Olympics economics

Going For Broke

Why Politicians go for Olympic “Gold”

In 1976 the city of Montreal went broke sponsoring the Olympic Games. The event was such a disaster that the city ran out of funds to build the Olympic Stadium and it was never completed. The final debts were settled after 30 years of payments in 2006.

Athens, 2004 was even more disastrous. According to Money Week the total debt from the Olympic expenses that year equaled 4% of the total Greek GDP but that the Olympic debt equals 100% of the countries total GDP. As a result Greece was placed on economic probation and all lending to the government was suspended by the European Union.

The next Olympiad is scheduled for London in 2012 and indications are that there is a disaster looming there as well.

While we all are sorry that Chicago failed in its bid and we want to congratulate the citizens of Brazil some of us are privately saying its better to visit Rio in 2016 than to see our children burdened with more of this type of debt.

Why do political leaders place so much hope in these events? Why do they fail so spectacularly? And what turns the perfect plans into debacle?

One simple answer is the nature of planned economies. As the USA turns to a centrally planned economy we can look to the Olympic failures as one more reason that there are skeptics about the future. All of the cities and countries viewed the Olympic experience as a way to infuse capital into their systems. Then when they attracted the capital they diverted it to social spending and lost sight of the fact that the capital had to be paid back from revenue.

In effect the government planners spend the revenues twice. First they spend it on social engineering projects then they need even more cash to pay back the banks and other governments that made the original capital loans available. Many times the projected costs of construction triple as local governments struggled to comply with their own regulation on construction and private developers.

Finally tourism dollars actually go down during the event as the athletes and the teams crowd out the normal tourists. Thus the businesses in the host city actually lose money during the event.

Looking at London you can see the train heading for the wreck as many projects are well behind schedule and the London Development Agency is spending its capital on the development of “Green Jobs”. Their goal is to use the site after the Olympics leave to help replace the estimated one million industrial jobs London has lost since 1973. So far, the committee has developed a tourism project which provides tours of the area to London area Elementary school children. They must be tired of the same old “Tower of London” and all of the other British Museums. Now they are going to have a tour of the old Industry “thing?

It begs the question ...why not invest capital into new industrial jobs? Is hard work for the semi-skilled a “thing” of the past for London?

The other reason governments want Olympics is quite frankly it is a rich source of political pay offs for cronies. Dr. Frank Zarnowski, political economist has noted that even the so called “best run” Olympics”, The 1984 LA Games, was riddled with 73% of the overall costs going to nebulous “administrative” costs.

The Olympics are fun to watch but no one wants to pay the ticket price for them. If you want to see them live have a good time in London or Rio.