Economy

Tokyo's Olympics are a Financial Fiasco; How Your City Can Avoid a Similar Fate

Five ways future cities can host the Games without saddling taxpayers with debt

The Tokyo Olympics are expected to cost the city upwards of $30 billion - more than four times its original estimate, according to the Associated Press.  And very little of that bill has anything to do with the COVID-19 pandemic.

How could a host city leave its residents on the hook for such an enormous cost overrun?  Pretty easily, if the long list of Olympic budget disasters is your measuring stick.

“Between 1960 and 2016...the average Olympic Games went 156% over budget,” said Victor Matheson, economist at Holy Cross.  “These are really expensive events in the first place, and most of the time, cities way, way underestimate how much they’re going to actually cost.”

Matheson co-authored “Going for the Gold: The Economics of the Olympics,” a 2016 research paper that documented how cities around the globe routinely spend billions of dollars on the Games and almost never produce “positive net benefits.”

That included the 2014 Winter Games in Sochi, Russia, that more than quadrupled its original budget, according to the AP, as well as the 2016 Summer Games in Rio de Janeiro (at least 50% over-budget), Pyeongchang’s 2018 Winter Games (100% over-budget), and now Toyko 2020/2021.

“The economic disaster that's unfolding in Tokyo was happening way before COVID,” Matheson said. “The pandemic...probably made the Olympics $5 billion worse off for Tokyo, but that only means that the deficit has gone from $15 billion to $20 billion. The vast majority of the economic problems associated with this year's Summer Games was already baked into the cake before a single case of COVID.”

Matheson said Toyko fell prey to the same temptations as most Olympic host cities: pressure to impress the world, one-up previous hosts, and meet aggressive construction timetables that increase costs exponentially. Economists have nicknamed the phenomenon “regression to the tail.”

All for just 16 days of events.

And while those billions of dollars that companies like NBCUniversal pay to broadcast the game help subsidize some operational costs, they don’t help a city cover the cost of years worth of Olympics preparation.

It’s too late to save Toyko’s budget, but here are five free pieces of advice for future mayors and civic leaders who hope to one day bring the Olympics to their cities...without forcing their constituents to shoulder the financial load.

1) Don’t even think about hosting unless you’re a unicorn of a city

Matheson says a city doesn’t just need world-class athletic venues to host the Olympics, but also 40,000 hotel rooms, universities with available dorm space to house athletes, and mass transit to shuttle around fans (in normal times).

But hosting the Olympics may not make financial sense for the world’s biggest cities, either.

“You can't argue that, ‘wow, this Olympics really put London on the map,’” Matheson said.  “Because if London's not already on your map, you really need to get yourself a new map.”

Of the three major categories of host city benefits that Matheson’s research details, two are less likely to benefit a well-known megalopolis: the long-run "Olympic legacy" of increased trade, foreign investment, or tourism; and intangible benefits such as the "feel-good effect" or civic pride.  The third category of benefit is short-term spending by tourists, whose economic impacts are often inflated by event organizers.

He says the cities that benefit the most from hosting the Olympics are “hidden gems” that have a marketing story to tell the world.  He says Salt Lake City, which sold itself as a winter alternative to neighboring Colorado, produced much better long-term return on its investment than Atlanta, which largely failed to sell itself as an international tourist destination. 

“If you think...you have a lot to offer the world that your world doesn't doesn't know about, that's what's going to maximize your ability to really capitalize on the branding and advertising the Olympics brings you,” Matheson said. 

Pro sports, in their effort to move fans closer to the action, have also made it harder to accommodate the Olympics.  Most major cities in North America no longer have playing surfaces wide enough to accommodate a 400-meter track.

2) Don’t get into a bidding war

Not only are public officials bad at estimating costs for a worldwide showcase they’ve never put on before, but they’re also bad at resisting temptation to try and put on a bigger show than ever before.

“Cities would over-promise whatever they could, because they had to if they wanted to win the bid,” said journalist Rob Livingstone, who covers Olympics news at GamesBids.com.  “These budgets are way off...at bid time…(but) once they're delivered, it's reality.”

