Dispatches from the Rio Olympics from Professor Victor Matheson - Economic Benefits
Friday, August 12, 2016
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Rio certainly comes into this Olympics facing numerous challenges ranging from security and pollution as discussed in previous posts to political unrest, a severe recession, and the Zika virus. But spanning across all of these is a specific worry: will the economic benefits generated from the event be sufficient to pay for Brazil's $13 billion investment in the Games.
Economists have painted an increasingly dim picture of the wisdom of investing in mega-events like the Olympics and World Cup as method to promote economic development. The cost of hosting these events now routinely runs into the tens of billions of dollars. Athens spent about $11 billion in 2004, an amount that was huge at the time but seems almost quaint now. The seemingly most unbeatable world record set in Beijing in 2008 was not by Michael Phelps in the pool, but by the organizing committee who spent $45 billion. Of course records are meant to be broken and Russia and Vladimir Putin did it back in 2014 by spending $51 billion in Sochi. Qatar's upcoming World Cup in 2022 might go as high as $200 billion.
But it doesn't have to be this way. Los Angeles held the entire 1984 Summer Games at a cost of less than the $2 billion price tag of just Tokyo's new Olympic stadium being built for 2020. So what has happened to the economic model to cause such runaway spending?
The clear culprit here is the International Olympic Committee. When Los Angeles hosted in 1984, they were the only bidder for the games and could dictate the terms of the bid to the IOC. They used existing sport facilities and minimized other costs. With large infusions of private investment and minimized costs, the L.A. Games managed a respectable profit of over $100 million. But following the successful 1984 event, cities began to line up to bid, and faced with multiple bidders, the IOC has been back in the driver's seat ever since. Thus cities not only have to worry about accommodating all of the events but also presenting a lavish enough bid to beat out the competition.
And it's not just about the facilities but also event management. Last year public support for Norway's 2022 Winter Olympics bid collapsed when details about the IOC's demands for the bid became public. These included expensive perks for executive committee members topped off with a required cocktail party with the royal family to be paid for by the local taxpayers.
I witnessed a perfect example of the hubris of IOC last week at the opening match of the men's soccer tournament between Algeria and Honduras. Officially the game was sold out and the local organizers had stopped selling tickets. But thousands of seats were reserved for IOC officials which went unused and unsold. Roughly $100,000 of ticket revenue in that match alone went uncollected on the off chance that IOC President Thomas Bach and a couple thousand of his best friends might show up for the game.
Those fans who got in, including me thanks to a friendly Argentinian fan with an extra ticket, were treated to an exciting 3-2 win for Honduras and got to see the best of the Olympic spirit on display. But the blocks of empty seats were a testament to the worst of the Olympic spirit as well.
Victor Matheson is a professor in the Department of Economics and Accounting at the College of the Holy Cross. He specializes in the economics of sports stadiums and mega-events. Frequently quoted in the press, he has been appeared on NPR, CNN, and in the New York Times, Washington Post, Boston Globe, and of course various GoLocal sites. He is currently president-elect of the North American Association of Sport Economics as well as the editor of the Journal of Sports Economics.
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