There is much debate going on whether it is actually beneficial for a city to host the games. On one side there are all the promises made by politicians regarding the revenue generated for local companies, the flows of tourists who spend large sums of money and the improved image of the city, on the other side one might think that the legacy of the games is underutilized stadium and heavily indebted local authorities. This article looks at some of the costs and benefits, and call attention on some of the common mistakes made when evaluating the effects of the games.
The typical costs of organizing the largest sporting event in the world include building new sporting venues and renovating others depending on the already available capacities, financing the olympic village where the sportsmen stay, spending on infrastructural improvements (mainly transportation) and recently a very significant sum of money dedicated to security. In the case of Vancouver, the total estimated costs, including the investment in infrastructure amounted to Canadian $6 billion, with only $600 million specific to the games. Two major parts of this were the $580 million spent on venues and the $200 million spent on security.
Among the beneficial effects of the games are the income generated in the local industry, the tourism associated with the games, the improved image of the city that should attract more tourists in the future, the infrastructure and venues built that should serve the city. In Vancouver, the benefits have been projected to be $10 billion and even the direct benefits and revenue were estimated at a generous $1 billion.
Now, what are some of the common fallacies made here? Firstly, as in so many cases the important notion of opportunity cost is forgotten. The opportunity cost is the cost of making a choice in terms of the next best alternative sacrificed. For example, if someone can choose between buying a house in New York or buying a house in Boston, then while her visible (accounting) cost of buying the one in NY is its price, the opportunity cost is her sacrifice of not buying the one in Boston. Looking at the olympic games, one could think of the all the other things that a city could spend money on instead of organizing the games. Instead of building new stadiums, they could for example build hospitals or schools. If they did the latter, they would still provide local employment, and in many cases, it would be more permanent, since as we see in reality, a lot of the employment created by large sporting events is rather temporary. Secondly, there is a tendency to look at something that is spending on part of the state as a benefit, rather than a cost. An example would be saying that spending $1 billion of taxpayers’ money on paying local firms to build a road would mean that there is $1 billion benefit to local industries. But this is clearly a fallacy: the $1 billion is in fact being payed by the taxpayers, it is not a mere external injection into the economy. Also, when a stadium is built and then it goes into private use, it is effectively the public financing gains by private companies. A third problem is more on the side of empirics. It seems that there are no significant long term growth effects associated with organizing the games. While there is a one-time increase in the output of the economy, in the long term there is hardly any change. There can be many reasons for this: much of the spending goes on temporary services, like security; while there might be a significant increase in tourism, tourism is not a significant contributor in the economy of the organizing city; the heavy indebtedness undercuts future spending.
So at the end of the day, is it good to organize the games? My answer would be that it depends on what one’s goals are. China clearly organized the Beijing games because it wanted to show its power as a competitor of the United States on the global stage, and with its not always humane methods it managed to do so. (On the other hand the opportunity costs for an LDC are even higher!) For countries that are not as robust and determined, like Canada, it is likely that the improvement in their image and economy is not going to be significant, if they are lucky. If they are not, then they can spend years paying back their debts and wonder around in their forsaken arenas thinking about their use.
Some further reading:
