If you already have Summer Olympics fever and can’t wait for the 2012 London Games to get here, here’s a bet to whet your whistle: The British host won’t win any gold medals for improving the city’s economy.
After all, bidding for a chance to host the Olympic Games is like begging to throw one of the world’s most expensive month-long parties.
Just ask Vancouver, the site of the 2010 Winter Olympics. Months after the closing ceremony, the Canadian city is scrambling to sell real estate built for athletes and pay off hundreds of millions in debt from public infrastructure improvements.
“I liken these events to weddings,” said Holy Cross University sports economist Victor Matheson. “If you’re the father of the bride, you’re not making any money. But that doesn’t mean you shouldn’t have (the celebration).”
Matheson has studied the economic impact of huge sporting events like the Olympic Games and the Super Bowl, and the research repeatedly shows that the high-profit hopes attached to hosting these events rarely pans out in reality.
The 2008 Beijing Summer Olympics reportedly raked in $146 million, but that cash doesn’t have a theoretical “halo effect” within the surrounding Chinese economy.
Retailers suffer from the substitution effect, wherein people spend their income on Olympic-related expenses and not goods and service. Hotels and tourism might receive a momentary jolt, but enough non-Olympic tourists specifically avoid visiting cities during the Games that the net effect is minimal.Instead, the event organizers, including the International Olympic Committee (IOC) and the local Olympic organizing committees take home the gold.
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“Anytime you get multiple bidders bidding for a scarce commodity … that means the seller is really in control here, and the IOC knows that,” Matheson explained.
Over the history of the Olympic Games, profits didn’t receive as much attention until the event became such a financial albatross that cities quit vying for it.
“By 1984, there was only one city in the world willing to bid for the Olympics, and that was Los Angeles,” Matheson told Discovery News.
Since the IOC didn’t have a string of suitors that year, it was forced to meet a number of the Los Angeles committee’s demands, such as refusing to provide public financing or build extravagant new sports facilities.
As a result, the 1984 Los Angeles Summer Olympics turned a profit for the first time, bringing in around $335 million in revenue.
That newfound profitability also marked a return to competitive bidding – and public financing – to host the Olympics, with the monetary stakes escalating every four years.
“Almost every city that does this gets into trouble one way or another because they can’t figure out how to stop spending money,” said Allen Sanderson, a sports economist at the University of Chicago. “Athens thought they’d spend around $5 billion on the 2004 Games and ended up spending around $18 billion. London thought they were going to spend ($5 billion), and they’re somewhere around $20 billion or more with two years to go.”
While London doesn’t have much to gain financially from shelling out billions on the Summer Olympics, a 2009 economic study found that hosting the event could specifically benefit developing countries and their economies in the long-term.
“Countries that need to provide a credible signal to both domestic and foreign constituencies that they’ve decided to join the world and engage in economic and political integration can signal this by offering to bear the costs of a mega-event like the Olympics,” said Andrew K. Rose, study author and an economist at the University of California at Berkeley.
Rose’s research also found that merely going through the highly publicized process of bidding for the Olympics without winning can provide the same trade impact as actually hosting it.
In reference to that economic finding, Allen Sanderson at the University of Chicago expressed relief that his home city didn’t snag the bid to host the 2016 Summer Olympics.
“Bidding may cost you $50 million, but that might be an inexpensive price to signal to the world that you’re a world-class city,” Sanderson said. “Then hope that you lose and don’t have to carry through with a multi-billion dollar investment.”
Photo: London's Aquatic Center and Olympic Stadium under construction. Anthony Charlton/London 2012/Getty Images
Tags: Buildings and Structures, Events, Sports and Competitions, Olympics, Sports, Urban Planning
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