Why the Olympics are bad business

I am outnumbered. I am one of the few people I know who are anti-Olympics.  I say this with a wee pang of sadness because I used to be a bit of a Games junkie, having spent years working with the organizing committee when my own city of Victoria hosted the Commonwealth Games here in 1994. But the world has changed since then. Doping scandals, corporate sponsorship bullying, pervasive commercialism, anti-terrorist security, political interference, questionable IOC integrity, and obscene taxpayer-funded pricetags combine to make me shake my head and ask:

“Why are we doing this?”

The event is no longer even about athletic achievement.  We already hold world championships in each sport for that. 

We are wise to question Olympics boosterism. But I can hear you asking:

“Carolyn, what about all the economic benefits of hosting an Olympic event?”

First, mega-events like the Olympics need bottomless pits of public money for venues, infrastructure improvements and staging the Games. (Consider, for example, that the budget for the 2012 Olympic Games in London was set as £9.3 billion in 2007  – almost four times higher than the original estimated cost at the time London bid for the Games two years earlier).

Economist Dr. Jeffrey Owen of Indiana State University is the author of Estimating The Cost and Benefit of Hosting Olympic Games published in The Industrial Geographer Journal. He explains that, in order to justify spending all those taxpayer dollars, economic impact studies are often commissioned.

These economic impact studies invariably project inflow of billions of dollars that guarantee a longterm positive effect on the economy through things like job creation and visitor spending.

So it may seem shocking when Dr. Owen joins other senior economists in exploding the myth of Olympic Games and their financial benefits:

“To date, there has not been a single study of an Olympics or other large-scale sporting event that has found empirical evidence of significant economic impacts.”  

Please read that statement again. And again.

Dr. Owen also maintains that the prevalence of economic impact studies has led to automatic acceptance of their findings by the public, the media, even among academic circles with little or no critical evaluation – not to mention countless billable hours from all those happy economic impact study consultants.

“Because of the high profile of such events, large (and positive) economic effects are taken as given; the studies confirm what is already believed.”

He quotes one study that provides an example of a typical Olympic Games economic impact prediction:

“The promise of worldwide exposure and economic gain has made hosting these major and regularly scheduled sporting affairs a lucrative goal for aspiring cities around the world.”

Allow me to take advantage of my 37+ year career in the public relations field to translate that PR-speak into plain English for you:

“Blah, blah, blah.”

Critics of economic impact studies, like Professor of Public Policy Dr. John Rennie Short at the University of Maryland, disagree with economic impact study results like the one quoted by Dr. Owen (and may indeed agree with my translation of them). In his study called From World Cities to Gateway Cities reported in the journal City in 2000, Dr. Short focused on these four main areas of misapplication of these study results:

  • 1. treating costs as benefits
  • 2. ignoring opportunity costs
  • 3. using gross spending instead of net changes
  • 4. using multipliers that are too large

Let’s take constructing a new sporting venue as an example.  The pricetag for this project to a large degree includes hiring construction workers and purchasing materials from local suppliers.

This is often counted as a benefit to the local economy, not a cost.  But Dr. Short argues that this is likely “the most egregious error in economic impact studies”.

“Counting construction costs as a benefit is also an example  of failing to recognize opportunity costs. Alternative uses of local dollars – such as building a hospital, funding education, or even letting taxpayers keep their money to spend on what they want – are not considered. Instead, dollars for the initial investment are assumed to have come out of thin air.”

For the 1996 Summer Games in Atlanta, consultant Jeffrey Humphreys and his associates were hired to prepare an economic impact study for the state of Georgia. Their report predicted, not surprisingly, significant economic benefits to the host city and state:

“The longterm beneficial effects on decisions regarding investment, trade, corporate relocation, government spending, convention sites, the location of major sporting events, and vacation plans will likely be among the most enduring, yet statistically untraceable, legacies of the Games.”

“Enduring, yet statistically untraceable”? 

Good grief. For the sake of clarity, let’s just call this “consultant-speak”.

Unfortunately for Georgia taxpayers, it has turned out that there has been little documented evidence of significant economic performance in Atlanta due to those Games, bringing into question who actually benefits (other than Humphreys and associates).

