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Olympics & The Host Economy

With the 2016 Summer Olympics Games in Rio de Janeiro approaching this August, it is interesting to look at how the Olympics affect the host economy.  One might think hosting the Olympics will bring awareness, economic growth, and prosperity to the host country, but looking into the facts it doesn’t seem to pan out that way.

The reasons why the Olympics might help the local economy would be increased demand for goods and services, increased spending leading to business activity, more jobs to prepare for the games, jump in tourism, and global awareness that would lead to outside investors who would otherwise overlook the country.  The influx of people into a designated city/country for these exciting international games would likely boost the businesses that benefit off tourism and sporting events such as hotels, restaurants, transportation, and sporting goods retail.  The non-stop awareness of a country for a month straight, although impossible to quantify seems to be something that would only help the host country expand tourism, business, and economic growth.

On the contrary some reasons why the Olympics would not help the local economy of the host country would overspending, loss of tourism due to the overflow for the games, and unrealistic projections that are influenced by political and business interests.  There has been too many occasions where stadiums have been built for the games and then are never used again.  Years ago there was an article written and showed pictures of past stadiums going unused for years.  The cost to build these stadiums that go on looking like something out of an apocalypse movie have no productive value once the games are over and require a substantial amount of money to build.  Research shows that countries usually spend 180% more than budgeted.  This increased government spending usually results in negative economic activity that results in higher taxes, interest rates and inflation.  According to Forbes.com dating back to 2004, most of the countries that hosted Winter & Summer Olympics experienced considerable slowed growth of GDP following the games. 

Some may argue that the Olympics attract so many people and will increase future tourism, but when you look at the fact it doesn’t usually work out that way.  In the 2012 Olympic Games in London, 20 million people from more than 200 countries spent $14 billion during the month of August and those numbers were actually less than what was generated in 2011 when the games were not there.  So many tourists were turned off by the crowds that were visiting for the games.

This year Brazil is hosting and they have a whole other list of political, economic and health issues on their hands which has caused a lot of controversy in whether the games should even be held there this summer.  Many athletes have withdrawn from competition due to these concerns.

The main takeaway is that conclusively there has not been any statistics to say that hosting the Olympics has a definite positive or negative economic benefit for that country or the overall markets.  That’s one reason our philosophy is always to diversify our investments and broaden our risk and not attempt to time the markets.  

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