The impact of hosting a major sports event like the Olympics might not be as positive as one might think. Many cities that have hosted these games before have ended up massively in debt. Cities that don’t have the required infrastructure are better off not submitting a bid.
There are several countries that bid millions of dollars for a chance to host a major sports event. Many believe that the foreign investment and the level of tourism from hosting the game will be an economic blessing. However, some experts believe that these games are way too expensive and can leave nations with economic woes and massive debts. Read on to learn how such major events can have an effect on the local economy and currency prices.
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Costs incurred for hosting the Olympics
Countries have to submit a bid for hosting the Olympics to the International Olympic Committee (OIC). This alone can cost millions of dollars. Countries spend between $50 million to $100 million for consultants, travel related to hosting duties, and event organizers. For example, for its successful 2020 bid, Tokyo spent about $75 million. The country also lost $150 million when it made a bid for the 2016 Olympics. And this cost is nothing compared to hosting the games.
London spent $14.6 billion for hosting the Paralympics and Olympics in 2012. Out of this, about $4.4 billion was taxpayers’ money. In 2008, Beijing spent $42 billion hosting the Olympics. Once a country has won the bid for hosting the Olympics, they may need to add roads, construct rail lines, and build airports to accommodate the large influx of people. This includes housing for athletes as well as hotel rooms and special facilities for the events. Overall, the cost of infrastructure can range from $5 billion to $50 billion.
Impact of sports events on the economy
There is no denying that sports tourism has significant benefits for the country hosting the event. One of the major benefits is direct and indirect economic boosts. The direct spending by the sports tourist at the host facilities, restaurants, entertainment ventures, and hotels stimulate the local economy. This results in more tax returns and more jobs. When it is a notable sporting event like the Olympics, it improves the image of the country in which the event is held and brings in a lot of opportunities. In turn, this attracts future visitors and their money. This can be a desirable residual for a lot of cities.
One of the best examples of this is London’s Lord’s Cricket Ground. This is a historic home for international cricket matches that draws spectators from far-off places during the competitions. Even when the fields are dormant, Lord’s is able to capitalize on its steady stream of visitors. Tourists visit the stadium grounds, purchase Lord’s memorabilia, and visit the adjacent cricket museum.
Cities that host such events provide temporary jobs because of all the infrastructure improvements they have to make, benefiting the city in the future. For example, to accommodate tourists, Rio constructed about 15,000 new hotel rooms. For the 2014 Olympics, Sochi invested $42.5 billion in constructing non-sports infrastructure. Beijing spent more than $22.5 billion on roads, rail lines, subways, and airports and $11.25 billion on environmental cleanup. Furthermore, there are thousands of media persons, sponsors, spectators, and athletes who visit the host city for at least six months before and after the event. This brings in more revenue and boosts the local economy.
However, this boost in job creation might not be as beneficial as perceived. For example, when Salt Lake City hosted the 2002 Olympics, there were only 7,000 new jobs created, which was only 10% of the mentioned numbers by the officials. Moreover, most of these jobs went to people who were already employed and didn’t help the unemployed workers. Also, a large portion of the profits gained by the hotels, restaurants, and construction companies went to international companies and not the local businesses.
The income generated from the games covers only a small portion of the expenses. For example, for the 2012 Summer Olympics, London spent $18 billion and brought in only $5.2 billion.
Impact of sports events on the currency price
There are a lot of factors that affect the price of a currency pair and it is almost impossible to account for every single variable. However, certain events like the Olympics can be important for traders working in the forex market. Sporting events might have a ripple effect on the economy. But, this comes with its own cons, which are better explained using the Dutch Disease theory.
This theory encompasses the concept of a quick but unsustainable surge in economic spending. This theory was developed in the 1960s when natural gas discovery created a sharp inflow of currency. Because of this quick currency inflow, there was a high currency appreciation which made the other products of the company less competitive in the forex market. The same goes with sporting events which result in a short-run foreign investment and tourism spike. There is a sharp increase in expenditure which, in most cases, is unsustainable after hosting the event. This might end up hurting other export products in the forex market.
The bottom line is that hosting major sports events can have severe economic deficiencies for some cities. Unless they already have the infrastructure for supporting the excess crowds, hosting such an event might not be the best option for the forex market, local economy and currency price.