Current Weather
The Spy FM

Olympic Economics, The Pre-Games Show

Filed by KOSU News in World News.
July 23, 2012

The 2012 Summer Olympics in London starts in four days with the carefully choreographed opening ceremony. But a related spectator sport is already well underway: Dissecting the economic impact of the games.

A show we did in February looked at how big an economic boost cities really get from hosting the Superbowl, and much of the same analysis is being applied to this year’s games.

Goldman Sachs has put out a 39-page report (PDF) on the subject (plus, somewhat incongruously, athlete interviews). The bank’s analysts conclude that games in Munich (1972) and Montreal (1976) lost big bucks, while Los Angeles (1984), Barcelona (1992) and Atlanta (1996) “each made a profit.”

But in a footnote, the report also makes clear why it’s a thorny question to even ask whether a given Olympics makes money:

“In accounting for the cost of hosting an Olympics, most countries (including the UK) have treated the cost of constructing facilities and infrastructure, together with security and other ancillary costs, as being separate from the cost of running the Games themselves. The London Games are expected to make a profit (in the sense that revenues will exceed the cost of running the Games) but this will still leave the government with a significant (£8-9bn) bill from construction, security and other costs.”

Over at The Atlantic, Smith College economics professor Andrew Zimbalist looks at just why the Olympics tend to lose money, and gobs of it. He comes up with three primary reasons:

“(1) The bidding process is hijacked by private interests; (2) It creates massive over-building; (3) There’s little evidence that it meaningfully increases tourism”

The private interests that skew the bidding include builders, architects and related groups, he writes.

“The committee that nominally represents the city really represents itself and bids according to its sense of the private benefit (of its members) versus the private cost, rather than the city’s public benefit versus public cost. Since the private cost is diminutive and the private gain extraordinary, the local organizing committees, on behalf of the cities, are bound to overbid, wiping out any modest, potential economic gains.”

Translation: Developers and those in related industries stand to gain even if the games as a whole are a money-loser for the city and region they’re in. And even these bidding campaigns get costly: Zimbalist says Chicago spent $100 million in its unsuccessful attempt to get the 2016 summer games.

One good effect of the Olympics, Zimbalist says, is that cities tend to tackle long-overdue infrastructure upgrades. But cost overruns and the inefficient haste of the planning process counterbalance that. Then, of course, the city is left with a bunch of dramatic but hard-to-use structures.

Zimbalist goes on to compare these costs and inefficiencies with the economic gains brought by the Olympics, and finds the comparison badly wanting: maybe $6 billion in revenue, split with the Olympic governing body, against three or four times as much to host the games — and little evidence that tourism picks up substantially.

It doesn’t have to be that way, argues David Henderson on EconLog, a blog of the libertarian Library of Economics and Liberty. He points to the 1984 Olympics and its management by Peter Ueberroth (later the commissioner of Major League Baseball) as an example.

Because Los Angeles voters gave public financing a thumbs-down (with his support, apparently), Ueberroth pretty much had to keep the budget slim, Henderson argues.

“So Ueberroth did his best not to build new expensive facilities that would be used only for a few weeks but, instead, to use old ones. … The result? A $215 million “profit” that was donated to charity.”

In the comments to Henderson’s post, a reader notes that the International Olympics Committee isn’t likely to approve such small-scale events these days, thanks to the kind of protracted and aggressive bidding wars it encourages when choosing host cities.

“In essence,” writes commenter Jonathan Monroe, “the IOC uses the power of its brand to extract rents from host cities, which it then wastes on vanity construction projects.”

At The Fiscal Times, Yuval Rosenberg takes a closer look at the London Olympics specifically, drawing on the Goldman Sachs report and other financial analysts. And a poll earlier this month by Reuters concluded that “London’s 2012 Olympic Games will bring no meaningful long-term benefit to Britain’s beleaguered economy, but they might give it a brief shot in the arm.”

Soon after the games are over, no doubt, there’ll be another flurry of attention to the subject. Stay tuned. [Copyright 2012 National Public Radio]

Leave a Reply

1PM to 2PM Seasonal Shows

Seasonal Shows

Listen Live Now!

2PM to 3PM The Dinner Party

The Dinner Party

Think NPR meets Vanity Fair. In each episode, hosts Rico Gagliano & Brendan Francis Newnam talk with some of the world's most interesting celebrities, and along the way equip you with bad jokes, fresh drink recipes, hot food finds, odd news stories... and etiquette tips from the likes of Henry Rollins and Dick Cavett. It's all you need to get an edge in your weekend conversations. Past guests include Michelle Williams, Judd Apatow, Kid Cudi and Sir Richard Branson. Wallpaper magazine calls The Dinner Party one of the Top 40 Reasons To Live In The USA.

View the program guide!

3PM to 4PM The Splendid Table

The Splendid Table

Hosted by award-winning Lynne Rossetto Kasper, The Splendid Table is a culinary, culture and lifestyle program that celebrates food and its ability to touch the lives and feed the souls of everyone.

View the program guide!

Upcoming Events in your area (Submit your event today!)

Streaming audio and podcasts

Stream KOSU on your smartphone

Phone Streaming

SmartPhone listening options on this page are intended for many iPhones, Blackberries, etc. with low-cost software applications available to listen to our full-time web streams, both News on KOSU-1 and Classical on KOSU-2.

Learn more about our complete range of streaming services

We're perfecting the patient experience - Stillwater Medical Center