Let the (economic impact) games begin!

We are just days from the opening ceremony of the 2012 London Summer Olympic Games, and as we lead up to the Games there has been a great deal of discussion about the economic impact of the games.  Over at NPR, they have blogged about the economic impact of the games, with Goldman Sachs noting that a large number of Olympic Games have made a profit.  They do have a footnote which says:

“In accounting for the cost of hosting an Olympics, most countries (including the UK) have treated the cost of constructing facilities and infrastructure, together with security and other ancillary costs, as being separate from the cost of running the Games themselves. The London Games are expected to make a profit (in the sense that revenues will exceed the cost of running the Games) but this will still leave the government with a significant (£8-9bn) bill from construction, security and other costs.”

Yeah, so if we don’t include costs, there is a profit.  I’m sure there are a lot of companies which wish they could get away with such a spin.  Others have been getting into the debate, I may be one of the few Americans who watches C-SPAN where they play the Prime Minister’s questions from the UK on television every week (which I encourage everyone to watch, if you love spirited debates), but many have known current Prime Minister David Cameron for his focus on trying to cut costs in the UK government.  Yet, he has come out and said the Olympic Games:

They should be great for our economy. We shouldn’t see them as some sort of expensive luxury in tough times.

The PM is noting that i may bring a $20 billion boost the UK economy.  Many disagree, with some analysts noting that the construction phase has been completed, and that sector of the economy doesn’t seem to be doing too well with the games about to begin.  Not to mention the cost will be approximately about $200 per person just to host the Olympic Games in London this year.

The back and forth about the economic impact of the London Games has begun, my guess would be from past research and what we are seeing in terms of costs, that this will be another games that will not be bringing positive economic impact to London or the UK.

3 Responses to Let the (economic impact) games begin!

  1. Kayla Emma says:

    From what I know about economic impact of stadiums and mega-events, the benefits rarely (if ever) outweigh the costs. But does the analysis include ALL future economic benefits? Such as the uses the country/city would get from the stadium for the next 50 years? Or the benefits gained from tourists who come years later to visit the venue?

    • nickwatanabe says:

      Kayla, thanks for the comment, it is a very good question. The economic impact studies are divided into two groups, ex-ante (before the event) and ex-post (after the event). Most studies do not seem to take into account a time-span of 50 years after the event as you have mentioned.

      However, I will note that in many cases cost and upkeep of the facility continues into the future, as does debt servicing. A good case is the 1972 Montreal Olympic Stadium called The Big O (Or “The Big Owe” by locals), which originally cost around $200 million, but had a final bill in the billions because of construction, maintenance, repairs, debt financing, which was not fully paid off for 30 years. Often we see facilities now not even lasting more than a few decades, and taxpayers feel the burden of these facilities for long periods of time as well.

      Additionally, politicians and those claiming large economic impact are usually focused on a single year. Thus, the research is more reliable than these studies because they focus on net changes in the economy. We will need to wait longer to have more data to have a 50-year study as you suggest.

      Finally, there are studies called Contingent Valuation Method (CVM) studies which you may be interested in. They look at fan willingness to pay for stadiums, and some of them use a method that extrapolates over long periods of time, in some cases over infinite amounts of time. In this way, some researchers have created a method which attempts to look at how willing local residents are to pay for stadiums.

      Also, thanks for reading our blog, we will have more Olympics coverage here from a financial and economic perspective.

      • Hello Nick,

        Thank you for that explanation. I was thinking of the Sydney Olympic Stadium and how it’s currently being used for many other organizations (mostly non-profit) that didn’t have offices before and whether things like this were taken into account. I didn’t even think about the cost of maintenance, repairs etc. I’ve read about the claims politicians make about economic benefit in a single year and realize how incomplete, and usually incorrect, they are.

        And I’ll certainly check out those studies – they look really interesting. I’m so glad i found this blog – you’ll be hearing from me often!

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