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SBJ/August 1 - 7, 2005/Opinion
Economic impact of Olympic Games rarely adds up to much gold
Published August 1, 2005
The International Olympic Committee slapped the United States in the face twice last month.
First, New York City lost out on its bid for the 2012 Olympics. Second, the IOC dropped baseball and softball as Olympic sports.
It wouldn’t take a paranoid personality to think that maybe somebody out there doesn’t like us very much.
Baseball and softball are certainly not as popular as soccer, but they are more popular than the vast majority of Olympic sports. It was only 20 years ago when the Olympics did not allow professionals, and now the IOC drops baseball because it insists on professionals.
This decision, if not reversed, will hurt Caribbean nations, South Korea and Japan more than it will hurt the United States.
As for the 2012 bid, New York Mayor Michael Bloomberg tried to put on a pretty face at the postmortem news conference in Singapore. When asked how he felt about the decision, Bloomberg responded: “Two or three days from now, there will be mea culpa stories. There will be some sports professor from Smith who will write a story, and by next week, it won’t be a story anymore. It will drift out of the pages and it will come back, periodically.”
Mayor Michael Bloomberg’s city may be better off for losing its bid to host on 2012 Olympics.
New York probably wins by losing. The evidence from past Olympic Games hardly suggests that there’s a resounding economic gain from being the host city.
Montreal’s 1976 Olympics left the city with $2.7 billion of debt that it is still paying off. The financing of the Moscow Olympics in 1980 is opaque.
The Los Angeles Games in 1984 left the organizing committee (LAOC) with a modest surplus of $335 million, but the LAOC got 67 percent of the TV money and spent little on infrastructure or new facilities. The physical legacy of the 1984 Games is close to nil.
The Barcelona Organizing Committee in 1992 broke even, but the public debt incurred rose to $6.1 billion.
Similarly, the Atlanta Organizing Committee in 1996 broke even, but the bottom line there is not encouraging. An econometric study using monthly data found that there was insignificant change in retail sales, hotel occupancy and airport traffic during the Games. The only variable that increased was hotel rates — and most of this money went to headquarters of chain hotels located in other cities.
Interestingly, the director of planning and budgeting of the Atlanta Games told Holger Preuss (author of the book “The Economics of Staging the Olympics”): “We can only give you the analyses which carry a positive image. Other analyses remain unpublished so as not to make the population insecure.”
The Sydney Organizing Committee in 2000 also reported breaking even, but the Australian state auditor estimated that the Games’ true long-term cost was $2.2 billion. In part, this was because it is costing $30 million a year to operate the 90,000-seat Olympic Stadium.
When Athens won the right to host the 2004 Games in 1997, its budget was $1.6 billion. The final public cost is estimated to be around $9 billion — over five times the original budget. Meanwhile, most of Athens’ Olympics facilities today are reportedly underutilized.
The Games are touted to bring in tens of thousands of tourists, and, if things go according to the hype, to keep them coming into the indefinite future. Here, too, the evidence isn’t rosy.
Olympic participants and visitors often chase others away. In late 2004, Athens tourism officials were talking about a 10 percent drop in tourist visitors to Greece in 2004.
The Utah Skier Survey found that nearly 50 percent of nonresidents would stay away from Utah in 2002 because of the expectation of more crowds and higher prices. A survey in Barcelona indicated that fully one-sixth of the city’s residents planned to travel outside the city during the 1992 Olympics.
Today, much of the Games’ financing comes from the private sector. Companies buy sponsorships, naming rights or make donations.
But companies usually have set PR and advertising budgets. If they spend money on the Games, they won’t spend on other activities. That is, the money they spend on the Games is not free to the host economy.
Most important, there is the question of long-term land use. Olympic facilities can take up 15 or more acres each, often in a crowded urban setting.
The proposed West Side Olympic Stadium in New York would have occupied prime land in the middle of Manhattan, overlooking the Hudson River. After the Olympics ended, the stadium would have been used for 10 Jets games a year and maybe up to another 30 or 40 additional days for convention-related business.
Is this the best use of scarce and highly valuable urban real estate in a city with a significant housing shortage?
After the Games, Olympic facilities either have to be torn down or maintained. Operating and maintaining these facilities is expensive, especially since they are often used only for niche activities (think, for instance, velodromes for bicycling). Today, facilities in Salt Lake City cost millions of dollars to operate and many are in deficit.
None of this is to say that the Olympics always have a negative economic impact. Under the right circumstances, especially if they are held in cities without a modern infrastructure and with proper planning, they can have a salutary impact.
It is to say, however, that there is no automatic bonanza. Sometimes politicians and others lose sight of this because the competition for the Games itself takes on a life of its own.
And we in the sports industry know better than most how thrilling and all-consuming the quest for victory can be.
Andrew Zimbalist is Robert Woods Professor of Economics at Smith College.