Photo: Reuters
Photo: Reuters

The Olympics story

There are mostly two types of bids for hosting the Games: re-emerging cities and cities from large emerging countries

Some six score years after the first modern summer Olympic Games in Athens, the 31st Olympics, held in Rio de Janeiro, have come to a close.

More than 11,000 athletes from 207 national Olympic committees competed in the Games. Three hundred and six sets of medals were awarded in 28 Olympic sports. The US topped the table with more than 100 medals, as it has done (in total medals) for several Olympic Games now. The US, China, Russia, Germany and France have typically been at the top of the medal table. The most improved nation in the past few Games has been Great Britain, which has raised its tally from the teens in 1996 to over 60 total medals in London and Rio. India’s ranking was 50th in 2008, 55th in 2012, and finished in the 60s in these Games.

The first few modern Games were not organized on the basis of country. Athletes marched behind their national flags for the first time in 1908. The classic marathon distance of 26 miles and 365 yards was fixed at the 1908 London Games so that the finish line would end at the Royal Box. Abhinav Bindra, India’s lone individual gold medal winner so far, set the cat among the pigeons by tweeting that it costs Great Britain £5.5 million for each medal, implying that India will need to do the same to increase its tally.

London is the only city to have hosted the Olympics thrice, Paris and Los Angeles have done it twice. New York has never hosted the Olympics. Tokyo will host for its second time in 2020. Nowadays, the International Olympic Committee (IOC) begins the process of choosing a city about nine years in advance and concludes the discussion in two years, in a process governed by the Olympic Charter. Shortlisted cities are scored on 14 major criteria that span Games competition and venues to accommodation, transport, finance and marketing.

In an excellent backgrounder The Economics of Hosting the Olympic Games, the Council on Foreign Relations (CFR) has laid out the revenue, capital expenditure and operational cost of recent Games. The mere cost of submitting a bid runs between $50 million and $100 million. Total costs have risen from about $3.6 billion for the 1996 Atlanta Games to an estimated $20 billion for the Rio Games. Beijing spent a whopping $45 billion. Each city in recent times has overrun the cost by a factor of two or three times the original estimate. Security costs during the Games routinely average over $1 billion. Revenue, that covers less than a third of the costs, comes from television, sponsorships and licensing, but the IOC retains a healthy chunk.

The CFR paper points out that Los Angeles (1994) was the only city able to turn an operating surplus of $215 million on the Games. This was in large part because the city was able to rely on already existing infrastructure and was able to extract favourable terms from the IOC since it was the only bidder.

Several economic studies have been conducted before and after Olympic Games to determine their impact. Most governments argue that hosting the event will encourage tourists, create jobs and boost economic output. Most post-facto studies reveal only an increase in temporary employment, with most jobs going to those already employed.

Except for Barcelona (1992), two recent host cities, London (2012) and Beijing (2008), actually saw declines in tourist arrivals that year.

Despite the challenges, cities continue to bid for the Olympics. In my view, there are predominantly two types of bids: re-emerging cities (Athens, Los Angeles, London, Sydney) and cities from large emerging countries (Mexico City, Moscow, Seoul, Beijing, Rio), and the two categories do it for different reasons.

Re-emerging cities do it in an attempt to fiscally boost their cities over the line by usurping funds relative to other competing cities within their countries. Emerging countries typically do so at the peak of their middle-income status in a sociological strutting of their feathers. Often, this is just before they go into an economic funk induced by excess capacity and an appreciating currency. The data set is small and every city does not perfectly fit this model—but they do broadly.

Paris, Budapest, Rome and Los Angeles are bidding for the 2024 Games. On the same basis, expect Turkey (Istanbul is a losing finalist for 2020) and South Africa to join some European cities for the 2028 bid. Until the bid happens, those emerging markets are great economic destinations because they are growing nicely and have not had the time to engage in wasteful expenditures like the Olympics.

Even though it appears remote now, India (and possibly Vietnam and Indonesia), in my opinion, will bid for the Olympics in the coming years, falling into the same sociological syndrome of emerging market countries that have gone before it.

P.S. When do you think India will bid for the Olympics? Given the long lead times, my bet is for the 2036 Olympics (bid due 2027).

Narayan Ramachandran is chairman, InKlude Labs.

Comments are welcome at narayan@livemint.com. To read Narayan Ramachandran’s previous columns, go to www.livemint.com/avisiblehand

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