Tag: Olympic Games

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The economics of the Olympics

The Winter Olympics are full on as athletes from all over the world compete against each other, hoping to set new world records, win medals and be known as Olympians. Pyeongchang, the South Korean county that hosts the 2018 Winter games, enjoys a large influx of tourists – estimated at 80,000 people a day. This is certainly an unusually large number of tourists for a region that has a regular winter-time population of no more than 45,000 people.

Having such a high number of visitors to the Winter Olympics, and even more to the larger Summer Olympics, is not an unusual occurrence, however, and it is often mentioned as one of the benefits of being a host to the Olympic Games.

Baade and Matheson (see link below) distinguish between three key benefits of hosting the Olympic Games: “the short-run benefits of tourist spending during the Games; the long-run benefits or the ‘Olympic legacy’, which might include improvements in infrastructure and increased trade, foreign investment, or tourism after the Games; and intangible benefits such as the ‘feel-good effect’ or civic pride”.

On these grounds, a number of studies have been authored, attempting to analyse some or all of these benefits, distinguishing between short-term and long-term effects. Müller (see link below), uses data from the 2014 Oympic Games in Sochi, Russia, to assess the net economic outcome for the host region. He concludes that any short-term economic benefits caused by the investment influx (before and during the games) could not offset the long-term costs, leading to an estimated net loss of $1.2 billion per year.

Zimbalist (2015) and Szymanski (2011) report similar results when analysing data from the London Games (2012) and past major sporting events (Games and FIFA World Cup). Kasimati (2003) points out the significant economic benefits that host regions tend to enjoy for years after hosting the games, but argues that the overall effect depends on a number of factors (including pre-existing infrastructure and location).

The jury is, therefore, still out on what is the overall economic effect of being host to this ancient institution. But I must now dash as women’s hockey is soon to start. “Let everyone shine”.

Articles

For the sake of the games, South Korea needs to show hosting an Olympics can be economically viable CNBC, Yen Nee Lee (15/2/18)
South Korea’s Olympic bet is unlikely to pay off, economics professor says CNBC, Andrew Wong and Andrew Zimbalist (12/2/18)
Going for the Gold: The Economics of the Olympics Journal of Economic Perspectives, Robert A. Baade and Victor A. Matheson (Spring 2016)
After Sochi 2014: Costs and Impacts of Russia’s Olympic Games Eurasian Geography and Economics, Martin Müller (9/4/15)
Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup The Brookings Institution, Andrew Zimbalist (14/1/15)
About Winning: The Political Economy of Awarding the World Cup and the Olympic Games SAIS Review of International Affairs, Stefan Szymanski (Winter/Spring 2011)
Economic aspects and the Summer Olympics: a review of related research International Journal of Tourism Research, Evangelia Kasimati (4/11/03)
“Let Everyone Shine”: the song for the PyeongChang 2018 Torch Relay unveiled with 200 days to go Olympic Committee (24/7/17)

Video

The Olympic Winter Games PyeongChang 2018 Torch Relay Official Song PyeongChang 2018

Questions

  1. Using supply and demand diagrams, explain whether you would expect hotel room prices to change during the hosting of a major sports event, such as the Winter Olympics.
  2. List three economic (or economics-related) arguments in favour of and against the hosting of the Olympic games. Relate your answer to the empirical evidence presented in the literature.
  3. Why is it so difficult to estimate with accuracy the net economic effect of the Olympic Games?
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2020 Tokyo Olympics

The 2020 Olympics has just been awarded to Tokyo, beating Madrid and Istanbul. Concerns over the safety of the games in Tokyo, with the city being perceived as relatively close to the Fukushima nuclear plant, were overcome with the help of an address by the Japanese Prime Minister, Shinzo Abe. So, what are the economic implications of this latest development in the sporting world?

When London was awarded the 2012 Olympic Games, estimates suggested that it would generate a £16.5 billion contribution to GDP. With many new construction projects, there was the inevitable injection of government expenditure. This led to the creation of new jobs and thus successive employment multiplier effects were generated. This is also likely to be true for Tokyo, with current proposals suggesting that ten new permanent sites will be built to host the various sports of the Games. This will undoubtedly generate new jobs and will provide an almost certain boost to the construction industry. This, in turn, will generate further multiplier effects across a multitude of industries and across the rest of the country.

There will also be further economic effects, for example on Japanese investment and stocks and shares, with a boost in confidence and optimism. A Tokyo-based fund manager, Hiroshi Fujumonto, said:

Olympics-related stocks are yet to fully price in the decision, even though they’ve already outperformed … In the short term the entire Japanese share market will get a boost from celebratory buying and expectations for the event’s economic impact.

This was also confirmed by Shinzo Abe, when he commented after the victory was announced that ‘I want to make the Olympics a trigger for sweeping away 15 years of deflation economic shrinkage.’ The Japanese economy has been struggling for many years and this may be the much needed boost to the country’s optimism, infrastructure and economy.

As the world’s third largest economy, this economic boost is also likely to have knock-on effects on other countries across the world, though it is more likely to be the long-term impact that is important here. Just as it was with the London Olympics, the final effect and cost will only be known some years after the Olympics are held, but for now the work will start for Japan.

Olympics 2020: Tokyo wins race to host games BBC Sport (7/9/13)
Tokyo Olympics win seen boosting infrastructure, recovery Bloomberg, Yoshiaki Nohara and Satoshi Kawano (8/9/13)
Tokyo wins bid to host 2020 Olympic Games Telegraph, Ben Rumsby (8/9/13)
Tokyo chosen as ‘safe pair of hands’ to host 2020 Olympics Financial Times, Benedict Mander (8/9/13)
Japanese bid’s passion earns Tokyo the 2020 Olympic Games Guardian, Owen Gibson (7/9/13)
Olympics 2020: Why Tokyo is a ‘safe pair of hands’ to host Games BBC News, David Bond (8/9/13)

Questions

  1. What is the multiplier effect and how is it calculated?
  2. How can the overall economic benefits of the Olympic Games be estimated?
  3. Which industries in Tokyo are likely to be the ones that benefit from the Olympic Games?
  4. Outline a cost–benefit analysis of the Olympic Games.
  5. Why are share prices likely to go up in Japan based on this news? Look at both the demand and supply factors that will affect share prices.
  6. Is it possible that there will be wider multiplier effects on other countries besides Japan?