For example, in the book TransAtlantic Sports, economics professorsDr. Robert Baade and Dr. Victor Matheson contributed the chapter called “Bidding for the Olympics: Fool’s Gold?” in which they found “a modest boost in employment that was short-lived in Atlanta”.  Their surprising conclusion:

“The evidence suggests that the economic impact of the Olympics is transitory: onetime changes rather than a ‘steady-state’ change.”

Speaking of employment, economists Persky, Felsenstein and Carlson wrote Does Trickle-Down Work? (published by the Upjohn Institute for Employment Research in July 2004), suggesting that Georgia job creation numbers were blown out of proportion by pre-Atlanta Games economic impact studies.

“Even according to their most positive estimates, the City of Atlanta and the State of Georgia spent $1.58 billion to create 24,742 full- or part-time jobs – which averages out to spending  $63,860 per job created. A new job adds about fifty cents in economic benefit to a local economy for every dollar of wages, so job creation alone certainly cannot justify the public expense for the Atlanta Games.”

The economic impact study also claimed that “world-class facilities will be among the most enduring legacies of hosting the 1996 Olympics”.  These “world-class facililties” included:

  • the Horse Park
  • Shooting Range Complex
  • Rowing Center

None of these were heavily used after the Games. The primary Atlanta Games facility, the Olympic Stadium, became the new home stadium for Atlanta Braves baseball. Instead of providing a venue of high quality and instant historical significance for future track athletes, the stadium now serves as yet another chapter in the story of public subsidies for elite professional sports teams. Overall, researchers Baade and Matheson found:

“Only 31% of the Atlanta Games expenditures were in areas that could reasonably be expected to provide a measurable economic legacy.”

Positive feel-good PR is not even a given in the wonderful world of mega-sporting events.  Remember Atlanta’s dismal media exposure during the 1996 Olympics?  Appalling traffic problems were oft-cited during the first week, but then overshadowed by the Centennial Park bombing. University of Plymouth researchers Dr. Stephen Essex and Dr. Brian Chalkley concluded:

“As a result of the traffic congestion, administrative problems, security breaches and over-commercialization, Atlanta did not receive the kind of media attention it would ideally have liked.”

Essex and Chalkley are the authors of Olympic Games: Catalyst of Urban Change published in the journal, Leisure Studies. Their research examined each of the modern Olympic Games (begun in 1896) in terms of their impact on urban change.

They divided the Games into three categories:

  • low impact (minimal infrastructure investment, such as Mexico in 1968 and Los Angeles in 1984)
  • Games focusing mainly on additional sports facilities (such as Atlanta in 1996)
  • Games stimulating full transformations of the built environment (such as Tokyo in 1964 and Montreal in 1976)

But as the Games have grown in stature, commercialization and pricey television rights, so have the ambitions of host cities; thus all recent games are more likely to be in the third category according to Essex and Chalkley.

And speaking of television, just ask NBC Universal, the official U.S. broadcaster of the 2010 Olympics in Vancouver/Whistler, how upset their shareholders were feeling.

NBC paid $820 million for exclusive broadcast rights to cover the 17-day event, but they are now projecting a $250 million loss. Jeff Immelt, the CEO of General Electric, NBCU’s parent company, told BNet Media this week that the Olympics have become a “no margin business that will contribute to the media company’s operating loss in 2010.”

In the year following the Atlanta Games, Steven French and Mike Disher of Georgia Tech published Atlanta and the Olympics: A One-Year Retrospective in the Journal of the American Planning Association. They found these surprises:

  • convention attendance in Atlanta, which had been increasing steadily over the previous 10 years leading up to the ’96 Games, fell 10% from 1995 to 1996
  • hotel occupancy rates fell from 73% in 1995 to 68% in 1996 despite the Olympics
  • macroeconomic indicators in Georgia and Fulton County showed no discernible break in the pattern of per capita income growth or unemployment rates
  • due to the disruption caused by the Olympics, hotels and restaurants that would be expected to benefit from increased tourist traffic were actually hurt. “In other parts of town, many hotels and restaurants reported significantly lower than normal sales volume during the Games. Even shops and resorts in areas up to 150 miles away reported slower than normal business during the summer of 1996.”

I can’t help but notice that the economic impact promises being gushed locally by our Vancouver, Whistler, provincial and national governments along with the 2010 Vancouver Organizing Committee (VANOC) sound eerily similar to those promised before every other Olympics event.

