Influence Chart & Establishing Objective

Economists complain that hosting the Olympics is financially irresponsible and that the costs vastly outweigh any tangible benefits.  If this is such an irrefutable claim, then why do public officials continue to push bids for their cities and nations?  I am interested in evaluating any advantages of hosting that have been previously undiscovered (or undervalued) by economists.  From a public policy perspective, I hope that my research will eventually prove a useful tool in determining whether or not a host nation will submit a bid.  As a Norwegian studies minor, I am especially interested in the 1994 Winter Olympics in Lillehammer as the Winter Olympics should (theoretically) be more successful in a country with both mountains and a climate that produces natural snow.  But Norway pulled out their most recent bid for the 2022 games due to lack of public support.  Perhaps if my research can pinpoint specific benefits of hosting the Olympics that previous research has missed, government officials and citizens will be more open to hosting the Winter Olympics and the negative trend in number of countries bidding will reverse, resulting in more bids for the IOC to choose from, better Olympic Games and increased benefits for host nations.  And if my research fails to see any real correlation between hosting the games and certain assumed benefits, economists will be further convinced that hosting is a financially irresponsible decision.

To begin my analysis, I created an influence chart to recognize the variables, parameters and their respective relationships with the ultimate and immediate outcomes in hosting the Winter Olympics.  The ultimate outcome is profit from a business perspective because without economic profit, the International Olympic Committee (IOC) would have a difficult time getting countries to bid on hosting the games.  From a public policy point of view, this study aims to incorporate myriad qualitative benefits (like increased happiness) from hosting the games that are often left out of simple economic analyses. The variables contributing to profit are total revenue and total cost.  Contributing to these two variables are a variety of fixed inputs and additional variables.  In the interest of readability, I included a simplified version of my influence chart below:

                     

The main components of total revenue are attendance and Olympic grants (any money that the IOC and private donors contribute to the host country).  The number of viewers and the games' attendance drive total revenue, but it is necessary to consider what portion of the attending individuals are local residents, as this group will have a lower effect on revenue in lodging and accommodations.  The attendance of the games will also theoretically affect media revenue, tourist revenue, ticket sales and revenue from international and domestic sponsorships.  These variables will be examined in greater detail later in my analysis.

To calculate the total cost of hosting the games, variable costs must be differentiated from fixed costs. For example, a fixed cost would be the initial payment to the IOC to be considered as a host country in the bidding process.  Variable costs from the bidding process would be the expense of consulting firms that the Norwegian government hired to create a presentation, brochures and propaganda material for IOC members and any costs associated with the wining and dining of the IOC.  Important costs to consider are construction and modernization costs, operation costs (including increased security, opening & closing ceremony) and opportunity costs which are often omitted from assessments.