Tokyo offers yet another cautionary tale of how the Games can wreak financial havoc.
With the Olympic Games starting today in Tokyo, all eyes will be on the performers. But behind the scenes, the pressure has been squarely on officials. The Games, as a rule, need special facilities that must be constructed with care, a task that is even more challenging during the pandemic. Stadiums, living facilities, excess infrastructure, and more all cost enormous sums of money that leave cities financially devastated.
Despite patriotic sentiments, American cities should avoid hosting future Olympics at all costs, because of the cost. Tokyo offers one of the most severe cautionary tales in recent memory.
The initial estimated price tag for the Olympic Games this year was around $7.5 billion. That’s a lot of money, but there were reasons to believe that could be offset by local ticket sales and advertisements. In previous years, ticket sales accounted for 70 to 80 percent of total revenue. Furthermore, it is estimated that Japanese advertisers have sponsored the Tokyo Games directly for a record $3 billion. If costs were kept down and ticket sales were high, it would not be impossible for a host city to break even financially.
As it happens, neither is the case.
Out of caution for athletes and fans amid the pandemic, organizers decided the Tokyo Olympics would not allow spectators at city venues. Because of this policy, the enterprise could lose an estimated $800 million in ticket revenue alone. Nearby businesses anticipating tourists and spectators will also lose out financially.
Unsurprisingly, the final cost estimate also is far higher than the original estimate. In fact, the Tokyo Games are on pace to be the most costly summer Games ever. Tokyo will spend at least $15 billion on the Olympics, double the initial price point. However, that sum may understate the true cost. The Associated Press reported that
“The IOC and TOCOG (Tokyo organizing committee) want the public budget to appear as small as possible not only to guard against public criticism, but also to not discourage future candidate cities,” Franz Waldenberger, director of the German Institute for Japanese Studies in Tokyo, wrote in a recent paper examining Olympic costs.
An internal audit by the Japanese government places the total cost of the event near $25 billion, and other estimates indicate it may be as high as $35 billion, due to typical cost overruns and other factors. Ticket sales, meanwhile, will be virtually zilch, meaning the Tokyo Games could be one of the most economically devastating Olympics ever. Analysts estimate that without fans, the Tokyo Olympics could result in an economic loss of $23 billion.
Japanese citizens are rightfully upset with their government for agreeing to host. While the pandemic certainly exacerbated costs, this situation was foreseeable. Government projects usually run over budget, but the Olympics are notoriously expensive. In 1976, the Montreal Games clocked in at over 700 percent of the allocated budget and took decades to pay off. The Sochi Games, hosted by Russia in 2014, were nearly five times more expensive than the projection, costing over $50 billion.
This enormous cost might be reasonably justified as necessary infrastructure spending if the facilities, roads, and stadiums could be repurposed for general use once the athletes left. However, this is rarely the case. ESPN reported what happened to the stadiums after the Olympics left Rio de Janeiro:
While 15 of the original 27 venues have hosted some sort of event since the Games, others sit largely abandoned, their decay and disrepair a constant reminder of what was meant to be. Even the iconic soccer stadium, the Maracanã, has been vandalized, and had its power shut off completely after amassing a $950,000 electric bill.
The ESPN story goes on to discuss in detail how devastating the cost of the Olympics was for Brazil. The country still owed $40 billion after the Games were completed. The city of Rio even saw a crime spike in the city, likely tied to budget shortfalls.
Los Angeles has already agreed to host the 2028 Summer Olympics. While the city is better positioned than most, having hosted previously and possessing some of the needed infrastructure already, others are not. Some outlets already are putting out lists of other cities they think should welcome the Olympics.
Hosts, beware. There is nothing patriotic about spending money needlessly on infrastructure that will not be used. Racing to spend money on a sporting boondoggle is one game the U.S. should not play.