Circus Maximus

The Economic Gamble Behind Hosting the Olympics and the World Cup

Andrew Zimbalist

• Publisher: Brookings Institution Press
• Year: 2015
• ISBN:
  9780815726524
• Topic: Business
• Subtopic: Business General
• Index: Business

Athletes compete for national honor in Olympic and World Cup games. But the road to these mega events is paved by big business. We all know who the winners on the field are—but who wins off the field?

The numbers are staggering: China spent $40 billion to host the 2008 Summer Olympic Games in Beijing and Russia spent $50 billion for the 2014 Sochi Winter Games. Brazil's total expenditures are thought to have been as much as $20 billion for the World Cup this summer and Qatar, which will be the site of the 2022 World Cup, is estimating that it will spend $200 billion.

How did we get here? And is it worth it? Those are among the questions noted sports economist Andrew Zimbalist answers in Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup. Both the Olympics and the World Cup are touted as major economic boons for the countries that host them, and the competition is fierce to win hosting rights. Developing countries especially see the events as a chance to stand in the world's spotlight.

Circus Maximus traces the path of the Olympic Games and the World Cup from noble sporting events to exhibits of excess. It exposes the hollowness of the claims made by their private industry boosters and government supporters, all illustrated through a series of case studies ripping open the experiences of Barcelona, Sochi, Rio, and London. Zimbalist finds no net economic gains for the countries that have played host to the Olympics or the World Cup. While the wealthy may profit, those in the middle and lower income brackets do not, and Zimbalist predicts more outbursts of political anger like that seen in Brazil surrounding the 2014 World Cup.

1	What's Wrong with the Olympics and the World Cup?

No city wanted to host the 1984 Olympic Games. Mexico City's games in 1968 were marred by violence and political protest. Munich's games in 1972 ended in wrenching tragedy as eleven Israeli athletes were killed by terrorists. Montreal's games in 1976 cost 9.2 times more than initially budgeted and yielded a debt that took the city thirty years to pay down.

There was no glory associated with hosting the Olympics back then, and the International Olympic Committee (IOC) was desperate to find a venue. With no competition, Los Angeles stepped forward and made a deal. The IOC would guarantee any losses suffered, and Los Angeles could basically get by with its existing sports infrastructure, part of which came from having hosted the 1932 Olympics.¹ This favorable deal, together with some clever and aggressive marketing of corporate sponsorships by Peter Ueberroth, led the L.A. Organizing Committee to realize a modest profit of $215 million.

The Los Angeles experience turned the tide. Shown the alluring path to possible profits, cities and countries now lined up for the honor of hosting the games. The competition to host the games became almost as intense as the athletic competition itself. Would-be hosts lavished more and more money on their bids; today, spending upward of $100 million on the bidding process alone is not unusual.

With each bidder trying to outdo all the others, expenditures on hosting the games rose to over $40 billion for the Beijing Summer Games in 2008 and reportedly topped $50 billion for the 2014 Sochi Winter Games. Developing economies have jumped into the bidding in recent years. They require more substantial investments owing to inadequate transportation, communications, energy, hospitality, and sporting infrastructure. Other sports mega-events have experienced similar cost escalations. The cost of hosting the FIFA World Cup, soccer's quadrennial showcase event, has risen from several hundred million in 1994, when the United States hosted the event, to $5–$6 billion in 2010 in South Africa and $15–$20 billion in Brazil in 2014. Qatar could shatter all records when it hosts the event in 2022, with some estimating the final price tag will come in at an eye-popping $200 billion.

But history might be repeating itself. Just as forces conspired to eliminate bidders in the late 1970s, by 2014 escalating costs had imposed a major financial burden on countries with meager resources and deficient public services. While promoters of the games made lofty claims about the economic benefits to be gained from hosting these sporting extravaganzas, the local populations seemed unimpressed. Not only were there no evident economic gains, there were social dislocations and resource diversions away from meeting basic needs. The games may benefit their wealthy promoters, but those at the middle and bottom of the income ladder appear to be picking up the tab—and increasingly, they don't like it.

In June 2013, before and during the Confederations Cup (a quadrennial international soccer competition that precedes the World Cup in the host country), more than a million Brazilians across the country took to the streets to protest the government's spending $15–$20 billion on new stadiums and infrastructure (much of which was never finished) to host the 2014 World Cup. Meanwhile, the Brazilian population faced woeful public transportation services, rising bus fares, deficient medical care, poor schools, and insufficient housing. Popular protests continued throughout 2013 and then reached a crescendo as the World Cup approached in June 2014. Strikes by police, teachers, and transport and airport workers erupted in many cities, and street demonstrations, though heavily repressed, accompanied the soccer competition.

Brazil is not alone in protesting government policies and priorities. People worldwide, from the United States (Occupy Wall Street) to the Middle East (the Arab Spring), Russia, Pakistan, Ukraine, Istanbul, South Africa, Chile, Bolivia, and China, have risen up to protest what they perceive to be unequal and unfair outcomes that are being aided and abetted by government policy. Globalization and the march of technology, together with market forces and a skewed distribution of market power, have conspired to widen economic inequality both among and within countries.

