The 2012 Summer Olympic Games has drawn worldwide attention to London. As the scale of the Games is so huge, it is a tremendous pressure on the international city. As usual, there are tons of complaints about the Games - from the aspects of the organization, the security, traffic arrangements, even to food choices for the athletics. Given the efforts and resources put forward in organizing the Olympic Games, one question is always asked: "What kind of benefits or values do the hosting city obtain?" In terms of monetary value, hosting the Games is not a profitable choice.

For the London Olympics, in terms of timing, it is in the midst of the European debt crisis. Looking at financials, the UK is suffering from the economic downturn and the burden of hosting the Games is huge. From a purely financial point of view, hosting the Olympic Games is not a smart business idea. Even though the Olympics Games is supposed to be a sports event, commercialization of the Games is inevitable. One important consideration is that the demand for high quality infrastructure. There are stringent requirements for the sports facilities in the hosting city. As a result, even though the hosting city may have many sports facilities, construction of new stadiums are essential. If these sports facilities infrastructure can be used frequently, then the concern of building white elephants can be eased. However, very often these facilities are built exclusively for that particular Olympic Games. As such, this raises the doubt about whether the hosting city is making a smart move by bidding to host the event.

Historically, hosting the Olympic Games is equivalent to building up debts for years. The most notable example is the 1976 Montreal Olympic Games. It is estimated that the city registered a loss of 2.4 billion US dollar, and the debt was finally fully repaid 30 years later. If we calculate the inflation over these years, the 2.4 billion US dollar is equivalent to 9.8 billion US dollars today. For the 2004 Athens Olympic Games, it was estimated that the city spent over 10 billion euro for hosting the Games, but the figure excluded the extra expenditure on security and construction of infrastructure. This incredible amount of spending is said by some economists to be one of the factors behind the Greek debt problem.

Nevertheless, there are also cases when the Olympic Games recorded a black bottom line. For example, the Los Angles Olympic Games in 1984 is the first recorded Olympic Games that made a surplus. The Seoul Olympic Games in 1988 and the 1992 Barcelona Games, both recorded surpluses. Other Games like the 1996 Atlanta Olympic Games and the 2000 Sydney Olympic Games just recorded break even figures. These examples illustrate that making a surplus from hosting the Olympic Games is not an easy task.

A follow up question is why then do cities compete to host the Olympic Games. Clearly it is not simply about making a surplus. The international status of a city definitely will increase by hosting such a big international event. Also, there are also externalities from hosting the Olympic Games. Many infrastructure projects are needed and facilities have to be built. In particular, highways and other transportation useful to the city's future economic development. For some cities, hosting the Olympic Games can also lead to a greater unity of the nation. It is cited that the non-monetary rewards actually pays off. For example, it is priceless to watch athletics getting the medals, to watch their national flags rising, and to listen to the national anthem during the medal award ceremonies. In these days, the Olympics is no more a pure sports event. Together with financial considerations and other intangible concerns, it is much more complicated that before.

The author is Dean of School of Business at Hang Seng Management College. The views expressed here are entirely his own.

(HK Edition 08/02/2012 page2)