Lauren Rasco – While the Olympics are typically viewed as a time of celebration and global unity, many legal and economic challenges arise in preparation for this massive event – beginning with the selection of a host country. The International Olympic Committee (“IOC”) considers various factors when selecting a host country, including geopolitical factors, socio-economic factors, public support, and funding strategy. The final decision is made at IOC Sessions, where members cast votes to elect a host city. Once selected, the host country signs an Olympic Host Contract, outlining the responsibilities of the many organizations involved in setting up the Olympic Games. For example, the host country must agree to cooperate with stakeholders and third-party suppliers in the implementation of cost-efficient solutions and the selection of suppliers. Moreover, the host country is legally obligated to provide facilities, goods, and services such as Olympic Venues, Olympic Village(s), a reliable system of transport, adequate insurance coverage for all risks, and much more.
What appears to be a celebratory event, on the surface, actually involves a complicated legal framework that touches upon aspects of international law, intellectual property, and more. The IOC governs the Games under the Olympic Charter, which sets a legally binding framework for all participants. The host city must abide by this contract to avoid facing costly legal disputes. Beyond legal issues, there are various economic burdens placed on a city during and long after the Games end. Because of these hardships, securing host cities is becoming increasingly difficult.
In 2017, the IOC did the unthinkable by awarding the 2028 Summer Olympic Games to Los Angeles without asking other countries to bid. This decision signaled a sharp decline in the number of cities willing to host the Games. While selecting the 2024 Olympics host, many cities worldwide withdrew their applications, leaving Paris and Los Angeles as the only contenders. Worried about securing future host cities, the IOC preemptively awarded the 2028 Games to Los Angeles without considering other prospects.
To understand the slow decline of willing and available host cities, it is important to analyze both the benefits and burdens of hosting the Games. One positive effect of hosting the Games is the rise in jobs due to infrastructure improvements that will continue to last after the Games end – whether it be for railroads, airports, or accommodations. For example, in 2016, Rio de Janeiro built 15,000 new hotel rooms for tourists. Additionally, hosting the Games causes a rise in tourism, which normally brings in sponsors, media, athletes, and spectators for up to six months before and after the Games. This increase in tourism, although temporary, creates additional revenue for local businesses and food vendors. Although local businesses may generate additional revenue during this time, large and successful companies are more likely than small businesses to take advantage of investment opportunities to make a profit. In Brazil, for example, a few well-connected construction firms dominated the public contracts for the 2014 World Cup. Investments towards improving the host city, whether it be for construction or technology, will generate profit for companies able to take on the project.
On the other hand, unless a city already has infrastructure in place, the Olympics tend to result in severe economic deficiencies. Since at least 1960, nearly every Olympic host has spent more than initially budgeted. The infrastructure costs alone range from $5 billion to over $50 billion. These investments go toward new buildings, hotels, railroads, and airports. Many countries justify this expense in hopes that it will have long-term effects on the host city, but this has not been the case. In the 2016 Olympics in Rio de Janeiro, the Games cost the government and organizers at least $13 billion and generated at most $9 billion in revenue. A lot of this revenue was kept by the IOC and could not be used to offset some of the hosting expenses. The 2016 Rio Games were one of the highest-spending games and was estimated to go 352% over budget. In the most recent Games, the 2022 Beijing Games are estimated to have gone over budget by 149% and the 2024 Paris Games by 115%. The IOC pays for some operational costs, but the host city is responsible for almost everything else.
When placing economic burdens on host cities, the IOC realized that its market leverage had diminished significantly. With less market leverage, the IOC is losing its monopoly power and providing host cities the opportunity to bargain more in the bidding process. With reduced bargaining power, the IOC may have to offer more financial support and change contractual obligations to host cities, easing their burden and making the prospect more attractive to future candidates. With additional funding from the IOC, local businesses may have a chance to become more involved at lower costs.
Hosting the Olympics offers clear benefits, but the burdens seemingly outweigh any benefits to the host city. As cities continue to pull back from bidding for the Games, it will be interesting to monitor whether the IOC is willing to relinquish some of its power to accommodate host cities’ growing demands. One potential solution is for the IOC to encourage the use of existing buildings instead of building entirely new venues or accommodations. Additionally, the IOC may work with the host country to complete construction for the games early to avoid additional costs incurred to expedite construction. Despite the fact that overspending the budget for the Games creates issues for the IOC, more importantly, it leaves cities around the world in debt, which creates larger implications for how countries interact on a global scale. If the problem is not resolved over time, it’s possible the IOC could resort to hosting the Olympic Games in the same few cities that have already built the proper infrastructure. How the IOC responds to this challenge will likely reshape the future of the Olympic Games and the business model behind them.
