Were the Olympics worth the money spent?

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The Olympics cost Rio billions of dollars to stage, with Australia estimated to have spent $340 million to send our athletes. So has all this money been well spent?

According to Deakin University professor of economics Pasquale Sgro it is difficult to gauge the financial benefits of hosting and participating in major international events such as the Olympics, as the answer will be different depending on how value is defined.

‘Australia has apparently spent $340 million to send our athletes to the Rio Olympics so one question is, given that the number of medals won were the lowest in 20 years; did we taxpayers get our money’s worth?,’ Professor Sgro says.

‘Or should we measure the benefits not on medal count but in other ways such as international goodwill or “feel good” factors. This is not a simple question to answer since it is difficult to determine what the taxpayer is willing to pay for. Another way to look at this is to consider the “opportunity cost” of this money, or what else could we have done with that money, such as putting it towards hospitals, roads or schools.’

Professor Sgro says that when it comes to looking at whether the Olympics were a boom or bust for Rio, it is likely that the city will not see much return on its investment.

‘It is too soon to know if Rio will get its moneys’ worth from winning and staging the games, in terms of short-term gains such as tourism, and long-term gains such as development of infrastructure,’ Professor Sgro says.

‘Previous research by others that looked at the relationship between tourism and three football World Cups (1998 France; 2002 Japan and South Korea; and 2006 Germany) and five Olympic Games (1988 South Korea; 1992 Spain; 1996 United States; 2000 Australia; 2004 Greece; 2008 China) provide some hints, with the studies showing these large events cannot be justified by their economic impact,’ Professor Sgro says.

Despite the large amounts of money spent on staging and attending events such as the Olympics, they continue to be hotly contested by potential host countries and attract athletes and worldwide audiences.

‘A possible explanation for the attractiveness of these events is that they make people happy and politicians wanting to improve their electoral fortunes are aware of this. What is also clear is that there is a lack of transparency in reporting the real costs of both bidding for and hosting the games,’ Professor Sgro explains.

‘It has been suggested that a more transparent way of selecting venues for these large events is an auction system, where countries would bid to host the events. In this way the public would be more aware of the costs and a more accurate cost-benefit analysis and post-event evaluation would be possible.

‘We will not really know if the Olympics or other mega events are worth the money until people know the true costs of hosting such events and can then make their views known as to how happy or not they are with their tax dollars being spent in this way.’

Curious about how economists work? Find out more about studying economics at Deakin University.

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Professor Pasquale Sgro
Professor Pasquale Sgro

Department of Economics, Deakin University
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