andrew zimbalist is an economist at Smith College in Massachusetts who writes frequently about the business of sports. He is the author of Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup.
Published October 11, 2021
Back in the good old days, cities used to trip over one another offering the International Olympic Committee blank checks for the honor of hosting the quadrennial Games. Then reality began to bite: costs routinely surpassed $10 billion, reaching a peak — rather, the nadir — with the 2014 Winter Games in Sochi, which clocked in at $51 billion-plus. Meanwhile, direct revenue from hosting the Winter or Summer Games got stuck at just $3 billion to $5 billion.
Not a very appealing investment, you say, especially when the environmental damage and the social dislocation and political corruption are added in? Indeed. Which largely explains why fewer and fewer cities have shown an interest in bidding to host the Games in recent decades.
Five European cities dropped out of the bidding to host the 2022 Winter Olympics, leaving the IOC with the unenviable choice between Beijing and Almaty, Kazakhstan. The competition for the 2024 Summer Games at one point included Boston, Hamburg, Rome, Budapest, Toronto, Los Angeles and Paris. All but Los Angeles and Paris subsequently dropped out, though. And when it came time for the IOC to announce the selection of Paris, the committee was plainly fearful of having no appealing bidders for the 2028 Olympics. It thus took the extraordinary step of announcing a double winner: Paris for 2024 and Los Angeles for 2028.
The 2026 Winter Games selection was equally embarrassing for the IOC: original bidders included Milan/Cortina, Stockholm/ Åre, Calgary, Erzurum (Turkey), Sapporo, Graz (Austria) and Sion (Switzerland). Four dropped out of the bidding, and the IOC was left with a choice between Milan and Stockholm (Erzurum was not invited to the final stage). However, it proved to be no choice at all, because the Stockholm City Council refused to sign the required contract guaranteeing to cover any cost overrun. So the IOC picked Milan/Cortina — the latter, a ski resort that’s a 250-mile drive from Milan. So much for reducing carbon footprint, not to mention supporting the ideal of a single Olympic village as a symbol of unity and diversity.
At its general session later that same month, the IOC approved what appear to be the most radical changes to date in its host-selection process. The new plan seems to surrender the source of its greatest leverage — the competitive bidding process.
A New Leaf?
Thomas Bach, a German lawyer and former Olympic fencer, was elected president of the IOC in September 2013. Bach knew that the complacency of the IOC’s two former presidents, Juan Antonio Samaranch and Jacques Rogge, had to end. It was time, he asserted, to be proactive.
Bach’s first effort at reform in December 2014 was dubbed Agenda 2020 — apparently a play on words that suggested perfect 20/20 vision and alluded to a list of 40 (20 plus 20) actual reform proposals. With bold and optimistic language, Agenda 2020 reiterated the IOC’s alleged commitment to human rights, to environmental sustainability and to economic sanity.
Just seven of the 40 items in Agenda 2020 are relevant to bidding and hosting. The remaining 33 deal with other IOC goals and objectives, such as eliminating the use of performance- enhancing drugs, increasing the value of the IOC’s television rights and disseminating the values of “Olympism.”
Of the seven germane items, some can hardly be seen as creating significant opportunities for cost savings. For example, Number 3 calls for applicant cities to submit their Olympic bids electronically rather than by hard copy. This change in IOC protocol might save bidding committees a few thousand dollars on FedEx or DHL. But we’re talking a drop in the bucket here, given that the bidding process alone typically costs $60 million to $100 million. And, of course, if a city submits the winning bid, it can look forward to bearing costs in the tens of billions.
Item number one appeared to be more promising. It states the IOC’s desire to “actively promote the maximum use of existing facilities and the use of temporary and demountable venues.” Such an approach could reduce the costs of hosting. But the historical precedent on this commitment is discouraging.
It turns out the IOC has made this pledge before. Back in 2002, the IOC’s Olympic Games Study Commission urged prioritizing bids that relied on existing and temporary facilities that would be less of a financial burden. Yet, less than three years later, in a frenzied auction environment that included bids from Paris, New York, Madrid and Moscow, the IOC voted for a London 2012 bid that proposed building a brand-new Olympic stadium, velodrome, aquatics center, Olympic village and media center. London’s 2012 Olympics ended up costing more than three times the estimates submitted to the IOC — an overrun of some $10 billion.
Two years after that, the IOC chose an ostentatious bid for the Winter Games from Sochi, Russia, where almost none of the required venues or infrastructure was in place. It became the most expensive Olympics in history, with a total cost estimated at between $50 billion and $67 billion.
A New New Leaf?
