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Host cities are ultimate losers at Olympics

Rio looks set to join a litany of cities that have suffered post-Olympic financial losses.

RYK VAN NIEKERK: As the Rio Olympic Games is gaining momentum it’s extremely unlikely that the prestige of hosting this big event will attract the economic benefits to pay the bills. To make matters worse, Brazil is in the midst of a virtual perfect economic storm, the country’s economy is in the midst of the biggest slump in decades, the oil price is near record lows and the Zika virus has had a negative impact on tourist numbers. On the line from the US is Professor Andrew Zimbalist, he is an economist and a professor of economics at Smith College in Northampton, Massachusetts, and he specialises in the economics of mega events such as the Olympic Games and he has written a book, Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup. Andrew, welcome to the show, many cities around the world have hosted big sporting events and they have suffered severe financial losses, and it seems as if Rio is destined to join that list.

ANDREW ZIMBALIST: I think it has already joined it, unquestionably. I believe that when the tally is accurately made we’ll find that Rio has spent somewhere in the order of US$20 billion to host the games this year, they’ll receive back something around $3 billion in revenue, so there’s a deficit there of $17 billion. Of course the hope is that they would make that up in the long run by increased tourism, increased trade and increased foreign investment. That has not been the case for other hosts in the past and I think it’s particularly unlikely for Rio because, in fact, the international image of Rio has deteriorated as a result of hosting the Games. What was previously seen by many people around the world as a city of immense natural beauty and great partying and a fun-loving lifestyle I think is now seen as a city that is severely troubled with water pollution and water shortages, with violence, with economic recession, with corruption in business and with political instability. So it’s more likely that the Games will have a negative impact in the long run than a positive impact, in addition to the short-run deficit.

RYK VAN NIEKERK: The $20 billion you refer to how does that compare with previous Olympic Games?

ANDREW ZIMBALIST: Well, London spent about $18 billion, Beijing spent somewhere between $40 billion and $44 billion, Sochi spent between $50 billion and $70 billion. But I think other than the extraordinary cases of Sochi and Beijing, where there was a lot of extra infrastructural investment that does not typically take place, I think the $15 billion to $20 billion range is common in this day and age for the Summer Olympics, for the Winter Olympics the expense might be 50% or 60% of that.

RYK VAN NIEKERK: The $3 billion revenue that the event will generate for Rio, what are the main sources of that revenue?

ANDREW ZIMBALIST: They’ll receive about $1.2 billion from corporate sponsorships, domestic and international. They’ll receive about $1 billion from international television money. They’ll receive $300 million or $400 million from ticket sales and then there will be some miscellaneous revenues.

RYK VAN NIEKERK: I just want to return to the tourism aspect that is always mooted as the big benefit, you will attract more tourists to the country. It’s a big marketing exercise, millions of people around the world are watching what is happening in the city and from what I am seeing from here in South Africa it seems like everything is going smoothly and it’s a successful event.

ANDREW ZIMBALIST: First of all, you have to look at a few factors, one of them is the amount of investment you have to make in order to bring the tourists into the country and if you are trying to promote tourism, what is the best way to do it. Is it by spending $20 billion on hosting the Olympics or $10 billion or $15 billion or some other number on hosting the World Cup or is it by directly investing in the promotion of the tourist attractions of your country or your city. So it’s possible in certain circumstances you’ll get a modest increase in tourism from people coming to the mega events but, in fact, that’s not the general case. The general case is that there is no increase in tourism or even that there’s a decrease in tourism. London experienced a 5% reduction in the number of tourists coming to its city in July and August of 2012. Beijing experienced a reduction of over 20%. Sydney experienced a very small increase of less than 1% in the year of the Games but each of the following three years had a reduction in the level of tourism.

