. 

However, there is also a risk of reputational damage and the spread of negative sentiment (nationally), resulting from poor competitive outcomes. This can be exacerbated by instances of dishonest performance or behavior contrary to Olympic values among certain competitors. The magnitude of this negative influence is often proportional to the size of the participating sports delegation, as larger teams generate higher expectations for significant Olympic medal wins both domestically and internationally.