Tuesday, 24 July 2012

Olympic Games Economic Analysis

The Olympic Games are just 2 days away. I can say I'm really excited to follow all the action.

But have always asked this question: When bids are requested from cities to host future Olympic games, there is never a shortage of municipalities vying to welcome the world's athletes. The games bring prestige, but do they bring financial benefits as well?


No one doubts the fact that hosting the Olympic Games allows a city to be in spotlight of world attention for two weeks, or longer if the build-up is included. Less certain, however, is whether all that attention and elevated stature is matched by an equivalent economic boost for the region or even the country, or if in many cases the Olympics bring lots of cachet, but little cash.

One thing is clear, in the often heady days preparing for the games and then watching athletes run, jump, swim and perform feats seemingly beyond the abilities of mere mortals, the financial consequences of all that work and capital put into hosting the event appear worth it.

There are direct economic advantages to the Olympics while the games are on: tax receipts go up, visitor numbers rise and then there is the simple fact that cities get to show themselves off. But whether those benefits continue after the athletes have packed up their medals and tourists have packed their bags is less certain. The Olympics' financial record is mixed.

One thing that everyone can agree on is that hosting the Olympics costs a lot and it's getting more expensive all the time. For the games in Greece, operating costs have soared from €500 million to €2 billion. The total cost of Olympic spending is estimated to approach €10 billion. However, there was little research into the wider economic impact of the Olympics until Montreal emerged from the 1976 games with a gaping deficit of €1 billion, an amount local residents are still paying off through a supplementary tax on tobacco. Those games were funded almost entirely through public city funds, and the large amounts of money spent on infrastructure improvements and facilities construction were focused on a relatively small part of the city. Montreal 1976 is widely held up as the example not to follow, and it caused many cities to think twice about bidding for future games.

The first Olympics to turn a profit were the summer games held in Los Angeles in 1984. Since local citizens voted against public financing, those games also became the first to be almost entirely privately funded. Los Angeles marked the beginnings of commercialization of the games and the development of Olympic sponsorship deals.

In 1984, organizational and economic strategies were introduced which meant the city could hold magnificent games that wouldn't bankrupt the city, 1984 showed that it was actually worthwhile to hold an Olympics.

Since then, the summer Olympics have made money or at least broken even, according to a report by PricewaterhouseCoopers. Seoul in 1988 was left with a positive balance, Atlanta in 1996 and Sydney in 2000 each broke even.

The 1992 games in Barcelona are held up as a good example of secondary benefits that a financially viable Olympics can bring to a city or region. The Spanish city got a massive makeover for the games: its transportation and telecommunications systems were upgraded, it got new housing and retail centers that are still flourishing 12 years later.

Germany's 1972 Munich games were similar. Although it emerged with a deficit, after the games Munich had a new tube system and much of the city had been renovated and rebuilt.

Analysts break up Olympics economics for a city into three phases: pre-game, game and post-game. During the first phase, the city can benefit from tourism and a boost in construction activity. During the games, there are Olympic jobs to be had, revenues from tickets, sponsorshops not to mention the masses of tourists that descend on hotels, restaurants and other local businesses.

It's when it's all over that the problems come. The challenge is to use all that infrastructure effectively and learn how to deal with the massive, sudden drop-off.

Massive Olympic sports arenas often remain un- or underused. Olympic villages fall into disrepair and become headaches for the city. Most cities simply do not need all the facilities.

Even Sydney has had day-after problems. It's huge Olympic Park stands mostly silent and empty, too big to be sustained by regular sporting events alone. It will require an investment of at least €15 million to turn it into the "living precinct" its designers envision.

Analysts say the evidence is just not clear on whether hosting the Olympics will bring a city an important or lasting economic boost. Thanks to new funding strategies and revenue sources, the dark high-deficit days of Montreal will most likely remain in the past. But whether the boost gained by temporary job creation and intense publicity is long-lasting is more difficult to ascertain.

I found interesting that BBC News is showing this video on their prime-time. Something to consider for the future games in 2016.
Olympic Budgets

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