Of course, the members of the executive boards of FIFA and the IOC themselves belong to the economic elite. They travel first class, stay in the finest hotels, and rub elbows with the political and business leaders in the cities they visit. Sepp Blatter, the FIFA president, earns a salary in excess of $1 million on top of what seems like an unlimited expense account. Other FIFA executives earn compensation packages well into six figures.² Blatter had been giving the twenty-five members of the FIFA Executive Committee annual bonuses ranging from $75,000 to $200,000 a year on top of their salary of $100,000 for very part-time work. For appearances’ sake, the practice of annual bonuses was ended in 2014, but FIFA's Sub-Committee on Compensation (an appointed body of Executive Committee members³) made up for the loss of bonuses by secretly voting to double their annual pay to $200,000, according to documents uncovered by London's Sunday Times. The Times also reported that Executive Committee members received a $700 per diem while doing FIFA work, traveled business class, and stayed in five-star hotels.⁴ According to the FIFA ethics code, the twenty-seven Executive Committee members are not supposed to receive gifts that have more than symbolic value. In September 2014, however, it was revealed that in the hotel gift bags in Brazil for the 2014 World Cup there was a luxury Swiss Parmigiani watch worth $25,000. Twenty-four members of the Executive Committee, including Sepp Blatter, did not report this gift; three members, U.S. member Sunil Gulati, Australian member Moya Dodd, and Jordanian member Prince Ali bin Al Hussein, reported the violation to FIFA's Ethics Committee. Apparently, the plan was to gift two more watches, each worth over $42,000, to each Executive Committee member, until the first transgression was reported.⁵ After this news became public in early September, FIFA's Ethics Committee took a stand and ordered the Executive Committee members to return their watches.⁶

The members of the IOC are unpaid, but the organization is populated by the rich, the famous, and others who seem as if they would be as comfortable in a ballroom or boardroom as on an athletic field. Royalty on the IOC include Prince Feisal bin Al Hussein of Jordan; Frederik, Crown Prince of Denmark; Princess Haya bint Al Hussein of Jordan (and sheikha of Dubai); Sheikh Tamim Bin Hamad Al Thani, emir of Qatar; Prince Nawaf Faisal Fahd Abdulaziz of Saudi Arabia;⁷ Prince Ahmad Al-Fahad Al-Sabah of Kuwait; Anne, Princess Royal of Britain; and Prince Albert II and Princess Nora of Liechtenstein.⁸

Distributional concerns inevitably are more pressing in countries at earlier stages of economic development. In light of the recent trend for developing countries, in particular the BRICS (Brazil, Russia, India, China, and South Africa), to host the Olympics and World Cup—countries where resources are scarcer, the fiscal balance is more fragile, hosting costs are far greater, and the income distribution is more lopsided—the potential for explosive protests seems imminent. While hosting a sport mega-event is hardly a seminal force behind a country's inequality, there is little question that it contributes to and reinforces existing patterns of inequality. That the Olympics and World Cup are so heavily publicized and so visible only increases the likelihood that wasteful spending will catch the attention and scorn of the population.

With Olympics bidding, the typical pattern is for a country's National Olympic Committee (NOC) to call for bids from prospective host cities eleven years before the games. There ensues a competition among the interested cities to win their country's nod, which occurs nine years prior to the games. The selected cities at this stage are known as “applicants,” and each pays the IOC $150,000 to be considered. The applicant cities are then whittled down to a group of usually three to five finalist or “candidate” cities. Each candidate city pays the IOC an additional $500,000 for the privilege of being considered as an Olympic host.

The bids by cities are driven by major private economic interests within the city's political economy, such as construction companies, construction unions, insurance companies, architectural firms, hotels, local media companies, investment bankers (who will float the bonds), and the lawyers who work for these groups.⁹ These groups in turn hire a public relations firm and a consulting firm to generate interest and excitement around the hosting prospect and to make elaborate claims of the potential economic benefits to the city.

Except in special cases, however, the promised benefits are not forthcoming. Equally troublesome, to prepare for the games the host city often must clear land, which frequently means relocating communities and jobs; hire migrant labor; divert resources away from important social services; and borrow billions, encumbering future tax dollars. Along the way, local communities experience congestion and pollution in the name of constructing venues and infrastructure that may have little or no effective use after the games and that may charge admission prices well beyond the reach of the common person's budget.

Seven years before the games, after two years of competition among the candidate cities aimed to convince the IOC that they are the most worthy of the hosting honor, the IOC anoints a winner. A similar selection process occurs for the World Cup. With multiple bidders from around the globe and only one seller (the IOC or FIFA), it is almost unavoidable that the winning city or country will have overbid. This outcome is made even more likely because the groups pushing each city's bid are representing their own private interests, not the city's. And these groups will not have to pay the construction bills; rather, they will be the ones on the receiving end, getting the lucrative contracts. Economists believe the outcome of such a bidding process is likely to result in a “winner's curse”—an outcome in which the winner has bid above the object's true worth.

