Olympics-smile-woman

Since we’re only three weeks away from the opening ceremonies of the Sochi Winter Olympics, it’s worth asking: Do the Olympics  help economic growth in host cities?

While the answer ‘yes’ in most cases, the real question is whether or not the cost of the games outweighs the growth produced. The answer to that question is far less apparent and sometimes falls into the ‘it depends’ category.

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When you pour hundreds of millions, if not billions of dollars into your economy to build infrastructure, housing, facilities, etc., there is no doubt that investment will stimulate the economy.  Some host cities have proclaimed break-even results or surpluses, but have only done so because their operating budgets were subsidized by taxpayer money.  Historically, the Olympics have been a money losing event for host communities—the Los Angeles games in 1984 were the first to make money since 1932.

Atlanta 1996 was profitable, but heavily criticized as corporate sponsorship made the event appear too commercial (remember the cauldron that looked like a McDonald’s French fry holder?).  But there have been some rather large financial disasters, such as Athens 2004, where losses were estimated between $14 billion and $15 billion.

So, from an operating perspective, there haven’t been many cities that can proclaim financial success.

Now back to the original question: Have the growth benefits outweighed the costs? Even though it can be very hard to quantify certain benefits, the answer to that question likely relies most on the legacy effects of infrastructure and development.

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While the Athens games were a financial disaster, the city did benefit from new roads and other transportation upgrades. Unfortunately that’s no consolation for a country that subsequently defaulted and still remains in economic distress.

Closer to home, many Canadians would claim the Vancouver Olympics were a success because of the results we saw in competition, but financially British Columbia took on more debt and the city has had to deal with the issues surrounding the Olympic village.

Many economic benefits can be found when you consider the Canada Line Transit system that was built, which helped real estate values move higher, and the upgrades delivered on the Sea to Sky Highway to Whistler.

There’s no doubt hosting an Olympic Games creates investment and jobs in the short term, but the long-term benefits don’t materialize as expected. Only time will tell if Vladimir Putin’s more than $50 billion investment in Sochi will pay off long term, but the odds are definitely against it if history is any indication—no matter how creative they might be with numbers.

While the Sochi Olympics may have trouble from a financial perspective, let’s hope our Canadian athletes bring home the gold.

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Gareth Watson is the Vice President, Investment Management & Research at Richardson GMP in Toronto. This team of research experts is responsible for monitoring and interpreting economic, geo-political situations, current market environments and trends.
@Gareth_RGMP
Originally published on Advisor.ca

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