So why does that happen? Generally it happens because the typical tourist stays away from the mega event and particularly from the Olympics, which is the largest mega event in a city, they stay away because they are afraid if congestion and crowds and higher prices and the possibility of security incidents. Now when the typical tourist doesn’t come and they are replaced by the Olympic tourist the Olympic tourist goes home and tells his friends, relatives and neighbours that he saw some wonderful competitions but the Olympic tourist doesn’t go to the typical tourist sites. When a normal tourist goes, if a normal tourist goes to London they go to Piccadilly Circus, they go to the theatre, they go to the museums and they come home and they tell their friends, neighbours and relatives about what a lovely place London is to go. So you get a word-of-mouth effect, which according to studies in tourism is the most important way to grow tourism. You get a word-of-mouth effect from the typical tourist that you don’t get from the Olympic tourist. So not only does the number of tourists not grow typically when you host a mega event, and sometimes even falls, but you lose the word-of-mouth benefit from promoting tourism.

RYK VAN NIEKERK: What do you think the impact of the Zika virus has been?

ANDREW ZIMBALIST: I think the publicity around the Zika virus definitely hurt the tourism in Brazil. Reports coming out right now are that there are larger hotels that have empty beds and are drastically reducing their prices. Brazil actually, as you might know, expanded the number of hotel beds, hotel rooms in Rio, by over two times and they are going to be stuck with this tremendous expansion in hotel capacity. So I think that there was a lot of negative publicity, concern and scaring around the Zika virus but I have never felt that it was going to be a major element. In the Western Hemisphere we’ve got a much larger problem right now in Puerto Rico, the reason is Rio right now is in the winter time, the mosquito population is greatly reduced and many months ago when the Zika virus presented itself as a serious challenge in Rio they did an enormous amount of fumigation to kill off the mosquitos. In fact, what appears to be the case is that it’s a very small factor, there are other detracting factors that are much more significant.

RYK VAN NIEKERK: The original decision to host the Games was taken in the 2000s and the Games was awarded to Rio in 2009 when the economic situation was totally different to what it is now. Surely the economic problems that Rio is experiencing now could not have been foreseen seven years ago. Do you think maybe the time lapse between being awarded the event and the hosting is too long or has an impact on the success of the event?

ANDREW ZIMBALIST: It is a very long period. In fact, a city starts preparing a bid ten years beforehand, if they are lucky or unlucky, as the case may be, that they are selected by the National Olympic Committee in their country nine years beforehand and then they are awarded the Games seven years beforehand. It’s a very long time period and it’s very difficult for any city to anticipate what’s going to be happening to the economy five, ten and 15 years down the road. So it’s certainly one of the many risks that potential hosts have to consider. But I will say this, even if Rio continued to grow at 5% or 6% a year between 2009 and 2016 that the kinds of costs that Rio is experiencing from hosting the Games would still be present. Perhaps some of the situation would not be as exacerbated as it is but the balance of the economic calculus would still be very negative.

RYK VAN NIEKERK: Can a city today host a successful and profitable Olympic Games?

ANDREW ZIMBALIST: I think under special circumstances it can be done. For instance, in my country Los Angeles is bidding to host the 2024 Games. Los Angeles because of the large number of professional sports teams, the large number of college athletic teams, the large number of private clubs doing athletics, they have virtually all of the facilities that are needed. Also because it’s a very developed city it has the necessary infrastructure, transportation, sanitation, hospitality and communications. So the amount of additional investment that would have to be made is really quite small and in a case like that you can imagine that Los Angeles would do okay. I don’t think it would be a great bonanza for Los Angeles to host the Games, but you can imagine that it wouldn’t impose the types of economic and social costs that it’s imposing on Rio de Janeiro.

RYK VAN NIEKERK: You refer to the Los Angeles Olympics, are there any other examples where the Games have been financially successful?

