Monday, July 7, 2008

Is hosting the Olympics a Good Economic Investment?

The city of Chicago is bidding to host the 2016 Summer Olympic Games. Of the seven original applicant cities (Baku, Azerbaijan; Doha, Qatar; Madrid, Spain; Prague, Czech Republic; Rio de Janeiro Brazil; and Tokyo Japan), Chicago made the first cut and is one of four Candidate Cities for the 2016 Summer Olympic Games. Each of the four candidate cities are to pay a non-refundable fee of $500,000 (US) to the IOC. The organizers for the Chicago bid are relying on private funding to cover new construction to host the Olympic Games.

Yet I wonder - what economic impact does hosting the Olympic Games have on a city? The 1976 Montreal Summer Olympic Games were a financial disaster, with the province of Quebec paying off the debt of hosting the Olympics less than two years ago. The Montreal Games were to be self funded, primarily by selling Olympic coins, but ended up costing the province $1.5 billion. Not to be out-done, the 2008 Beijing Olympic Games are estimated to cost $65 billion, which is about five times the cost of the 2004 Athens Olympic Games.

So is it worth it? I do not know of any economic impact research on the Olympics, but we can extrapolate from economic research on sports stadiums. Dennis Coates, professor of economic at UMBC has written a short piece on sports stadium studies, and summarizes the economic research on public investment of sports stadiums. In sum, Professor Coates states, "...[t]here is little evidence of large increases in income or employment associated with the introduction of professional sports or the construction of new stadiums". In fact he says that, "stadium construction—may actually reduce local incomes".

Remember, these are publicly financed construction projects. So, in essence the local or state government is saying, let's use your tax dollars to reduce your income, or at least not make you economically better off. In a time where there are so many public needs, the payback from public sports stadium construction is so low compared to other publicly funded programs such as Head Start. James Heckman, Nobel Laureate in economics has stated that, "... America under-invests in the early years of its disadvantaged children. Redirecting additional funds toward the early years, before the start of traditional schooling, is a sound investment in the productivity and safety of our society."

Hence, given that there are other more productive means of spending public funds, sports stadiums just do not measure up to the large public investments needed and small economic returns from these type of funds.

To be clear, economists as a group are not against sports or sports stadium construction per se, but rather we would argue that the use of public funds to construct sports stadiums are a poor use of taxpayers dollars. The solution is to allow the private market fund these stadiums, and have the risk tied to such investment be borne by private investors as opposed to the public.

What do you think?

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