The problem for the IOC and FIFA is that rising popular protests are alerting politicians to the fact that hosting the Olympics and World Cup may not be such a good deal economically or politically. Fewer cities and countries are entering the bidding. Voters in Munich, Germany, in November 2013 and in Stockholm, Sweden, in January 2014 went to the polls and rejected their city's entering the bidding competition to host the 2022 Winter Games.¹⁰ The new IOC president, Thomas Bach, spent much of December 2013 and January 2014 attempting to convince cities to bid for the 2024 Summer Games. At the pre–Olympic Games meeting in Sochi, Russia, in February 2014, trying to avert another downward bidding cycle similar to the late 1970s, Bach called for new approaches to the bidding process.

The chapters that follow take a closer look at all these issues. The next chapter considers the evolution of both the Olympics and the World Cup, how each came to be the Circus Maximus it is today, and the challenges each confronts. Chapter 3 discusses the short-term costs and benefits of hosting the Olympics and World Cup. Chapter 4 analyzes the long-run or legacy impacts of hosting. Chapter 5 presents the experiences of Barcelona with the 1992 Summer Games and Sochi with the 2014 Winter Games, while chapter 6 explores the experiences of Rio de Janeiro and Brazil with the 2014 World Cup and the upcoming 2016 Summer Olympics, and of London with the 2012 Summer Games. Chapter 7 offers an assessment of what works and what doesn't for host cities and countries, what problems FIFA and the IOC are facing, and what reforms they are considering or should consider.

2	Setting the Stage

The modern Olympic Games began in Athens in 1896. They bear little resemblance to the ancient Greek games of more than two millennia ago.

The Era of Amateurism

The French aristocrat, intellectual, and writer Pierre de Frédy, baron de Coubertin, studied the program of physical education at the Rugby School in England. Coubertin believed that the incorporation of physical education into the British educational system promoted the balanced development of mind and body and was a major reason for the expansion of British power during the nineteenth century. France, in contrast, was still reeling from its humiliating defeat in the Franco-Prussian War, and Coubertin saw educational reform as a key element in nation building.

Coubertin's effort at educational reform, however, found little success, and he soon turned his attentions to a new plan, also founded on some notion of the benefits of physical activity and athleticism: reviving the ancient Olympic Games of Greece.¹ Coubertin was wedded to two basic principles that he saw embodied in the ancient games: first, the competitors should be amateurs,² and second, the games should be a way to bring different cultures and antagonistic nations together, promoting better understanding and peace.

Historians question whether the ancient games were in fact characterized by amateurism and peace, as Coubertin imagined. While some historians hold that competitors in the Greek Olympics were always directly or indirectly paid, others maintain that the ancient games only became professionalized after 480 BCE. Whatever the reality, all historians understand that there was a class component to the notion of amateurism: only the upper class had the leisure time available to engage in sport. Coubertin's insistence on the modern games being for amateur athletes only was tantamount, in the late nineteenth century, to limiting participants to the upper class.

Coubertin's belief that the ancient games promoted peace was also suspect. The only recognizable peace ensued from an agreement among warring regions to allow athletes and religious pilgrims to pass safely through territories on their way to the games at Olympia. There appears to be no evidence that the games either ended existing hostilities or prevented new ones from arising.

The New Olympic Movement

When the modern games began in Athens in the summer of 1896, however, it mattered not whether Coubertin had his history right or whether he was perpetrating myths. The intentions of the new Olympic Movement were enshrined in its charter, including these principles:

Olympism is a philosophy of life, exalting and combining in a balanced whole the qualities of body, will and mind. Blending sport with culture and education…. The goal of Olympism is to place everywhere sport at the service of the harmonious development of man, with a view to encouraging the establishment of a peaceful society concerned with the preservation of human dignity…. Any form of discrimination with regard to a country or person on grounds of race, religion, politics, gender or otherwise is incompatible with belonging to the Olympic Movement.³

The nondiscrimination principle was violated at the outset. No women athletes participated in the 1896 Athens Games. These first modern games were diminutive by current standards: 295 athletes from fourteen nations participated, competing in forty-three events. The Athens organizers had expected soccer teams from four countries to compete, but none showed up. The Athens games were funded jointly by private and public funds.

The next two Olympic Games were staged in Paris, in 1900, and St. Louis, in 1904, but were overshadowed by the coincident Paris Exposition in the former and the World's Fair in the latter. Nonetheless, the Paris games were notable because they marked the first time women participated, as well as the introduction of soccer competition. To be sure, the representation of women athletes was modest, but at least it was a start: Paris featured 1,066 male athletes but only eleven women. The St. Louis games were marked by the near absence of foreign participation—of the 650 athletes, 580 were from the United States.

London hosted the games in 1908, and Stockholm in 1912. The Stockholm Olympics are remembered for the legendary performance by the Native American Jim Thorpe, who won the gold medals in both the pentathlon and the decathlon competitions (and defeated the future IOC president Avery Brundage in each event)....