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

Obtaining a value for the initial impact of a team or event is the first step in any economic impact study. The initial impact is then magnified through the use of a multiplier, based on the idea that money brought into a local economy will be respent over and over, becoming income for others in the economy.

In this way a multiplier also magnifies the errors made in calculating initial impact, especially by once again failing to recognize opportunity costs. The multiplier is applied to any new spending in the economy regardless of the source. If the multiplier does not depend on the spending source, then it is useless in the comparison of alternative projects-the multiplier cancels out.

Critics of economic impact studies have used proper application of basic economic principles to show that the methodology of impact studies greatly overestimates the impact of sports teams, stadiums, and events, but they have accepted the mercantilist premise of economic impact studies that the path toward wealth is through increasing exports. Mercantilist thought denies the existence of mutually beneficial exchanges. Trade becomes a zero-sum game where the winner is the seller and the loser is the buyer. All that matters is the money trail. Since local spending does not bring money into the economy, spending by local consumers is meaningless: "Their expenditure associated with the sports events is merely likely to be switched spending, which offers no net economic stimulus to the community, and it should not be counted as economic impact" (Crompton 1995, p. 26). By elevating the importance of exports over the local consumption critics have embraced the notion that only projects that generate exports are valuable.

If increasing net exports is the way sporting events benefit a local economy, then the Olympic Games should be an event that makes a noticeable contribution to an economy. Perhaps no other sporting event draws more visitors so geographically dispersed or showcases the host city as visibly as the Olympics. Economic impact studies prepared for recent Olympic Games contain many of the mistakes listed above. Not surprisingly the projected impacts have not come to fruition.

Why does the use of economic impact studies persist even in the presence of harsh criticism from the economics field? Delaney and Eckstein (2003) propose powerful groups who will benefit from the project, which they refer to as "local growth coalitions," use these studies as one tool in promoting events. While the economic impact studies "do not destroy the legitimacy of academic research, they rationalize continuing to pursue questionable social policies" (p. 37). The air of authority with which the findings of the study are presented create enough confusion in the public to deflect the criticisms of economists.

In addition to the standard projections of economic impact, Olympic studies also include longer term benefits sometimes referred to as the "Olympic Legacy." These legacy effects, derived from positive publicity from the Games, include increased tourism after the Games, attraction of business, and infrastructure investments that improve the urban environment. Legacy impacts are generally not incorporated into the economic impact numbers, but rather offered as an additional, unquantifiable benefit. The lack of any ex post study that finds improvements in economic growth or living standards due to megaevents should cast some suspicion on the legacy effects of Olympics, or at least the ability of such effects to be transformed into real economic benefits to the local economy. Baade and Matheson (2002) found "the evidence suggests that the economic impact of the Olympics is transitory, onetime changes rather than a 'steady-state' change" (p. 28).