Macroeconomics

05 August 2016

The Olympic Dividend 

By far the most expensive Olympics in history, the Sochi Games, which took place in the winter of 2014, cost the Russian government a staggering $51 billion. Rio 2016, with a total price tag of just over $4 billion, looks like a comparative bargain.

Brazilian organizers are at pains to highlight their relatively small budget, and to stress that 80% of Olympic funding has come from the private sector.

Nevertheless, a country that celebrated the success of its bid in 2009 appears to be experiencing buyer’s remorse: a recent poll showed that fully 50% of Brazilians oppose hosting the Games, compared to 25% in a 2013. 

Times have obviously changed for Latin America’s largest economy. After shrugging off the impact of the global financial crisis, GDP expanded by 7.6% in 2010. As commodity prices declined, however, so did the economy. 

Brazil’s GDP contracted by 3.8% in 2015, the most in a quarter century, and is forecast to shrink by 3.5% this year. Consumer confidence – battered by rising unemployment, corruption scandals and the spread of the Zika virus – has fallen to perilously low levels.  

Unfortunately, in purely economic terms, it’s unlikely that Brazil will experience any notable Olympic dividend.   

In the very short term, tourist arrivals in Rio will of course spike, as will service-sector employment. Residents and visitors will enjoy infrastructure improvements, including a new metro line and express bus lane. But there’s little evidence that Brazil, like nearly all preceding host nations, will see any real economic benefits. 

Since the first modern Games took place in 1896 in Athens, only one city has hosted a profitable Summer Olympics: Los Angeles in 1984. 

As the sole bidder, Los Angeles was able to negotiate highly favorable terms with the International Olympic Committee. More importantly, LA relied almost entirely on existing infrastructure – spending just $320 million, less than one-tenth Seoul’s budget to host the subsequent Summer Games. 

While Rio 2016 will almost inevitably post an operating loss, that will have virtually no impact on the country’s $3 trillion economy. Assuming that all goes smoothly, however, the Games should provide a psychological boost to a beleaguered population. 

For two weeks, the world will focus its attention on this country of 210 million, whose athletes will benefit from home-field advantage: Brazil will almost surely win more medals than it did at the last Summer Olympics in London or will at the 2020 Games in Tokyo. 

Winning a few events obviously won’t heal the macroeconomic pain that ails Brazil – though claiming the country’s first-ever gold medal in football would surely help Brazilians feel far better, at least for a day.