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Sochi 2014: An Olympic Sized Cost

January 28th, 2014 by Associate

With the Winter Olympics a little under a month away, the world’s spotlight will soon turn to a tiny Russian resort town on the coast of the Black Sea.  Sochi, Russia, a city known for its dachas (Russian summer homes) and seasonable summer weather will soon have hundreds of thousands of tourists and athletes for the 22nd Winter Olympics.  With the Olympics and Sochi set to dominate the news-cycle for the coming months, it seems like an appropriate time to drill down into some of the finances of the Olympics and some possible suggestions for the International Olympic Committee (IOC) for the future.

The sheer cost of the 22nd Winter Olympics is both staggering and record shattering.  When hosting the 2008 Summer Olympics, China spent ~$40 billion dollars on the event; Russia is currently projected to spend over $51 billion.  This figure is even more striking when noting that the Winter Olympics has significantly less events and athletes; thus less of a draw for the audience.  The lavish cost seems primarily related to excessive corruption, inadequate building techniques, and lofty expectations.  Russia typically ranks near the bottom on Transparency’s International corruption index (ranking 127 out of 177 countries [the US is 17th, for comparison]), it’s likely that some of these costs are not on the up-and-up.  Also, the games themselves are designed to show off a “New Russia” to the world and Vladimir Putin has spared no expense.  Another factor to the cost is the odd choice of Sochi for the Games.  Sochi, which sits on the coast of the Black Sea, typically has a humid subtropical climate and is commonly viewed as a summer retreat.  The mountain portion of the events will be held in Krasnaya Polyana, which is ~40 miles away from Sochi.  Due to warm weather conditions and the overall climate, Russian organizers have actually been storing snow in case conditions are inadequate.  Additionally, due to Sochi’s relatively small size, a massive amount of infrastructure was required to be constructed to accommodate the influx of people which drastically increased the cost of the operation.

While the Olympic Games are likely to always be expensive due to the inherent nature of hosting a massive international sporting event, the IOC needs to rethink how it selects cities to host the Games.  Instead of choosing countries and cities based on who provides the biggest splash, the IOC should preference cities that can provide the Games at the lowest cost.  Developed cities with established infrastructure should be given preference to choices that require significant capital expansion.  Far too often these cities end up regretting hosting the games, with crippling debt and empty hotels as the only legacy.  The IOC could also consider creating designated Olympic cities that rotate on a set basis. Costs could be reduced by focusing on improvements and modernization of existing structures, rather than entirely new builds.  Currently, if a host city was unprepared for the Games due to building delays and increased costs to out-do the previous Olympics, there is no alternative sites ready or suited for the Games. The whole event would have to be delayed cancelled. So fingers crossed that no other tragedies occur (see recent Russian terrorist activity), or the IOC could have an Olympic sized flop on their hands.

GO Team USA!!

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