Rio Olympics: The Economy of Athletic Events

The Rio Olympics and other mega sporting events have done little to help the local economies.

August 8, 2016

By: Bobby Casey, Managing Director GWP

Rio OlympicsThe opening ceremony for the 2016 Summer Olympic Games was Friday, August 5th. These are the very best of the best from every country, and an elite group of athletes. That these people exist as they do, and have accomplished what they have, is a tremendous inspiration. I see no problem with athletic competitions.

Furthermore, sports and other athletic competitions have their merits. They can teach cooperation, teamwork, ambition, discipline, structure, integrity, strategy, problem-solving, and social skills, to name just a few virtues. So can an internship.

It’s important that I preface this because what I’m about to write is going to be incredibly critical of how athletic competitions are paid for. If they are funded by those who participate or consume it, then there’s no story here. If it cannot be sustained through private means, then they should be allowed to fail.

I don’t care if you are talking about college sports, professional sports, or the Olympic Games, every single one of them relies on government to some extent to continue.

College sports programs are funded by people who choose to attend. How is that a government subsidy? The tuitions keep going up, but the quality of education is exactly the same if not in some cases worse. Tuitions are rising at a much faster rate than even the rate of inflation! Where’s the money going? Much of it goes toward administrative bloating. Some of it goes toward the salaries of the university presidents. But a healthy amount likewise goes to sports programs. To say that college sports programs have not been the beneficiaries of hiking tuitions is just not true. And that’s just with private universities!

State universities are far worse in their government subsidies because not only are they getting the federal student loans, they are also getting direct funding from taxpayers (which is why residents pay less than out-of-state students).

I’ll leave a possibility open for the school whose sports program is entirely funded by private donations, but given how fungible money can be, it’s highly unlikely. In the end, college sports is an economic losing proposition. Only a handful could possibly manage to break even much less eke out a profit from these programs. But they are forever expanding, nonetheless. So despite their lack of economic sustainability, more fines, fees and allocations are being demanded for them. And where does that money come from? A good amount is federal student aid to students who have nothing to do with that program at all!

Professional sports have to be privately funded right? I mean, private citizens and fans buy the tickets and the gear! Yes. They do. And who pays for the stadiums? I.e. the stadiums that are only used during the season of that sport, and only a few times per season during home games. Taxpayers.

In the case of college sports, it was simply not profitable. But in the case of professional sports it most certainly IS profitable! I don’t mind the NFL filing as a non-profit organization to dodge taxes. THAT makes sense. But to then seek taxpayer money to build your ridiculous shrines that your foundation can absolutely afford to build on its own? That’s absurd. If they couldn’t afford it on their own, then they are exactly where the universities are: a losing proposition without sustainable market demand.

The only people who feel pride in hosting are the political class, since the common man is often swept aside to accommodate the event.  And lest you believe for even a second that those stadiums bring economic prosperity, they do NOT.

“You’re not going to get income growth; you’re not going to get tax growth; you’re not going to get employment growth,” said Dennis Coates, an economist at the University of Maryland, Baltimore County who studies the economic effects of professional sports teams and facilities.

What is worse, these professional teams could be sharing their facilities rather than each having their own to make it more profitable. But they refuse to do that as well.

In addition to the Vikings stadium, the Minnesota Twins constructed a more than $500 million ballpark in 2010 with about $350 million in subsidies. The University of Minnesota built a nearly $300 million football stadium the previous year. Until recently, all three teams played in the Metrodome, built in 1982 at a cost of $68 million.”

World Cup Soccer Tournaments and the Olympics are just global parasites. Granted, their events aren’t seasonal, but rather every 4 years. But their costs and tolls are otherworldly. Here is one account of the impact of the FIFA games in South Africa:

“Before South Africa’s bid to host the 2010 World Cup there was already a body of knowledge consisting of both ex-ante and ex-post studies regarding the economic impact of mega-sports events on host countries and host cities. One thing that all hosts have in common is reporting from supporters of the bids that inevitably show a large economic windfall for the host country. On the other hand, ex-post evaluations ‘tend to find hardly any significantly positive income and employment effects from World Cups, Olympic Games, other large scale sporting events and/or the associated investments in stadia’.”

So all this brings us to Brazil and this year’s games.

Understand that Brazil, prior to its bid on hosting the Olympics, was already in economic hot water and home to some deplorable ecological conditions (by their own government’s doing on both counts, I should add!).  On the one hand they are a growing developing country rich in natural resources and labor. On the other, they have a corrupt socialist bloc for government who can’t seem to just let that country prosper.

Rio de Janeiro is home to highly contaminated and disease ridden water, for example. That is going to be a problem for all the water sports such as triathlons and rowing.

Economically, Brazil is suffering with climbing unemployment that recently surged at the beginning of this year and has steadily trended upward. Moreover, her debt to GDP ratio went from 57% to 66% and a national debt of $706.5 billion USD. Despite the near free-fall state of Brazil’s GDP, Rio took out an $850 million loan from the government to fund the efforts to host the Olympics.

In addition, the Olympics has been used as a cover for other developments like real estate and public transport extensions to gentrify the city. Where the gentrification gets bad is when the people are evicted from their homes to make way for it. Eminent domain has scourged Rio, displacing thousands of people, while intimidation tactics are used to compel them to leave. Many are not even receiving fair market value for their homes.

To compensate for the rising tensions and violence, Rio planned to have close to 85,000 police deployed to “keep the peace”. But even their paychecks have been delayed!

Politically, Brazil is suffering a considerable amount of tumult with the recent exposure of corruption from the Rousseff administration. Dilma Rousseff’s presidency was suspended just this May for hiding her country’s deficit through budget manipulations.

Obviously, Brazil’s central planners made mistakes in how they handled the financing and logistics of hosting the games. It’s not to say that IF you host the games, people will be evicted and displaced. It’s that IF you host the games, and you are economically and structurally unprepared for it, it can lead to bad policy. And if you host the games, you are deviating and dedicating taxpayer dollars to an event that will never collectively realize a profit off that spending. Restaurants and hotels might see a spike, but nothing they can expect to see after the games end.

Ultimately, no matter the study, the findings are relatively the same: whatever benefits there are to hosting the Olympics, they are fleeting. The games go for about 2 ½ weeks. If the investments made in infrastructure were only meant to appease that period, then there is no real ROI. Moreover, there are more lucrative options to invest the same amount of money that could be more sustainably profitable and beneficial to the local economy other than hosting the Olympics.

$850 million dollars. Was there nothing else that could’ve used that money for improving the conditions of water, poverty, education or employment? This money was entirely spent on the city of Rio de Janeiro. The rest of Brazil didn’t see a dime.

There has to be a better way than economically draining host nations. I think there is certainly popularity and demand to see the games. The question has to do with economic practicality. Does it makes sense to rotate host nations? Should host nations apply for consideration based on economic conditions (the way people apply for home loans!)? Should it be hosted in the same places every year? Should each event happen where the facilities are already in place? Whether you’re looking at college sports, professional sports, or mega events like the World Cup or the Olympics, the love of the games doesn’t pay the bills. Real people pay the price. And that price has life-long implications for people taking out education loans or people who are evicted to make way for 2 weeks of action.

Enjoy watching the elite athletes of the world perform and compete.  Cheer for your teams and love your sports.  But be mindful of the costs you don’t see.  They are great; they are steep; and they often can be devastating.

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