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Would the Olympics Be a Good Deal for D.C.?



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Robert McCarthey of the Washington Post has a piece today arguing that hosting the Olympics would be good for Washington, D.C. Reading his article, it looks like his main argument is that the spending will stimulate the local economy and have long-term economic benefits. 

Andrew Altman headed the District’s Office of Planning from 1999 to 2005 under Mayor Tony Williams, where he won praise for pushing redevelopment of the Anacostia waterfront. More recently, Altman headed a British public corporation that planned the rebirth of London’s blighted East End after it hosted the 2012 Olympics.

Does he think the Olympics could help revitalize struggling neighborhoods in the District (and elsewhere) in similar fashion, at the same time that it united our fragmented region around common goals?

You bet.

“I think it would be fabulous for Washington, having lived in Washington and loved it,” Altman said. “The Olympics are a great motivator to mobilize people regionally around a vision for future growth.”

Let the chorus say, “Amen.”

We hear these arguments often when cities are trying to make the case that taxpayer subsidies for stadiums are a good deal for their local economies. And yet, as Kennesaw State University economist J. C. Bradbury points out in his work and in a recent interview for Reason Online, “every independent analysis of subsidies for sports teams and stadiums shows that they suck money out of the local economy.” 

Unfortunately, it’s likely that the same is true for hosting the Olympics. During the London games last summer, economist Andrew Zimbalist had an interesting summary of why spending loads of money to bring the Olympics to a city is probably a terrible idea. Among other things he writes:

These days the summer Games might generate $5-to-6 billion in total revenue (nearly half of which goes to the International Olympic Committee). In contrast, the costs of the games rose to an estimated $16 billion in Athens, $40 billion in Beijing, and reportedly nearly $20 billion in London. Only some of this investment is tied up in infrastructure projects that may be useful going forward.

The high costs are bound to make hosting the Olympics a bad deal in the short-run. Promoters, however, claim that there is a strong benefit that accrues over time connected to the advertising effect of hosting the games. The idea is that the hundreds of hours of television exposure to hundreds of millions of viewers around the globe will generate increased tourism and business for the city.

It’s a lovely idea, but there is little evidence that it pans out. Whether or not the city receives a positive PR boost from the TV exposure itself is uncertain. Should the Games be plagued by disorganization (e.g., the current security snafu in London), the pervasive pollution of Beijing, the violence of Munich, Mexico City or Atlanta, or the corruption scandals of Salt Lake City and Nagano, then the PR effect might be negative. Further, many of the host cities are already well-known as tourist destinations around the world and the notion that hosting the Olympics will put them on the map is about as implausible as Mitt Romney calling for national health care.

It should be added that there is little evidence that tourism increases during the Games. Rather, Olympic tourists replace normal tourists who want to stay away to avoid the congestion and greater expense during the Games.

In addition, the idea that we need the Olympics to purse development in low-income neighborhoods doesn’t make much sense. (The whole thing is here.)

Another thing to think about is that the costs of hosting the Olympics in D.C. won’t just be local. A 2002 GAO report showed that the federal government has been playing an increasing role in paying for American games, going from $75 million spent to support the 1984 Olympics, to $609 million to support the 1996 games, to nearly $1.3 billion for the 2002 games (that’s in constant 1999 dollars). 

The 2008 games in Beijing were seen as successful, but more because of the boost in image it gave the country than any financial benefits. Finally, this academic article argues that hosting the games may have one proven benefit, in trade numbers – but benefits are also seen in the countries that bid to host but lost:

Economists are skeptical about the economic benefits of hosting “mega-events” such as the Olympic Games or the World Cup, since such activities have considerable cost and seem to yield few tangible benefits. These doubts are rarely shared by policy-makers and the population, who are typically quite enthusiastic about such spectacles. In this paper, we reconcile these positions by examining the economic impact of hosting mega-events like the Olympics; we focus on trade. Using a variety of trade models, we show that hosting a mega-event like the Olympics has a positive impact on national exports. This effect is statistically robust, permanent, and large; trade is around 30% higher for countries that have hosted the Olympics. Interestingly however, we also find that unsuccessful bids to host the Olympics have a similar positive impact on exports. We conclude that the Olympic effect on trade is attributable to the signal a country sends when bidding to host the games, rather than the act of actually holding a mega-event. We develop a political economy model that formalizes this idea, and derives the conditions under which a signal like this is used by countries wishing to liberalize.

 

 



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