The economics of the Games
Last night we were wowed by the Opening Ceremonies of the 30th Olympiad, including the queen, or rather a stunt double, parachuting to the ceremonies. The oaths were recited, the anthems played, and the cauldron was lit. Queen Elizabeth II then performed the official act that would start two weeks of competition, saying “I declare open the Games of London, celebrating the 30th Olympiad of the modern era.” Many will be wondering what will come of the Lochte-Phelps rivalry. Others will see who comes out on top of the medal count. But one question on many people’s minds will be what will be the economic impact of the games on the UK.
For two weeks every two years, the world will focus on athletic competition in some lucky host city. For those two weeks, that city’s name will be on the tongues of billions of people and images of the city will be broadcast around the world. In the age of the Internet, where everyone’s a reporter, stories, photos, blogs, tweets, and statuses will give everyone a glimpse of the Games, the celebration of sports competition by the International Olympic Committee.
To stage this competition, easily considered the largest recurring world event, it takes a lot to accommodate the athletes, the crowds, and the world by proxy through the media. In every Olympic city at least some venues must be constructed, most notably the Olympic Stadium where the three biggest events are held, the ceremonies and Athletics. Add to that housing for the participants, broadcast and media facilities with the latest technology, and upgrades to transit systems to handle the crush of people who come to be a part of the Games. Finally, with the ever changing political unrest of the world, tack on a security bill that will total just under $900 million for the London 2012 Games.
One thing that’s becoming a factor in the Games is the ever increasing size of countries and athletes. Since Los Angeles 1984, the number of participating countries has grown from 140 to 205. An even larger factor is the number of athletes, with over 6,800 participating in 1984 to 10,690 for London 2012, a number only expected to rise as more countries recruit athletes to compete based on some loose affiliation of citizenship.
No Olympic games has made a profit since Salt Lake City 2002 which posted a $101 million profit on a budget of $1.2 billion. Athens 2004 started the trend of enormous games budgets with a final budget of $15 billion after starting with $6 billion. Following Athens, the city of Beijing posted a staggering budget of $43 billion, at which point the IOC stepped in and started putting in containment measures to prevent future bids and cities from bankrupting the country.
London 2012 is expected to cost $15 billion but some sources speculate that number could be higher or grow, as the Games progress. What has helped London keep costs down from Beijing’s outrageous budget is the presence of existing venues. In an article in the NY Times on the facilities of the London 2012 Games, existing infrastructure is critical.
Roger Noll, Stanford professor emeritus who writes about the business of the Games, said “The only way for cities to come out ahead is if they already have a huge infrastructure in place. If you have to build a lot, you’re usually left with a whole bunch of useless structures for sports that are only of interest during the Olympics. There isn’t much need for a velodrome when the Games are over.”
Of the five cities that made the final round of bidding for the 2012 Games, London had the second highest number of existing venues that did not need additional work at 13. That’s a key component of any bid. Athens and Beijing both had to build several facilities to stage their games and Rio is expected to be in the same situation.
However, compared with the two prior Olympic cities who are plagued with venues that sit empty or poorly used after the completion of the Games, London has plans for a greater portion of the venues and facilities. As noted in the NY Times article, London placed the bulk of construction, the Olympic Park and other facilities, in the east London district of Stratford, an economically depressed area of London.
Events like the Olympics are typically used to help cities upgrade their infrastructure, typically accelerated thanks to the event timeline. In Athens the entire subway system went through almost a total upgrade and expansion in a city that had been putting off these changes for years. Beijing used the Olympics to feed the expansion hunger of the country as it continued to embrace new economic policies.
Even in San Antonio, when the city staged the 1993 Olympic Festival the Alamodome and Palo Alto Natatorium were some of the examples of facility expansion. While some may decry the construction of the Alamodome, it continues to be utilized even as it approaches its 20th anniversary, having helped San Antonio land many Final Fours and other major events.
The key to staging an economically successful Olympics will always rely on having the infrastructure in place. As long as the IOC continues to recognize the importance financial prudence and rewards those cities who exercise it, both in bid and execution, more local organizing committees will strive to plan for better economic development plans for their games.
Looking at the bid slate for 2020, Madrid and Tokyo would probably stage an economically feasible Olympics. However, Istanbul would help Turkey continue to promote itself as an emerging economic market and possibly jumpstart greater development within an often overlooked region of the world.
In the end, it’s what a country does with the remnants of the Games that determines just how successful it was and London’s verdict is still out.