The Economics of Olympic Success

With the Olympics in high-gear and shouts of “USA! USA!” echoing across the Atlantic, this is a good time to evaluate what makes for athletic excellence.

Of course, on an individual level, it’s a combination of talent, hard work, and equipment. But on a country level, it’s a combination of having an adequate population of young people and a wealthy economy to support athletes who train extensively. Support can come from the national government, private sponsors, or sports industry. But here have to be raw materials (athletes) and the infrastructure to develop (exploit) these resources. These are the fundamentals behind the national medal-counts.

It should come as no surprise then that populous, wealthy countries have dominated the Games. In the 1988 Sydney Olympics 81% of the medals went to only 10 countries. Smaller, poorer countries have a harder time getting onto the podium. But there are ways for these countries to beat the odds: focusing on sports where they have a natural advantage, like countries with high altitudes training long-distance runners; or granting citizenship to foreign-born athletes who can help their Olympic cause.

In any case, as developing nations become wealthier and see their middle-class population grow, we can expect to see the distribution of medals increase. In 2008, only 65% of the medals went to the top-10 countries. This ratio should continue to move down. Cell phones also make young, promising athletes more accessible to sport federations who want to recruit them, even from poorer countries.

And as more athletes from around the world compete, expect the level of performance to increase. The Olympics are an amazing demonstration of the beauty of peak athletic performance, no matter what country the athletes come from.

Douglas R. Tengdin, CFA
Chief Investment Officer
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