Will Greece be an Olympic winner?

Hosting the Olympic Games can often prove a long-standing drain on a country's resources, but there are up sides too, as Simon Nixon explains.

How did Greece come to stage the Olympic Games in 2004?Greece was awarded the Olympic Games in 1997, largely as a sop for having lost out to Atlanta in the race to host the centenary Olympiad in 1996. Atlanta's commercialism also worked in Greece's favour. Many believed the Olympics had drifted too far from its amateur roots. As the birthplace of the ancient Games and the site of the first modern Olympics, Greece was reckoned to be best-placed to revive the Olympic spirit. But giving the Games to Greece was a risk. A modern Olympics is a massive undertaking for any country, even more so for a country of just ten million people with inadequate infrastructure and a history of corruption and incompetence. The terrorist attacks of September 11 only added to the problems. Suddenly, Athens had to spend record sums on security, adding to the costs of the Games.

How much have these Olympics cost?The final cost may reach e6.5bn (£4.5bn), 4% of Greek GDP, nearly 50% above the original budget of e4.6bn. The security budget doubled to e1.2bn and the final sum will not be known until after the Games. To a degree, these costs can be offset against some of the most lucrative sponsorship and TV revenues in the Games' history. Blue-chip firms such as McDonald's and Coca-Cola have paid a record £1.2bn to sponsor the Games, while the TV rights have fetched $1.47bn, compared to $1.3bn in Sydney last time and just $287m in Los Angeles in 1984.Yet the Games will leave a scar on the public finances.

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What will be the effect on the Greek economy?To date, the impact of the Olympics on the Greek economy has been mostly beneficial. Over the last few years, the combination of Olympic spending and generous EU handouts have helped to transform the country from an economic basket case into one of the fastest-growing economies in the EU, with growth of 4%. But the legacy of the Games is public-sector debt likely to hit 100% of GDP this year and a budget deficit forecast to reach 4%, well beyond the eurozone 3% limit. As a result, Greece has been told to cut its debt this at a time when the supply of EU funds is about to dry up following EU enlargement.

So what does Greece hope to gain from the Games?The Greeks are hoping for a repeat of the "Barcelona effect", with a big rise in inward investment and tourism. Certainly, the Games will have bequeathed to Athens a vastly improved infrastructure, including a new 40km suburban railway and a 25km tramway that will help ease the capital's chronic traffic problems. On the other hand, even the staunchest defenders of Greek industry and productivity would have to concede that the last-minute race to get the Olympic projects completed on time work on the venues did not even begin until 2000, three years after Greece was awarded the Games was a public relations disaster for the country.

What about the effect on tourism?Greece is already the world's 15th most popular tourist venue, receiving 14 million visitors a year in a typical non-Olympic year, and the Greek government is hoping that the positive images from the Olympics will boost tourism numbers to 20 million by 2010. But the omens are not good, if visitors to the Games themselves are anything to go by. Greece seems destined to hold the dubious distinction of being the first host country to see a decline in tourism numbers in an Olympic year. Bookings are down 8% on last year, advanced ticket sales are running well below expectations and Athens hotels are being forced to slash prices due to low occupancy rates. By contrast, Turkey saw visitor numbers rise 50% in the first half of the year.

Are the Olympics usually a bonanza for the host country?No. Far from it. The Montreal Games in 1976 were a financial disaster. Costs spiralled to four times their original estimate, and to this day the city's smokers are obliged to contribute a sixth of every cent they spend on their habit to help pay off the lingering debt. Quebec residents will not finish paying for the Games until 2006, by which stage the main stadium, known locally as "The Big Owe", will have cost $2.4bn.

Which countries have done well out of the Olympics?The Los Angeles Games in 1984 were the first to make a profit since 1932, scooping a $1.4bn windfall for the city. Atlanta in 1996 also made a profit. However, the real benefits of hosting the Games are often to the host country's economy. South Korea's economy grew 12% in the year of the Seoul Olympics. The Sydney Games in 2000 boosted the Australian economy by $3.3bn. But perhaps the most successful Olympics of modern times were the Barcelona Games in 1992, which marked the start of an economic and cultural renaissance for the Catalan capital.