But as Kerry Banks traces the money trail from the past 10 Winter Olympics for the BC Business feature, Ten Debt Sentences:

“You can count on three things being true with the Winter Olympics:

  • 1.  the initial cost estimates for staging the Games will be underestimated
  • 2. the Games will almost certainly lose money
  • 3. organizers will claim they made a profit.

“Yet all this appears to be forgotten every four years when a new city hosts the Games.”

After hosting the 2000 Olympics, the city of Sydney, Australia had plans for the longterm use of many of its venues, but within four years, The Sydney Morning Herald reported that the arena that had housed gymnastics and basketball competitions was in receivership, and:

“The State Government has been propping up other uneconomic venues since the Olympics to the amount of about $46 million a year.”

Organizers of the Winter Games in Albertville, France declared a loss of $67 million, and their projected boost in tourism never did materialize for Albertville. Same thing happened in Norway, when a few years after the Lillehammer Games in ’94, 40% of the hotels built in and around Lillehammer for the Games had gone bankrupt, and two large alpine skiing facilities built for the Games had been sold for less than $1 to prevent bankruptcy.  Turin lost over $215 million after hosting the ’06 Games – a tab that Italian taxpayers had to pick up.

In Beijing, capital infrastructure expenditures were nearly nine times larger than the revenue from its Summer Games.

The $423 million Beijing National Stadium – the distinctive ‘Birds Nest’ – is the world’s largest steel structure, but has not found significant use since the closing ceremonies there in 2008. In fact, only two stadium events were scheduled last year: the opera Turandot and a soccer game. This stadium now costs over $90 million per year just to maintain.

WORLD CUP UPDATE, July 16, 2011:  The massive Capetown Stadium that hosted the 2010 World Cup in South Africa (site of 64,000 crazed vuvuzela-blowing football fans last year) now attracts crowds of barely 3,000 for only 18 games played there since the World Cup left town.

And who can forget the first time Canada hosted the 1976 Montreal Games, before which the colourful Montreal host city mayor Jean Drapeau boasted confidently:

“The Olympics can no more lose money than a man can have a baby.”

Despite Monsieur Drapeau’s catchy promise, the city of Montreal was left with a crushing debt of $1.5 billion. Montrealers finally made the last payment on that debt in December 2006 – three decades after the national embarrassment began.

And since 2004, when the Montreal Expos baseball club left town, the Olympic Stadium in Montreal (nicknamed the ‘Big Owe’) has had no main tenant, and with a history of financial and structural problems, is largely seen as the white elephant legacy of the Montreal Olympics.

Even the good news about Olympic legacy isn’t necessarily all that good.

Dr. Brent Ritchie at the University of Calgary’s Haskayne School of Business insisted that the Olympic Games “arguably propelled Calgary onto the international stage” after the Alberta city hosted the 1988 Winter Games. He claimed that the unaided awareness of American respondents increased from 22.4% in 1987 to 43.3% in 1988.

But awareness of Calgary then dropped by 10% in the years following the games.

Ritchie points out that the number of non-Canadian visitors to Alberta has never fallen below pre-Olympic numbers – which is like damning with faint praise.  At least we’re not going backwards . . .

And although Calgary claimed a $150-million operating profit, BC Business reminds us that a 1999 investigation revealed that Calgary’s organizing committee had omitted the cost of building sports facilities from its figures, along with $461 million in government subsidies they forgot to mention.

Include them, and the Calgary Games were bigtime losers.

So the promised low-income housing never materialized either, and an estimated 50% of the available event tickets went to IOC insiders (resulting in large blocks of empty seats at many events).

Closer to home, last week the British Columbia government started explaining to us how the bottomless piggybank that has had no trouble so far funding the 2010 Olympic Winter Games is now suddenly empty when it comes to continuing social programs for our most vulnerable citizens, as reported in the Vancouver Sun: Province to Cut Millions from Community Services for Children and Families

Read the full article by Dr. Jeffrey Owen called Estimating The Cost and Benefit of Hosting Olympic Games, or the Globe and Mail’s report called What Legacy, Vancouver?

