Fynsa
After initial doubts about how the Pan American Games would turn out, we quickly switched to euphoria and began to declare intentions about organizing an Olympic Games. Because that's the way we are, there is no middle ground. Even though the scales are completely different and the challenges are much greater, I think it is important to ask ourselves why we would want to organize an event of this magnitude. Every time the bids for the future host city are opened, there is a lot of interest from cities to apply, so one would think that it brings a series of benefits that would more than outweigh the costs, right?
The positives of being the host city would be mainly related to tourism revenues and increased spending related to the event's activities. This increased demand is usually highlighted as the primary reason for wanting to host a mega sporting event. Additionally, job creation in related activities is mentioned as an important factor to consider. Reviewing the literature, we found that revenues from increased activity are usually overestimated and cover approximately 15% to 25% of direct costs. These revenues include television rights, advertising, tickets to events, etc. In terms of spending, some studies conclude that there is no impact on household consumption and even a drop in household consumption. Similar situation for employment: controlling for activity levels, in general no significant variation is found. In fact, with respect to the initial projections, which include permanent increases in employment in addition to the transitory ones in the year of the Olympic Games, increases of only 10% are found, we find increases of only 10% relative to the projected increase in temporary jobs during the months of the event (not even the whole year!).
Some of the reasons for this have to do with phenomena not analyzed by those who estimate profits: (i) the substitution effect, which implies that what will be spent, for example, on tickets to events, is not spent on going to the movies, on food or on savings; (ii) the expulsion effect, related to the fact that the greater number of tourists motivated by the event "expel" tourists who would come to the country for other reasons. This was particularly significant for cities that were already quite touristy, such as London, Rio and Beijing, which recorded drops in traditional tourism of more than 30%.(iii) a minor multiplier effect on consumption, caused by profits that do not necessarily stay in the city or its residents, but often leave the country to consolidate in the companies' head offices.
Therefore, it would appear that, in the short-term EERR, the Olympics do not appear to be a good investment for host cities. However, this analysis does not consider the possible long-term effects, which, being more permanent, would supposedly generate substantial gains once the bills are paid off. How true is this? In our next installment, we will attempt to quantify these effects to try to answer why it is so attractive to be an Olympic host.
