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

Spending by out-of-state visitors before, during, and after the Olympics was estimated at $1.265 billion and only slightly adjusted downward for leakages to $1.146 billion. The estimates make no attempt to assess the impact the Olympics will have on other tourism; for the rest of the economy it is business as usual.

In reality, data and anecdotal evidence strongly suggest the Olympics had a significant crowding out effect on the rest of the tourism industry. Table 3 shows convention attendance in Atlanta, which had been increasing steadily over the previous ten years, fell ten percent from 1995 to 1996. hotel occupancy rates fell from 72.9% in 1995 to 68% in 1996 despite the Olympics. Macroeconomic indicators in Georgia and Fulton County show no discernible break in the pattern of per capita income growth or unemployment rates (State of Utah 2000). 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" (French and Disher 1997, p. 390).

Along with crowding out on the demand side, local businesses and workers must also deal with temporary entry on the supply side. Although the Atlanta economic impact report makes no mention of entry by either workers or firms, the Atlanta experience serves as an example of how entry can bring into question if area residents actually benefit from growth in the tourism sector. The Centennial Olympic Park in downtown Atlanta served as the focal point for entry of corporations who sponsored the Games. To some extent the Olympics in Atlanta were self-contained. Entry of corporations and workers from outside the Atlanta area made the Olympics an economy unto themselves. Much of the income would go to firms and workers who are not permanent residents of the local economy.

Many local businesses that did not have prime access to Olympic venues were caught in a vice between a reduction in regular

business on the one hand and increased competition from entry of firms on the other. The lofty projections of the impact of the Games on the Atlanta economy gave local businesses unrealistic expectations about how they would be affected. The reality was so much below expectations that some vendors who leased vending space for the Olympics from the city sued Atlanta, claiming they were misled about business prospects. Entry drove out above normal profits and those who paid in anticipation of them were greatly disappointed (Lubbock Avalanche Journal 1997).

Atlanta's Olympic experience is consistent with Porter's argument concerning hotel capacity constraints discussed earlier. Hotel revenues during the Games nearly doubled while occupancy rates stayed about the same (State of Utah 2000, p. 17). In this way, sectors that have fixed costs high enough to discourage entry for a temporary event are able to capture short-term monopoly rents through higher prices. Just like real estate, hotels become a scarce resource that captures rents. Industries with lower entry costs, such as restaurants or merchandise sales, have monopoly profits competed away. Even when there is a net increase in visitors, impacts are focused on the lodging industry while other sectors have any impact from visitors countered by reductions in regular business.