And if you have a strong stomach and need still more anti-Olympics ammunition, read Robert Knight Barney’s book Selling The Five Rings: The IOC and the Rise of Olympic Commercialism.

.

UPDATE:    Globe and Mail, February 5, 2011 (one year after the Vancouver/Whistler 2010 Winter Games) –For Whistler Business, Gold Was Elusive”:

“Hotel visits tracked by Whistler are expected to be down by 3% from last year. One Whistler ski company, Summit Ski Ltd. is back to a full complement of 20 seasonal staff, up from only four last year, says owner Ian Van Gruen.  The company also slashed purchasing, buying about half the volume of ‘hard goods’ like skis, snowboards and helmets that it would for a non-Olympic year. He explained:

“The Olympics were fantastic – and I wouldn’t change it for anything. Profitability-wise, we knew that going in and we were ready for it. You just do what you can to mitigate any losses and carry on.”

Patrick Kelly of Whistler Real Estate adds:

“There was a lot of belief that the Olympics would create a real boost in interest, and consequently in the value of real estate in Whistler. That did not happen.”

WEIRD FACT UPDATE:    This article, written during our own 2010 Vancouver/Whistler  Olympics in February 2010) ranked #7 on the 2010 Ethical Nag most-read list of top posts. But in 2011, this article  ranked even higher –  #4 – on the year’s Top 10 Nags list – even higher than during our Olympic year.  Could be the growing interest in the London games?  London 2012 boosters: please forward this cautionary tale to the rest of your uninformed cheerleading and taxpaying pals!

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21 thoughts on “Why the Olympics are bad business

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  2. The #1 ethical concern regarding the Olympics is the fact the IOC pays local mainstream news media to boost the Games.

    Most people do not realize the IOC and VANOC have a special deal with Canwest, the parent of news companies like The Vancouver Sun, The Province, The Courier, Global Television and dozens of their other news publications across Canada, plus they have a special deal with The Globe and Mail to tell the Olympic side of the Olympic story. These news companies boost the Games, but they do not necessarily identify their bias, at least not clearly and not in a timely manner.

    You can read more about it here . . .

    http://www.olyblog.com/f/06/ShawLeeF09282006.shtml#INQUIRY

    Like

  3. Hi Carolyn,

    Wouldn’t it have been great, not to mention ethical, if The Globe would have run that story a few years ago when it would have made a difference?

    Running it on Feb 12, 2010 after the horse is out of the barn is a strategy Noam Chomsky refers to as “necessary illusion.”

    Timing is everything.

    The Globe & Mail is an Olympic partner, and all Olympic partners have special deals. In fact it’s so special they won’t divulge any of the details. If they are as honest and as ethical as they say, show us the agreement so we can decide for ourselves. What are they hiding?

    Like

    • Hi Maurice – Just the fact that the G&M runs a story like this is a good sign to me. Too little, too late? Perhaps – but publishers could just as easily have decided to spike the story to keep VANOC happy, but chose to run the truth instead.

      As you know, VANOC is NOT paying Bell (which owns CTV, which owns CTVGlobeMedia, which owns the Globe and Mail!) – but rather these media companies are paying for the rights to be one of four kinds of corporate sponsors: either Olympic Partners, National Partners, Official Supporters, or Official Suppliers. Bell paid VANOC over $200 million, CTV paid them over $90 million for exclusive host broadcaster rights, and the G&M deal signed in May ’08 was somewhere between $3-15 million to be the ‘National Print Sponsor” of the Games.

      With that kind of money already committed, it’s not in any company’s best interests to trash the event – which is why I applaud the Globe and Mail and this Report On Business article, “What Legacy, Vancouver?

      They are asking the same questions we are asking.

      Like

  4. Dear Caroline,

    A very insightful article. I am a journalist who would like to do a 5-minute TV interview with you on the article you have written if you don’t mind. I have interviewed the head of the East London festival for the Olympics, and would love to have the other side of the olympics.

    Please contact me.
    Samar Saleh

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  6. I hope you don’t think you’re alone. In fact, there are a lot of us out there who are not just upset with the costs, the obfuscation and the largely-drunken jingoism (thanks for the heads up to the Time article) but we’re also concerned with the continuing program of hiding the facts about the relative costs and benefits of the show. I know you read The Tyee – Andrew MacLeod has a little piece on The Hook that you should read.
    http://thetyee.ca/Blogs/TheHook/Olympics2010/2010/03/08/OlympicMoneyMagic/

    Love your blog – my wife does, too.

