The Olympics are profitable for every host city (that lies about the numbers)

Going for the Gold: The Economics of the Olympics, a paper in the Journal of Economic Perspectives analyzes the economics of hosting the Olympics, indicting the numbers game played by bid committees and the IOC.

A cost-benefit analysis of hosting an Olympics only makes sense if you credulously accept Olympic consultants' estimates of "spillover benefits," which are so inflated that economists routinely divide them by ten to get a sense of the real number. This economic sleight-of-hand is exacerbated by a failure to consider "substitution effects" — the person who spends $1 on the Olympics might have otherwise spent that dollar on something else that benefited the local economy.

But Olympics keep on happening, in part because the cities involved routinely lie about the numbers (for example, the London 2012 Olympics came in "under budget" because it revised its budget from £2.5B to £9B between the bid and the games).

The cities that get the most benefit from the Olympics are off-the-beaten-trail places that are showcased on the world stage. Barcelona overtook Madrid after its turn hosting the Olympics (but there's no reason to believe that Spain benefited, as opposed to just shuffling its tourist income around).

Which brings us to Rio. Rio is not an obscure city — it is storied. What's more, Brazil is in the midst of a coup, and its Olympic preparations are Orwellian in the extreme — though with cops and firefighters walking off the job, the problem might be a combination of both too much policing and too little.

Rio, which has no money to spare, is about to pump billions into the coffers of multinational corporations at the expense of its own people, who are desperate and hungry. Some would say that this isn't what the Olympics are about, but history tells us that this is exactly what the Olympics are about.

Second, be a hidden gem, so the games serve to spotlight your qualities and boost tourism for many years afterwards. Rio, London, Beijing, Athens and Sydney hardly qualify here but Barcelona did: in 1990 the city was half as popular as Madrid with tourists but, by 2010, it had outstripped its rival. The Olympics can perhaps take some credit. Utah, similarly, enjoyed greater success as a destination for skiers after the Salt Lake City winter games. (Candidates for the 2024 games include Paris and Rome, not exactly well-kept secrets — and Budapest, which is a more plausible candidate to earn a lasting boost from tourism.)

Third, and most importantly, launch a cut-price bid in the wake of a disastrous games. Los Angeles in 1984 achieved the near-impossible and turned a profit because, after the ruinously expensive Montreal event of 1976, LA was the sole bidder for the games. They were hosted in the Los Angeles Coliseum, an ageing stadium that had been second-hand even when it first hosted the Olympics in 1932.

The best way to host a profitable Olympics is to do it twice, both times on the cheap.

Going for the Gold: The Economics of the Olympics [Robert A. Baade and Victor A. Matheson/Journal of Economic Perspectives]

How do you make the Olympics pay? Fudge the figures
[Tim Harford/Undercover Economist]

(Image: Lucasavancini/Reddit)