Expensive Olympics

August 8, 2016

The 2016 Olympic games are just beginning, and of course all you’re hearing about is pollution, crime, unfinished facilities, Zika and cheating Russian athletes.  Chances are, the games will go off without a hitch and be highly-entertaining, despite some of the challenges that the athletes will face in their housing and venues.  But once the games are over, the nation of Brazil is likely to experience a familiar dose of economic trauma. 

Why?  A recent study by the Council on Foreign Relations looked at the economics of different Olympic games, and found that the costs inevitably outweigh the benefits.  Part of the problem is enormous cost overruns; when nations bid for the games, they typically underestimate the cost of constructing stadiums, fields, apartments for the athletes, safe transportation and security.  The accompanying chart shows just how much these cost estimates fell short of the actual price tag; note the Beijing and Sochi games, which cost $45 billion and $51 billion respectively.  Building appropriate venues for the games in Athens, Greece actually led to a government bankruptcy. 

If those facilities could be recycled into popular tourist destinations, the expense might be justified.  But the report found that the more typical situation is a lot of so-called “white elephants”—expensive facilities that have limited post-Olympics use.  Beijing’s famous “Bird’s Nest” stadium cost $460 million to build and now sits unused.  The entire city of Sochi, Russia stands idle.   

The Rio Olympics are estimated to cost $20 billion for infrastructure alone, even after plans to overhaul the city’s sewage system were cancelled due to cost overruns.  Estimates suggest that the city will attract only a fraction of the anticipated 480,000 (International Olympic Committee estimate) to 600,000 (Brazilian Ministry of Tourism estimate) visitors, which means that the already-compromised fiscal situation in Brazil will get worse at some point after the games have left town.  And don’t expect the sewage situation to be cleaned up once the visitors have departed. 

Meanwhile, it is getting more expensive simply to bid on hosting the games.  When you add up the cost of drawing up construction plans, hiring consultants, organizing the way the event will be run and the necessary travel expenses, a bid can cost as much as $150 million—as it did when Tokyo made its 2016 bid.  The city of Toronto recently backed out of bidding on the 2022 games, due to an estimated $60 million in bidding expenses—and of course that doesn’t count the rumored under-the-table payments to IOC executives. 

That leaves two countries still in the running for the 2022 Winter Games: Kazakhstan and China.  It may not be a coincidence that neither country has to worry about pesky voters and citizens claiming that the costs are not justified by the benefits. 

Sincerely,

Edward J. Kohlhepp, Jr., CFP®, MBA
President  

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Founder & CEO

 

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This material was prepared by BobVeres.com., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

  

Sources:

 http://riotimesonline.com/brazil-news/rio-business/ioc-predicts-480000-tourists-in-rio-2016/

 http://www.cfr.org/brazil/economics-hosting-olympic-games/p38148?cid=soc-twitter-in-economics_hosting_olympics-080216

 

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