    Like

    • Thanks for this link to The Tyee article, Jim. Wow! Far worse than we feared: “The total cost to Canadian and British Columbian taxpayers to stage the Games is estimated between $6 and $7 billion.” Interesting report that both PricewaterhouseCoopers and the Conference Board’s estimates did not predict any economic impacts “in 2009 or after 2010” – in spite of the bloated spin that Colin Hansen is now attempting.

      And that is my concern – yes, it was indeed the Party Of The Century, but can we or any other host city afford it? Let’s keep that $6-7 billion pricetag in mind with every upcoming cut in social programs, services and employment.
      cheers,
      C.

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    • “…there are a lot of us out there who are upset with the costs, the obfuscation and the largely-drunken jingoism…”

      Jim, I agree with you 100%. And this week’s official explanation by our BC government about the “real” costs of the Games in February was just more “obfuscation” of the highest order. As our Opposition critics say, the taxpayers of our province may never know the real truth. Carolyn, thanks for bringing these issues forward. We’ll remember them come election time.
      regards,
      Dr. Bob

      Like

  7. Do you have any thoughts on this theme for the upcoming football World Cup in South Africa?
    Without researching it, I have the impression that (among the black majority) this country has high unemployment, poverty, high crime, major infrastructure needs, including hospitals and schools.
    For the World Cup, new stadiums have been built in several cities, with related infrastructure building.
    There will be a huge number of visitors coming to spend money. Media rights must have brought in big bucks.
    Crime is high, and there has already been an arrest of a terrorist leader for planning an attack. How will this affect attendance at the games?
    So how does this all add up?

    Indy, Finland

    Like

    • I’m no expert on soccer, of course, which is why I do pay attention to experts like economist Dr. Jeffrey Owen when he writes: “To date, there has not been a single study of an Olympics OR OTHER LARGE-SCALE SPORTING EVENT that has found empirical evidence of significant economic impacts.” Or Simon Kuper, co-author of the book “Soccernomics”. He told a CBC-Radio interviewer this morning that, although studies show short-term positive social outcomes during the World Cup (for example, suicide rates go down) there is little documented economic spinoff benefit for host countries, and even the warm fuzzy feel-good social outcomes wear off within four months.

      I can also tell you that since the Vancouver Olympics here in my home province this past February, we’re slowly learning the actual costs to the Canadian taxpayer of hosting this 17-day party. For example, security costs alone hit $1 billion – many times more than the original promised estimate. That’s $1 billion that is no longer available for our public services like health care and education. Our province of British Columbia apparently had billions of dollars to spend on hosting the Olympics – but doesn’t seem to have any money now for important things, and has introduced a new 12% sales tax.

      Somebody has to pay for this party and the new rapid transit line to the Vancouver airport – and that somebody is the taxpayer.

      For more on World Cup marketing, visit: Adidas vs. Nike: the World Cup Battle of the Brands or “Your Health and the 2010 World Cup”

      regards,
      C.

      Like

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  9. Dear Caroline,
    My name is Dylan Seniw. I am a senior at Mountain Vista High School in Highlands Ranch, Colorado. I am writing a research paper on the economic impact of a major sporting event on the local economy and hoping that you could try to answer the questions below. If you have the time could you please answer the questions and email me.
    -When a city hosts a major sporting event are small business effected in a positively or negatively?
    -Are the job that are created in result of hosting a major sporting event permeant solutions for the citizens of the city or a quick fix for the city?
    -Do you think the Olympics had a positive or negative effect on the citizens and their daily life’s of Beijing or other hosting cities?
    -If these sporting events are a sure fire way to lose money, then why would a country bid for the games?
    -Even if the city of Beijing would put the Olympic structures to use for post game event would it even come close to making up the ground lost on initial construction and costs to maintain it?
    -Do the athletes and coaches have to pay for their room accommodations and food during the Olympic Games? If no then how were their expenses financed?
    -Do events such as the Super Bowl that dose not require a major infrastructure facelift produce the same results?
    Thank you in advance for your time.
    Dylan Seniw

    Like

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