Livingstone says so many cities have been scared off by the escalating cost of the Games, they stopped bidding, leaving just two cities - Paris and Los Angeles - interested in the 2024 games.

As a result, the International Olympics Committee (IOC) awarded Paris the 2024 Summer Games and Los Angeles the 2028 Summer Games.  It also replaced it’s bidding process with an invitation process, but that may not stop cities from competing with each other.

“They've kind of put this process, which was transparent, back behind the curtains,” Livingston said, adding that the Olympics have a dark history of bid corruption, including Salt Lake City officials indicted for bribery.  

“I think they have to somehow find a balance between transparency and these runaway battles to win the Games….I don't know that anything's going to work. There could still be a temptation for a city to try and (compete) behind the scenes.”

3) Don’t build new venues

Those new Olympic stadiums aren’t cheap, but cities sure love to show theirs off to the world.

Well, except Montreal’s stadium, described as a “white elephant.”  And the stadiums in Rio de Janiero or Athens, which were obsolete the minute the 2016 and 2004 Olympics, respectively, had ended.

Even host cities like Atlanta had to spend huge amounts of money to retrofit Olympic venues after 1996 to make them practical for non-Olympic events.

The key to keeping an Olympic budget in-check is to avoid building billions dollars worth of new venues.  That’s how LA28 plans to host the 2028 Summer Games without using one cent of tax dollars.

It’s a strategy last executed in 1984 by the Los Angeles Olympic Organizing Committee, believed to be the last host committee to actually produce a surplus from the Games.

In 1984, L.A. hosted Olympics events at the 61-year-old Los Angeles Memorial Coliseum, the 62-year-old Rose Bowl, and a number of 1960s-era venues such as The Forum, and Pauley Pavilion. 

It was part of a penny-pinching attitude that’s been absent from Olympics planning for the better part of four decades.

“We had no money for anything. I mean, it went down to the office supplies that we bought,” said Debra Kay Duncan, a former member of the LA Olympic Organizing Committee and current chair of LA84, the nonprofit organization created from leftover operational funds that has distributed millions of dollars to youth sports initiatives across Southern California. 

“When you think you don't have money, you spend like you don't have money.  I think that's part of the reason we ended up with a lot of (leftover) money because we did not spend money on anything.”

LA28 has pledged to take a similar approach; the Coliseum, Rose Bowl, Pauley Pavilion, and The Forum will all be used again for the 2028 Games, 44 years after their last moment in the international Olympic spotlight.  The Coliseum remains one of the only large U.S. stadiums wide enough to accommodate a 400-meter track.

4) General infrastructure spending > Olympic infrastructure spending

Matheson says investing in facilities may impress the world for weeks, but - as Barcelona discovered - investing in your city’s basic needs like roads, public utilities, and transit - can leave a much more-lasting legacy.

“It's pretty unlikely that a velodrome or a stadium...or a world-class whitewater rafting run (will be) long-run economic generators,” Matheson said.

“Barcelona had a very, very expensive Olympics - something like $15 billion…but only a couple billion was put into things like stadiums and arenas. The vast majority of the money was (used) to develop the general infrastructure of Barcelona...and Barcelona grew from being maybe the 10th-largest tourist destination in Europe to the fifth.”

5) Transparency

The final piece of advice for cities with future Olympic dreams is to prioritize transparency.  It can magnify the impact of Matheson’s third category of Olympics benefit: civic pride.  

“(Don’t) forget about the people in your community,” Duncan said. “Have them experience it...it's the best thing in the world...to come together at that one time. And that's a moment you can share with your community.”

Duncan says if taxpayers are paying for the Games - either with their tax dollars or their time and patience - they shouldn’t be misled on costs.

She also recommends making sure locals can afford to attend events too.

“When you were walking around and everybody's loving (the Games) and embracing it and talking about it…it was the greatest thing ever,” Duncan said.  “(Not all) people loved us in the beginning...but we made it so that they could love it and feel it and touch it.”

Noah Pransky is NBCLX’s National Political Editor. He covers Washington and state politics for NBCLX, and his investigative work has been honored with national Murrow, Polk, duPont, and Cronkite awards. You can contact him confidentially at noah.pransky@nbcuni.com or on Facebook, Instagram, or Twitter.