Japan recently banned crowds from attending the Tokyo Olympics, after declaring a state of emergency in the city due to rising COVID-19 infections. Maia Linask, an associate professor of economics in the Robins School of Business at the University of Richmond, recently explained how the pandemic-driven change will negatively impact the already uncertain economic benefit of being an Olympic host city. 

“No fans at the Olympics means that there are no hotel guests, restaurant diners, and shoppers,” Linask said. “The guy who was planning to sell Tokyo souvenirs from his cart — and has already ordered and paid for an extra supply of souvenirs in anticipation — now has no customers. The restauranteur who had planned to hire extra waitstaff to handle the large crowds of Olympic fans no longer has need of them. All of these businesses, both big and small, will see much less revenue.” 

And that damages the economy long term, Linask said, because not only are businesses losing potential profits, they’re in debt for the amount they’ve already spent.   

“In many cases, they have already incurred extra costs,” Linask said.  

The potential negative economic impacts aren’t specific to Tokyo either, she said: “The cost to cities of hosting large sporting events such as the Olympics is often greater than the revenue; cities spend more on bidding and building than they earn in revenue, usually much more.” 

Potential host cities typically need to spend between $50 and $100 million preparing bids for the International Olympic Committee (IOC), and most bids fail. And while a city’s primary revenue when hosting the Olympics come from TV broadcast rights, the lack of ticket sales will likely cost Tokyo hundreds of millions of dollars in lost revenue.  

Cities spend billions — sometimes tens of billions — to host the Olympics, and the costs frequently rise after initial projections. For example, the 2018 Pyeongchang Winter Olympics in South Korea were originally projected to cost $7 billion but ended up costing nearly $13 billion. The Tokyo Olympics are projected to cost $15.4 billion, up 22% since the projected budget in 2020. The delay alone is costing approximately $2.8 billion.  

There’s a long list of cities across the globe whose Olympic stadiums are untouched years later, which Linask said is a common predicament. 

“Some areas are left with large sports venues that may not see much use,” she said. 

But, Linask said, some cities have seen benefits after hosting the Olympic games. While the Rio de Janeiro Summer Olympics in 2016 lost about $2 billion, the Pyeongchang Olympics ended up with a profit of about $55 million. And while there are frequently hidden costs to being an Olympic host, there are also less obvious benefits, Linask said.  

“Preparing for an Olympics typically involves significant infrastructure investment in roads, bridges, and airports, all of which continue to benefit the city in the long run,” she said. “It is also possible that hosting an Olympics leads to reputation effects that lead to increased future tourism.”