In Rio this year, the modern Olympic games have turned 120 years old. Brazil plays host to contingents from 205 other nations, and the show promises to be bigger and better than London four years ago.
But beneath the glitz and the glam lurks the reality of nations built and broken by the costs of the Games. Brazil will have spent $9.7 billion when curtains fall on the Games by the end of this month.
In 2004, the Greeks reportedly spent around €7-9 billion, and over two-thirds of it came from the taxpayer’s pocket. While the government reported that the cost of the 2004 Athens Games was recovered in 2013, the International Olympic Committee (IOC) had reported a revenue of $985 million from the Games.
It’s a burden
There is something fundamentally wrong in the way the privately-funded IOC, which ‘owns’ and ‘runs’ the Games, manages its revenue and finances. The host country is left to bear the financial burden.
Last month, sports sociologist David Goldblatt noted that the cost of hosting the Olympics has risen by 200,000 per cent between 1896 and 2006, and such an increase “in the bill suggests that something other than the geometric arithmetic of more states and sports has been at work.”
The 1984 Los Angeles Olympics was one of the first financially-successful Olympics, raking in around $222.7 million in profits. The revenue of about $768 million was largely through the sale of television rights, commercial sponsorship and tickets. This became a game changer.
Today, the IOC is entirely funded through various marketing programmes. In 1985, a year after the LA Olympics, The Olympic Partnership (TOP) programme was created “to develop a diversified revenue base for the Olympic Games and to establish long-term corporate partnerships that would benefit the Olympic Movement as a whole”. The TOP and other sponsorship programmes constituted 46 per cent of the IOC’s revenue between the last quadrennium (the four-year Olympic period).
The IOC’s primary revenue stream, however, is through its broadcast partnerships. It constitutes 47 per cent or $3.8 billion of the $8 billion revenue made in the last quadrennium. But what does the IOC do with the revenue?
Dark coffers
The IOC’s financial statements are, mildly put, opaque. According to its website, it distributes “over 90 per cent of its revenues to organisations throughout the Olympic Movement to support the staging of the Olympic Games and to promote the worldwide development of sport.” The rest goes towards operational and administrative costs. The Olympic Movement involves the Organising Committee of the Olympic Games, the national Olympics Committees, sports federations and other recognised bodies.
But here’s the caveat: the IOC’s contribution, through its various bodies, to set up and host the Games is really small. Host cities are expected to bear all infrastructure costs and once everything is in place, the OCOG takes over the show.
For the 2012 London Olympics, the IOC’s contribution was around 6-7 per cent of the £11 billion spent. According to data collected by The Guardian , public spending was a whopping 82 per cent. The Economist noted that the London Olympics generated $5.2 billion in revenues, but a large chunk of it went straight to the IOC. This revenue was from television rights, ticket sales, licensing and sponsorships, all of which are controlled directly by the IOC.
In such situations, the question should be if countries should even contemplate such extravagant events. Rio is perhaps the unluckiest of them all. When Brazil won the Olympics bid in 2009, the grass was greener on its own side. The commodity boom of the 2000s had ensured a steady rise to the top and the economy recorded a 7.5 per cent increase in GDP in 2010.
As the country hosts the 2016 Rio Olympics, things could not have been worse. It has had to deal with its worst economic crisis since the Great Depression, the worst health epidemic since 1918 and an unstable political environment. The cost attributed to the Olympics varies wildly from over $4 billion to under $20 billion, depending on who calculates it and what is included in that calculation.
As Reuters reports, the Rio Olympics will cost $12 billion. But if one were to see the calculations of the IOC and the OCOG, it is around $7.4 billion. However, this excludes capital costs such as stadiums, the Olympics village and other public infrastructure. This cost is borne by the government, and hence, the actual expenditure towards the Games is much higher.
In February 2016, Brazil allocated $9.7 billion from both public and private sectors for the Olympics. This has also excluded infrastructure costs. Even without the infrastructure costs, Brazil’s budget for the Olympics is 16 times its Aedes prevention programme, which tackles the deadly Zika virus. As recently as June 2016, Brazil extended a loan of $895 million to Rio de Janeiro for the completion of a key subway that would ferry athletes.
Do we need this?
Such extravagant expenditure has come under a lot of criticism by Brazilians and international media. So why should developing economies who face substantial developmental challenges, undertake such expenditure?
Most Olympic Games have left behind a trail of crushing debt. In his book Circus Maximus , economist Andrew Zimbalist writes that while consulting firms project an employment and investment boost, most post-Games surveys revealed that in 16 cases the Games had no significant effect on employment or income and in three cases, there was a negative impact.
Hosting the Games is far less popular among cities, despite IOC surveys claiming otherwise. The Games are seen as a mere front to showcase a country’s standing and prosperity. As an American economist put it, it’s “an athletic coming-out party” But it could well be a party where things turn out messy for the host, as it has for Brazil.