The fact that there were only two bidders each in the final stage of the auctions to host the 2022 Winter, the 2024 Summer and the 2026 Winter Games was a clear indication that the IOC’s Agenda 2020 did not go far enough. Accordingly, at its general session in February 2018, the IOC passed an elaboration of principles from Agenda 2020 known as the New Norm. The New Norm does not pretend to introduce new goals or a new philosophy, but rather seeks to provide new methods to achieve greater flexibility, cost savings and sustainability. In particular, with the New Norm came the elimination of the applicant phase of the bidding process. This allowed cities to pass directly to the candidate phase, reducing their paperwork and travel. While insufficient, the New Norm reforms do offer incremental benefits for host cities.
The IOC claims that the flexibility introduced by its reforms saved Tokyo 2020 over $2 billion. But such savings must be put into perspective. Based on reports from the Japanese Government Board of Audit, the total cost of the Tokyo Games hovered close to $30 billion, even before the roughly $3 billion of additional expense engendered by the one-year postponement of the Games due to the pandemic. The $30 billion-plus price tag stands in sharp contrast to the initial bid in 2013 of $7.4 billion. Since the Games are likely to generate around $5 billion in revenue for the Tokyo organizing committee, even if the New Norm were able to provide a few billion in savings, the final tally would still leave the Tokyo Games drowning in red ink.
Beyond the modest potential savings from enhanced flexibility, it is not clear what improvements the New Norm offers. The IOC’s explicit commitment to sustainability, after all, has been in the Olympic Charter for almost three decades, and the stated commitment to cost-saving and financial success for the host city is two decades old. The specific proposals to use existing facilities and to build temporary ones in order to avoid white elephants have also been around for many years.
The acceptance of a multi-city or even multi-country bid may prove of some interest, because it enables the sharing of the inevitable financial burden. But this approach would dilute the benefits of athletes from around the world sharing a single Olympic Village for the 17 days.
Indeed, the IOC itself seems to have recognized the inadequacy of the New Norm. Subsequent to its adoption in February 2018, three cities (Calgary, Graz and Sion) dropped out of the bidding to host the 2026 Winter Games. All three stepped back due to insufficient political support, demonstrated in two of the cities through defeated public referenda. When it came time for the IOC session to select either Milan/Cortina or Stockholm/ Åre in June 2019, there was really little choice. Clearly, the IOC had to take its reform process further.
At its general session later that same month, the IOC approved what appear to be the most radical changes to date in its host-selection process. The new plan seems to surrender the source of its greatest leverage — the competitive bidding process. That is, with one seller (the IOC) and multi-bidding cities from across the globe, the IOC can function as auctioneer, taking the most attractive bid.
Yet the advantage surrendered is more apparent than real. There had been only one real bidder for the 2026 Winter Games. And had the IOC not broken precedent and made a double award in 2017, there probably would have been only one bidder (or none) for the 2028 Summer Games. Consider, too, that the IOC did not want to abide the humiliation of city after city backing out for lack of local support.
The new formal structure calls for two new commissions to be selected from among IOC members, one for the Summer Games and one for the Winter Games. Along with IOC staff and hired consultants, these Future Host Commissions will be in constant dialogue with potential host cities or countries. If and when negotiations with a potential host advance far enough to meet the basic requirements, the commissions will propose the candidacy to the IOC plenary session, where it will be voted up or down. So, at least superficially, the IOC is creating a framework that replaces competitive bidding with bilateral negotiated deals.
There has been, then, a shift in the balance of power in the marketplace for hosting, and this is bound to have real consequences. While it will be interesting to see how the new model plays out, a few signs are worth watching for.
First, the IOC now states that the goal of the selection process is to pick a host that can best use the Games to help the city’s development, rather than organizing the Games in the best way to promote the Olympics. The IOC acknowledges that, at least nominally, this is turning the traditional model on its head. But is it any more than new rhetoric? Does the IOC membership have within its ranks individuals qualified to discern what changes are in a city’s best interests?
Second, the Host Commissions will still seek to extract the maximum commitments out of each city before bringing it up for a vote at the IOC plenary session. The prospective host can still be told of ongoing negotiations with other cities and what they must do to surpass the other’s bid. The apparent selection of Brisbane, Australia, to host the 2032 Summer Games used the new process, only to be criticized by some unselected cities as opaque and manipulative. The Brisbane bid presents a variety of challenges, and it remains to be seen whether the city can reverse the trend of rising costs.
