Rio Olympics 2016: economic gain or loss?

The Olympic games empties the pockets of thousands of tourists every four years – but Rio has a lot to live up to, and it’s starting to look like the city’s infrastructure and economy will not be able to handle the pressure

Residents are evicrted from favelas in Rio de Janeiro, ahead of Brazil's 2016 Olympics 
Author: Harriet King
June 7, 2016

Hosting the Olympic games comes with its advantages and disadvantages. Accommodating an international sporting event will indisputably drive tourism and generate profit for the region – parading a boost in public transport, hotels, entertainment, restaurants and retail.

However, host countries also have to worry about a poor showing and negative backlash, which could ultimately damage future tourism. Although the Olympics generates revenue, it also requires a huge initial budget – setting up the event can be extremely expensive and render a city near bankrupt, as seen in the past. Despite having a positive impact on Rio’s tourism figures, locals have a lot to lose in light of the Olympics, not least their livelihoods and homes.

Affording the Olympics
Brazil is currently facing its worst recession in decades; swelling unemployment, double-digit inflation and a corruption scandal that saw the sinking of the state oil company.

Last year the Brazilian government’s deficit inflated to more than nine percent, meaning they were forced to cut the $5bn Olympic budget between five-20 percent. News outlet APF reported that athletes competing in Rio will have to watch the games on communal TVs because there will not be a set in their rooms and VIPs will be served traditional beans and rice instead of gourmet meals.

In terms of balancing out expenditure and profit, Brazil’s prospects are not bright. Although the Organising Committees of the Olympic Games (OCOG) reports that every city that has hosted the Olympics since 1984 has broken even, it does not account for capital costs. The OCOG budget refers to operating costs, not huge expenses such as stadiums, the Olympic village, the media centre and infrastructure. It is evident Brazil is taking a huge risk in expecting profit to outweigh outflow.

Host countries also have to worry about a poor showing and negative backlash, which could ultimately damage future tourism

Generating revenue
Although the exact figure the games will generate in Rio is unknown, the International Olympics Committee (IOC) has released many predictions based on previous revenue for the Olympics, combined with Rio’s current economic state.

The estimated figure for TV broadcasting exceeds all other channels of revenue, contributing 70 percent of the total ($4.1bn). With Rio set to earn more than double the TV broadcasting money than the 2004 Olympics in Athens.

Lucrative sponsorship deals are also a big driver of revenue – sponsorship from both domestic and National Olympic Committee’s (NOC) foreign countries makes up 20 percent of the total revenue. Worldwide marketing and sponsorship revenue is predicted $900m, and $1.3m for domestic sponsorship deals. Official sponsors for Rio 2016 include Coca-Cola, McDonalds, Samsung, Panasonic and Nissan. Marketing rights and licensing is predicted to bring in $300m, and $250m will come from other streams.

It is the responsibility of the IOC to distribute the revenue; 10 percent is retained by the IOC for operational and administrative costs, while the remaining 90 percent is distributed to 204 NOCs globally. Part of this 90 percent is also used on the expenses of hosting the Olympic games.

Infrastructure and tourism
During 2008 to 2014, Rio’s revenue from the overseas tourism market grew from $1.26bn to $2.10bn– with the help of the 2014 World Cup. Therefore, the country is entering the Olympic games on a tourism market high. However, an influx of tourists is not entirely expected.

A predicted 400,000 tourists will visit Rio during the Olympics. A large number of these tourists will be drawn to the city’s famous monuments, carnivals and landscapes – meaning a surge in sales for tours. Tour companies will have to be innovative in their guides during the event, in order to outshine competitors (of which there will be a lot.)

Brazil is currently facing its worst recession in decades; swelling unemployment, double-digit inflation and a corruption scandal that saw the sinking of the state oil company

However, Brazil has to overcome many challenges to attract more foreign visitors. This includes more accessible visas and adequate infrastructure. After the recent collapse of the city’s elevated bike path, which killed two people, Rio suffered another setback to its credibility as an Olympic host. The bike lane was among the game’s legacy projects, running parallel to a road high above the sea that will be used for the road-cycling event in the Olympics.

The collapse of the bike path isn’t the only issue with infrastructure that Rio will have to overcome. The marina that will hold sailing events, and Marina da Glória is located in Guanabara Bay – where an investigation was launched and the results showed unsafe levels of viruses and bacteria. Brazilian officials said the water will be clean in time for the games.

Another major concern for Brazil – which they will need to seriously reconsider before the Olympics in order to drive tourism – is the zika virus. The director-general of The World Health Organization (WHO) is reconsidering the risks of the Olympics Games while the virus is still active in Brazil. Over 200 academics around the world have called for the Games to be postponed or moved to another country, claiming the WHO is failing to assess the risks posed by the ongoing pandemic.

The country will have to reconsider its infrastructure plans, taking into account health and safety guidelines in order to successfully maintain its 12 stadiums and overhaul national transportation to accommodate for the Olympics.

A spokesperson on behalf of IOC said: “We expect Olympic construction projects to be carried out in line with local laws and regulations, and fully support the work of the inspection authorities, as the city is transformed for the future. When issues are identified, we expect remedies to be implemented by those responsible for the construction. The City of Rio de Janeiro has already released a more detailed statement on this topic.”

The spokesperson continued: “What we can tell you is that we have seen great progress being made in Rio de Janeiro, and we remain confident about the success of the Olympic Games in August.”

How will the Olympics affect the local community?
It comes as no shock that many of Rio’s civilians are not ecstatic about the countdown to the Olympics. The Brazilian government is trampling the homes of locals and uprooting communities in some inconveniently located favelas. An estimated 385 families were evicted from their homes last year, after receiving letters from city hall ordering their removal to make way for a high-speed bus lane, connecting the international airport with one of the host villages for the Olympic games.

Large companies investing in the Olympics have managed to avoid taxes. Brazil has a long way to go before it’s economically stable, and the Olympics is just added pressure

A spokesperson on behalf of IOC said: “The city of Rio de Janeiro has undergone a huge transformation. A large part of these preparations are infrastructure works that will leave a lasting legacy for the city, for its residents, and visitors. Where resettlement has been required, we have been advised that the city follows all current legal procedures and protects the rights of its citizens.

“We understand that where relocations have occurred, the families have agreed to receive compensation or to take part in the ‘My House, My Life’ housing project.” Diego Silva, a local resident of the Rocinha favela, said the Brazilian government removed people from their homes without any assistance or plan of reintegration. “The plan was to transfer people to better located areas during the Olympic games, but this was not what happened. As companies began to launch their projects in areas such as the favelas, people were forced to relocate so that builders could construct accommodation for the athletes,” he said.

“I don’t think the Olympic games will cause Rio an economic boom. Of course tourism will boost local economy, but the Olympics will only assist the hospitability and commercial sectors. It seems that the government have totally forgotten about the tax system – large companies investing in the Olympics have managed to avoid taxes. Brazil has a long way to go before it’s economically stable, and the Olympics is just added pressure.”

Silva said he does not plan on buying tickets for any of the Olympic events in Rio, as it is too difficult. He believes Brazil should set up a free event for locals, similar to when they hosted the world cup, in a venue showing live sporting events.

Brazilian officials will need to strengthen their relationship with local communities if they want businesses to contribute to the Olympics’ predicted revenue – which if successful could support the country’s failing economy.

However, if Rio does not provide tourists and competitors with a safe, healthy, and risk-free environment, the Olympic games will not go ahead at all – making Brazil one of the only countries incapable to host the Olympic games after winning the bid.