Taking the gravy train

A reader of In-Sights provided this link to a Washington Post article. It seems timely, given recent evidence that BC Liberals have been overstating economic benefits from the 2010 Winter Games. Later, I’ll provide a condensed version of “Myths About Landing the Olympics.” First though, let’s recap recent Olympic financial information.

Consultants PricewaterhouseCoopers (PwC) delivered a report reviewing spending impacts of the 2010 Games during the period 2003-2008. Mind you, this is not a cost/benefit analysis. It projects monetary benefits without considering costs, something no competent manager ever does.

Your 16 year old might prefer you buy a 2010 Lexus instead of a 1992 Buick. The new car offers greater benefit but at $50,000, not $1,500. Of course, giving the whole economic picture has never been part of BC Liberal strategy. They aim to keep unhelpful news behind closed doors, out of the public eye.

Canadian Press reported this information on studies of financial benefits derived from the 2002 Salt Lake City Winter Games:

Most economists who are not working for the sports leagues or working for the event managers always come up with numbers that are a fraction of what the event organizers promise,” said Victor Matheson, an economics professor at the College of the Holy Cross in Massachusetts and one of the authors of the study.

One factor almost never taken into account, said Matheson, is how much money being spent by or during an Olympics actually stays in the local economy.

An increase in hotel prices doesn’t mean hotel employees’ wages go up too, he pointed out.

“So this is really just money that is kind of a windfall profit for the hotels and that goes back to shareholders back at the corporate headquarters back in New York City rather than actually sticking in the Vancouver economy,” he said.

The PwC report contains little new information; it recapitulates old forecasts and makes no effort to project final results. Many earlier expectations have not materialized. For example, pre-Olympics tourism has been a disappointment and, even now, Whistler hotels are offering special deals to attract visitors.

Vaughn Palmer at the Vancouver Sun, interpreting PwC, says:

…the authors calculate that Winter Games spending increased economic growth by between 0.10 per cent and 0.13 per cent annually in the years examined. Yes, you read that correctly. The economy grew by one tenth of a percentage point per year more than it would have done without the preparations for the Olympics.

Let’s examine myths noted in the WaPo article by Stefan Szymanski, a professor of economics at City University London and the author, most recently, of “Playbooks and Checkbooks: An Introduction to the Economics of Modern Sports:”

1. The Olympics will pay for themselves.

Nope, they never do. The Olympics have always needed a public subsidy. . . Representatives of national Olympic committees, governments and other interest groups are fond of saying that the revenues from ticketing, broadcast rights, sponsorship and merchandising will cover the operating costs. Operating costs are the tip; infrastructure is the iceberg. Moreover, much of this infrastructure has limited value after the Games and will never generate much income. …there have been no cases where the Games can show a net profit.

2. Winning the Games means a gold rush of jobs for the host city.

The truth is that the local economy doesn’t get much of a boost while those shiny new athletic venues are being built. Many of the jobs created are filled by specialists who come in from outside and they take their pay home with them. To the extent that local labor is tapped, suppliers are taken away from other projects in the area, raising costs in the process. It would be nice to think you could create an Olympic city by hiring an army of the unemployed, but mega-projects like this do not work like that.

3. The Olympics will boost local tourism.

For most foreign visitors, attending the Olympics is a proposition that costs thousands of dollars. Demand is just not that great. Tourist arrivals usually fall after the Olympic circus leaves town. When Athens hosted in 2004, Greece didn’t see visitor numbers recover to their pre-Games level until two years later.

4. Playing host to the Olympics changes the landscape of a city forever.

Maybe, but it’s not a legacy worth much. Athens has struggled with unused venues; the Beijing Bird’s Nest is mostly empty. London is building an 80,000-capacity Olympic stadium for 2012 only to strip it down to 25,000 seats immediately after the Games. Even Sydney, which staged one of the best Games of recent decades, has torn down a number of venues. In the end, the cost of maintaining unused buildings is so high that demolition is often the only sane option.. The infrastructure carries a construction premium — facilities must be built to time (contractors ruthlessly exploit this) and to the IOC specifications, which many not be what the city needs.

5. The Olympics inspire greater participation in sports.

In recent years concern about the obesity crisis has offered another crutch to bid-city boosters: The Olympics will make us more active and therefore healthier. It’s hard not to be skeptical, though, about claims by any organization whose major sponsors are Coca-Cola and McDonald’s that what it does is good for your health. We admire Usain Bolt, but we are not likely to go to the track and start sprinting because of the records he’s broken. And when did you last watch a bout of Greco-Roman wrestling and say to yourself, “I fancy a go at that”?

Categories: Olympics

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