Third, this new process mandates that the IOC be involved with a prospective host from the outset, helping it plan, communicating best practices from previous Games, providing consulting services and the like. It is interesting that, in contrast to FIFA (soccer’s governing body), which has agreed to cover operational costs of hosting the World Cup, the IOC has demurred. The IOC says it should not be responsible for poor decisions or bad management by the local organizing committee. To the extent that this is construed as a reasonable rationale, then its application should diminish as the IOC thrusts itself earlier and deeper into the planning and implementation process.
So there is good reason to be skeptical about what will change and whether the Olympic Games will become host-friendly. The basic questions remain:
- Does it make sense for a city to spend tens of billions of dollars to host a super-high-profile 17-day party?
- Is it rational to assume a host city that did not need (or could not find an economic justification to build) a stadium and many other athletic facilities the day before the Olympics began, will find that it has such a need the day after the Olympics end?
- Are there better ways to use scarce financial resources and real estate than building Olympic venues and new transport infrastructure to connect them?
- Is it sound environmental practice to build a new expansive network of Olympics facilities and infrastructure every two years in a new location?
- Are there adequate protections for low-income dwellers and informal-sector workers to resist the onslaught of evictions and gentrification that accompanies Olympic construction projects?
Tokyo’s experience offers little reassurance that these questions have been answered satisfactorily. The troubles with Tokyo 2020 began well before the pandemic forced its postponement to this year. For starters, there was the corruption scandal involving Tsunekazu Takeda, head of the Tokyo Organizing Committee and of Japan’s Olympic Committee for two decades. Takeda resigned in mid-2019 after allegations surfaced that the Tokyo Organizing Committee paid $2.3 million in bribes to secure a favorable IOC vote in 2013 to host the 2020 Games.
Moreover, there were (and are) lingering questions about the recovery from the 2011 Fukushima nuclear disaster. Olympic softball games were scheduled to be played in Fukushima, and the Olympic Torch was set to travel through the city. The official line is that the situation in Fukushima, while not fully normalized, is under control and the health risks to residents were minimal. However, critics cite radiation levels near the reactors as being 15 times the accepted safety threshold and the fact that much of the area is still an evacuation zone.
There were also serious concerns about intense heat waves. During 2018-19, Tokyo experienced more than 160 heat-related deaths. When Tokyo hosted the Summer Games in 1964, the average daily temperature in the city in August was 79.9 degrees, compared to an average of 82.4 degrees during the last 10 Augusts. Concern for the heat in 1964 led to the Games being moved to mid-October — an accommodation no longer possible because of NBC’s television scheduling.
The city has studied the deployment of heat-shielding material, resurfacing roads and the use of artificial snow. Experiments with these strategies have provided little comfort. The government planned to distribute free water bottles, fans and umbrella hats and deploy ice-cooled tents — all ameliorative accoutrements, but they would contribute tens of millions of dollars to the skyrocketing costs of the Games. Beyond the heat, strong winds and heavy rains from possible typhoons also loom large in the planners’ trepidations.
In early November 2019, the heat issue boiled over into an open conflict. The Tokyo Organizing Committee announced a plan to start the marathon races at 3 a.m. or 5 a.m. local time to minimize the temperature problem. Tokyo had already invested a reported $275 million on special heat-blocking pavement along the marathon course. Nonetheless, the IOC unilaterally announced a decision to move the race 500 miles north (where the race could start at 7 a.m. and would still likely be 3 degrees cooler than Tokyo at 5 a.m.).
Tokyo Governor Yuriko Koike and members of the Tokyo Organizing Committee complained vigorously that they were not consulted, that the IOC knew about Tokyo’s 2020 Tokyo Olympic Games, men’s swimming. Fourth Quarter 2021 13 temperature all along and had okayed the plan, and that the move to Sapporo would cost Tokyo at least $310 million (among other things, the host city contract stipulates that Tokyo has to pay for athlete transportation, housing, food and medical costs).
Tokyo’s original stadium proposal yielded a construction cost estimate of $2.4 billion, which was not palatable, especially in light of ongoing complaints that the 1964 Olympic stadium would be perfectly suitable with minor renovations.
After weeks of public haggling, the IOC and Tokyo reached a compromise: the marathon would be held in Sapporo, but Tokyo would be reimbursed for any expenses for construction costs incurred that the city would not have undertaken anyway. Governor Koike was less than satisfied with this compromise, stating: “Let us say, this is a decision without agreement.”
Tokyo’s original stadium proposal yielded a construction cost estimate of $2.4 billion, which was not palatable, especially in light of ongoing complaints that the 1964 Olympic stadium would be perfectly suitable with minor renovations. And shortly after the original stadium design was scrapped, a new scandal erupted. The author of the proposed logo for the Games was accused of plagiarizing the design, and a new logo had to be commissioned.
