The Economic Impact of the Olympics

Sep. 1, 2016

Countries that host the Olympic Games invest billions of dollars hoping to see a boom in their economy, from increased tourism spending and infrastructure updates. Some countries flourish and see a return on their investment from hosting the Olympics, while others pile on debt that can take decades to pay off. With the end of the 2016 Summer Olympic Games, we take a look at the economic impact the games have on host countries.

When Rio won the bid to host the 2016 Summer Games back in 2009, Brazil was in the midst of one of its best economic times in 50 years. Contrast that with today, when Brazil is mired in its worst recession since the 1930s, President Dilma Rousseff is undergoing impeachment proceedings, cutbacks are being made in education, healthcare, and security, and the country is requesting aid to keep basic services up and running. Indeed, Rio’s governor declared a state of financial emergency in June, requesting federal funds for public services during the Olympics to avoid “a total collapse in public security, health, education, transport, and environmental management,” according to Rio’s Official Gazette.

Surely, there are certain benefits countries hosting the Olympics can reap. Host countries can see an increase in trade, which can also lead to increased foreign investment. Many countries upgrade communication and transportation systems, buildings, infrastructure, and housing. These measures can help revitalize areas in need of updates and can also help to increase the productive capacity of the economy.

During the Olympics, host countries see increased travel and tourism-related spending, since people from across the world are visiting to watch the Olympic Games. This can marginally help contribute to economic growth. There’s also a “feel good” effect felt throughout the country and a sense of pride leading up to the Olympics and after the games are finished. Unfortunately, these effects are mostly temporary and largely fizzle out after the games conclude.

Hosting the Olympics is rarely profitable, especially in emerging countries, although some host countries have been successful in making a profit and boosting their economy. In 1984, for example, Los Angeles was the first city to profit from hosting the Olympics since 1932 because it used mostly existing structures and took advantage of corporate sponsorships. Seoul announced a profit from the Olympics in 1988, but excluded $1.5 billion in government spending on stadiums, roads, transportation, and other facilities. With that included, Seoul nearly broke even. In 1992, Barcelona made a profit from hosting the Olympics and the games helped to revitalize the once struggling city.

On the other hand, some countries have nearly gone bankrupt after hosting the Olympics. Montreal’s 1976 Summer Games resulted in $1.5 billion in debt that took three decades to repay. Athens’ 2004 Summer Games put Greece $14.5 billion in debt, when they were already struggling economically. The cost of Sydney’s Summer 2000 Games was nearly triple the estimated budget and the public ended up paying for about one third of the debt.

While it is possible for a country to realize economic benefits from hosting the Olympics, most countries increase their debt and fail to repurpose the accommodations that have been built. Cities in emerging countries especially struggle to see a profit from hosting the Olympics, whereas host cities in developed markets have greater potential to make a profit by using existing structures and making minimal updates in preparation of hosting.

Regarding Brazil specifically, hosting the Olympics is unlikely to lift the country out of recession. If Brazil undertook a massive infrastructure build-out for the games that would improve future productivity and ease of conducting business, it would have been economically positive for the country. Instead, Brazil chose to spend billions of dollars on sporting facilities, such as arenas and athlete villages. Granted, Brazil does have plans to convert many of these so-called “modular” structures into public use facilities including schools and community pools—which would certainly be a positive—but whether or not these conversion plans come to fruition is still to be determined.

Nonetheless, the use of funds was seen as a slap in the face to the underprivileged population in a very populist leaning country, where many people feel entitled to government handouts. Even the more fortunate population prefers their tax dollars go toward supporting those in need, rather than construction projects overseen by the government where corruption typically runs rampant. Lending credence to this argument is a federal investigation into alleged corruption at all federally financed venues and services tied to the Olympics. In a country such as Brazil—where income inequality is very high—how the games were handled along with the aftermath could stoke further resentment between classes.

Positively, the Olympics came to a close without any headline horror stories of crime and with Brazil winning gold in three marquee events that are very popular with Brazilians: soccer, beach volleyball, and indoor volleyball. Although this will likely foster some sense of national unity, we do not suspect that the perception of the country has changed such that we should see massive tourist inflows, nor do we believe that its economic prospects have markedly changed as a result of hosting.

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