Fynsa
In our previous column, we wondered about the potential benefits that cities hosting the Olympic Games might reap, after a successful Pan American Games in Santiago had whetted the appetite of leaders and officials. At first glance, we realized that financially, and in the short term, it appears that costs far exceed revenues—and not by a small margin. In fact, even without considering cities that spent far more than the average (Beijing, Sochi), it appears that the ratio of revenue to expenses is in the range of ¼ to 1/3.
However, it is argued that many of the benefits of hosting an Olympic event would be realized in the medium and long term; therefore, the project should be evaluated over a longer time frame. In this regard, various authors suggest considering four types of benefits: (i) the “legacy” of the facilities, (ii) improvements to overall infrastructure for citizens, (iii) the promotion of tourism for the future, and (iv) an increase in foreign direct investment and international trade by raising the country’s profile.
As for the first point, it is probably the easiest to refute. There is evidence that, in most cases, many cities are left with specialized sports facilities that later become very expensive to maintain. The classic example is the infrastructure in Athens, whose current state is not much better than the city’s ancient Greek ruins, but the same thing has happened in Beijing, where the iconic “Water Cube” was converted into a public water park, and the “Bird’s Nest”—the spectacular stadium that hosted the opening and closing ceremonies—has since been used only rarely and is now partially converted into apartments. Something similar happened in London with the stadium in the Olympic Park, which—to prevent it from becoming a white elephant—was transformed into West Ham United’s stadium. With an initial estimated cost of £280 million, the final cost reached £490 million, plus £270 million for the conversion to enable its transfer to the London-based team, which ended up paying for all of that… £15 million.
As for infrastructure in general, the assessment is somewhat more positive. The Olympic villages end up being used by families or students (as in the cases of Atlanta and Los Angeles), and investments in urban transportation—such as streets, highways, and public transit—improve residents’ quality of life. In any case, although the event can serve as a catalyst for these investments, they could have been made just as well without incurring the cost overruns that the rush to meet deadlines usually generates.
The results of tourism promotion for the city in question are somewhat mixed. Some cities have indeed seen a permanent increase in tourist traffic in the years leading up to and following the event (in the previous column, we saw that in the short term, the effects are largely neutral or even negative), when compared to similar cities or to the overall increase in the country as a whole. However, this depends heavily on the city’s potential prior to the event (as in the cases of Barcelona or Salt Lake City) and is not observed in cities that already had significant tourist traffic (London) or those that, beyond the event, did not have much else to offer (Lillehammer or Calgary).
Finally, on average, there is indeed an increase in foreign direct investment and international trade in countries whose cities hosted an Olympic event. Statistical methods have shown that the increase in exports could reach 20%, while all domestic demand variables would show increases not only in the years following the event but also from 2 to 5 years prior to it. However, it is also observed that, when cities that bid but were not selected are included in the calculation, the difference in these improvements is reduced to nearly zero. Therefore, it would appear that what matters for investment and trade is not whether a city wins the bid or not, but rather the pre-existing characteristics of the cities that choose to bid (which in economics we call “selection bias”). Moreover, when repeating the analysis while controlling for this variable, we conclude that the effect on trade and domestic demand is zero.
Readers might think I’m the most anti-Olympic person there is, which is far from the case. But the evidence shows that, from a public policy perspective, with scarce resources, hosting the Games does not seem to be the best deal. Nevertheless, we consistently see many cities bidding to host the Games and becoming increasingly eager to organize the sporting event. In our next and final installment, we’ll examine what lies behind that enthusiasm.