All these trials and more confronted Tokyo well before the coronavirus hit. Yet none of this thwarted the traditional triumphalism, including forecasts of major economic benefit. An economic impact study done by the Bureau of Olympic and Paralympic Games Tokyo 2020 estimated that the Games would lift Tokyo’s economy by 20 trillion yen (approximately $187 billion) and create 1.3 million jobs. Of the latter, 830,000 would be construction jobs connected to the Games added between 2014 and 2020. Nowhere does the study explain what would have happened if Japan had spent the same amount on other construction projects, or what impact the added public debt will have on future government services. Never mind that the budget ballooned four times from an initial bid of $7.4 billion and that scholarly econometric studies find no reliable evidence that hosting yields economic benefits to a city.
Yes, It Could Get Worse
Then came the pandemic. The drama around the postponement of the 2020 Games unfolded quickly. As worldwide consciousness of the virus evolved during February and March 2020, the IOC was reluctant to even discuss alternatives to business as usual. Concern over virus exposure, the growing inability of athletes to train, the uneven distribution of access to training facilities across countries and a series of logistical problems spawned a movement to either cancel or postpone the Games.
But the IOC’s Bach repeatedly stated that the IOC was not contemplating postponement, even citing Donald Trump’s false assurances that the virus was not serious. However, a crescendo of calls from athletes, national Olympic committees and international sport federations, including the important track and field federation, along with the decision by the Canadian and Australian Olympic Committees not to send their athletes to Tokyo, finally prompted the IOC to cave.
There was no template to follow, since the Games had never been postponed before. Some additional actions and expenses were easy to anticipate: securing venues for a year later; maintaining venues in the interim; negotiating and paying for new contracts with hotels, security personnel, technical experts and hundreds of staff on the Tokyo Organizing Committees; dismantling temporary stands and Olympic overlay at some venues; and public health measures to minimize the perils of Covid-19. In June it was estimated that the postponement would add $3 billion in expenses.
The last months leading up to the event brought renewed questions of whether the Games should simply be canceled. Depending on the survey question, somewhere between 60 and 80 percent of Japanese people felt the Games presented too severe a health risk to be held. Many agreed that the disappointment of 11,500 athletes did not balance the scale against the increased risk of prolonging the pandemic. The skeptics were joined by the Japanese medical association and several leading newspapers in the country.
On the eve of the Games, the economic consequences of go or no-go for Japan were a wash. However, the IOC stood to lose approximately $4 billion if the Games were canceled, mostly from the loss of international TV fees and reduced corporate sponsorship money.
Without these funds, the IOC would not be able to make its annual disbursements to the International Sports Federations and National Olympic Committees. These bodies, together with National Governing Boards, constitute the rank-and-file membership and the guts of the Olympic movement. Further, the IOC would be under renewed pressure to pare its free-spending ways. As a result, the IOC was firmly on the side of holding the Games, and, in the end, it was the IOC’s decision to make.
On to 2022?
Matters are unlikely to be any easier for Beijing in 2022. The Beijing organizing committee assured the IOC that it would use some of the venues left over from the 2008 Olympics. But the organizers also followed an Olympic tradition by excluding some key costs from its budget — notably, the cost of the high-speed rail line that will link Beijing to the downhill and cross-country ski areas (54 miles and 118 miles from the capital, respectively). The rail project has dubious long-term value, since skiing isn’t about to become China’s national pastime.
Also omitted from the Beijing budget is the substantial expense of ensuring that adequate water will be available for icemaking, snowmaking and the like. Northern China’s climate is arid, and chronically short of water resources. Accordingly, China launched an $80 billion water-diversion program from the south prior to the 2008 Summer Olympics. But the north’s per-capita water availability still remains below the level the United Nations deems to be critical.
Another concern for Beijing 2022 is that winter is the worst season for air pollution in a city notoriously prone to smog. Studies have shown this pollution to be responsible for a significant increase in cardiovascular and respiratory diseases. Deforestation in the northern mountains for the construction of Games facilities will only compound the air problem.
These manifest problems with Beijing 2022 notwithstanding, the IOC did not have good alternatives. It was faced with a choice between two repressive regimes for the 2022 winter Games. And the human rights records in each — Kazakhstan as well as China — are horrific. Back in 2001, the IOC had claimed that awarding the 2008 Summer Olympics to Beijing would improve China’s human rights policies by shining a bright light on the country’s record. Yet, according to Human Rights Watch and the Reporters Without Borders Press Freedom Index, China’s human rights standing actually deteriorated between 2008 and 2014.
La plus ça change …