Estimating the Cost and Benefit of Hosting Olympic Games: What Can Beijing Expect from Its 2008 Games?

Industrial Geographer, The, Fall 2005 by Owen, Jeffrey G

ABSTRACT

Cities who host the Olympic Games must commit to significant investments in sports venues and other infrastructure. It is commonly assumed that the scale of such and event and the scale of the preparation for it will create large and lasting economic benefits to the host city. Economic impact studies confirm these expectations by forecasting economic benefits in the billions of dollars. Unfortunately these studies are filled with misapplications of economic theory that virtually guarantee their projections will be large. Ex-post studies have consistently found no evidence of positive economic impacts from mega-sporting events even remotely approaching the estimates in economic impact studies. For the 2008 Summer Olympic Games in Beijing, it appears China will take these massive investments in venues and infrastructure to a new level. If organizers of the Beijing Games base their expectations on economic impact studies from previous Olympics, they are sure to be disappointed. The potential for long term economic benefits from the Beijing Games will depend critically on how well Olympics related investments in venues and infrastructure can be incorporated into the overall economy in the years following the Games.

INTRODUCTION

"Mega-events" such as the Olympic Games require large sums of public money to be spent on venues and infrastructure improvements. In order to justify the use of public funds, economic impact studies are often commissioned which invariably project large inflows of money that will have a long-term positive effect on the economy by such means as job creation and visitor spending. Events of the scale of the Olympic Games, which attract large amounts of money from outside a local economy, are forecasted to have economic impacts in the billions of dollars.

Ex-post studies, however, have consistently found no evidence of positive economic impacts from mega-sporting events even remotely approaching the estimates in economic impact studies. In a study of the impact of Super Bowls on local economies, Philip Porter (1999) found "no measurable impact on spending associated with the event. The projected spending and spillover benefits of regional impact models ever materialize" (Porter 1999, p. 61) Porter's explanation is that capacity constraints in the hotel industry cause room prices to increase with no change in occupancy rates. Higher rates contribute to the crowding out of regular traffic and net spending in areas other than hotel rooms changes little or not at all.

Longer term sports programs, usually involving stadium subsidies to attract or keep professional teams, have also failed to deliver on projected economic benefits. Even for cities that usually are considered success stories for sports development strategy, such as Baltimore (Hamilton and Kahn 1997) and Indianapolis (Rosentraub 1994), empirical research does not find evidence of statistically or economically significant positive impacts.

In July of 2001, Beijing was awarded the 2008 Summer Olympic Games. Most people assume that such an event will bring enormous economic benefits to the host city not just during the event, but for years afterward. "The scale of the organisation, facilities and infrastructure required for such a huge undertaking are such that the Games cannot but have substantial economic effects" (Sydney 2000 Games, p. 2). But what exactly are these economic effects, and how do they affect the quality of life of local residents?

The relevance of studies such as these to the Beijing games depends in part on the similarity of the economic conditions in China to previous hosts. It seems logical that a less developed country will have more to gain from long term growth opportunities. Matheson and Baade (2003) argue, however, that the prospects of mega-sporting events are even worse for developing countries. The opportunity costs of providing state of the art facilities are much higher and lack of modern infrastructure requires significant additional investment.

In what follows, misconceptions that lead to the overly optimistic forecasts of economic impact studies will be explained, with a closer look at impact studies from recent Olympic Games. Finally, the plan for the Beijing Olympics will be examined to see how China's experience may compare to other Games.

THE FALLACY OF ECONOMC IMPACT STUDIES

Economic impact studies have become standard operating procedure for supporters of public funding for sports teams or events. Their prevalence has led to acceptance of their findings by the public, media, and even academic circles with little or no critical evaluation. Because of the high profile of such events, large (and positive) economic effects are taken as given; the studies confirm what is already believed. Short et al (2000) provides an example of a typical statement: "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" (Short 2000, p. 320).