ANDREW ZIMBALIST: I think one could make the argument that they were successful in Barcelona in 1992, there were also some significant costs in Barcelona, particularly with regard to housing and low-income housing. But Barcelona was a very special case because what happened in Barcelona is after Francisco Franco’s death in 1975 they introduced democratic decision making and a plan evolved to restructure the city of Barcelona and to remove a district of warehousing and manufacturing that sprung up that blocked the city from the sea. They wanted to remove that district and they generated a whole urban redevelopment plan, they had a vision for their city. That plan and that vision preceded the idea of hosting the Olympics and when the idea of hosting the Olympics came along several years later the idea was folded into and made to work for the plan that they were already implementing. When you have a situation like that so the investments that are made are specifically following a previous plan to promote the city, to develop the city, then I think the Olympics can be more constructive. What typically happens and what has happened in virtually every other case is that the IOC comes to a city and says here are the 35 venues we need, we need an Olympic village, we need a media and broadcasting centre, we need a lot of ceremonial green space and then the city contorts itself to accommodate the IOC. When it happens that way most of the infrastructural and other investments are not productive, and end up being quite wasteful and end up producing a large number of white elephants.

RYK VAN NIEKERK: What do you think the legacy for Rio will be?

ANDREW ZIMBALIST: I think it’s a terrible legacy, there’s one legacy, which is the international image and I think that has already deteriorated. There’s also the legacy that’s coming out in terms of the sporting competitions and to what event they will be successful. That looks like right now, although there have been many difficulties there, it looks like that will be an okay legacy but the real legacy is what’s happening to the economy and what’s happening to the people in Rio and I think at that level it’s been a really destructive process. One of the things that I haven’t mentioned that I think is terribly significant is that in order to make room for the various athletic venues and the transportation routes between the athletic clusters they’ve had to evict 77 200 favela residents of shanty towns in Rio. Sometimes they did that even though the favela was not directly in line of the transportation route, they did it just because they didn’t want people to see the poverty of the favelas, so they just wiped out the favela.

RYK VAN NIEKERK: A few years ago Cape Town made a bid for the Olympics, which Athens actually then received. Listening to you it seems like we can be eternally grateful that we did not get that Olympics.

ANDREW ZIMBALIST: I think that’s absolutely correct.

RYK VAN NIEKERK: Just lastly, you referred to infrastructure being the big expense item for countries, does that mean that developed countries would host more profitable events than developing countries?

ANDREW ZIMBALIST: I think it’s a more expensive and problematic venture for a developing country, there’s no question about that because they have to make much more infrastructure investment. But it’s also true for a developed country and a developed city that they don’t have nearly as much available land and the land that they do have is higher priced and that raises the cost of hosting the Games. It also means that scarce urban real estate is being dedicated to building Olympic venues and sporting venues, where it could be more productively and profitably invested in residential property or commercial property or entertainment property of other kinds. So I do think that it’s still a very risky gamble for even developed cities to undertake.

RYK VAN NIEKERK: Do you think the system need to be changed, how the Olympic cities are chosen to make it not as financially taxing on some cities like Rio currently?

ANDREW ZIMBALIST: Sure, there are lots of ways. The current system isn’t working, the model is broken, cities are pulling out of the bidding process, as happened in South Africa. But many, many cities in Europe and the United States have pulled out in the last ten years. So the model has to change, there are lots of ways it could change in theory. It’s not easy to change because the IOC is an international monopoly that’s unregulated, so they have a lot of market power. The IOC will only change if it’s forced to change by cities refusing to host the Games or by corporate sponsors refusing to sponsor the Games. But I think one model would be to select one city or a small group of cities that already have the sporting and transportation infrastructure in place, and just have those cities host the Olympic Games. It won’t be a great benefit to them, it will be more of a burden than anything else but it will prevent the waste and the environmental degradation that goes on today, where you have a new city every four years reconstruct the 35 venues, the Olympic village, the broadcasting and media centre, the ceremonial green space, that’s just wasteful. The way that the IOC does it with sharing very little of their revenue with the host city is, frankly, exploitative. So I do think there needs to be change but it’s not going to come easily.

RYK VAN NIEKERK: Not all the benefits are financial, when the World Cup was held in South Africa in 2010 there was a big nation-building exercise, national morale, how do you calculate the benefits of those non-tangible benefits?

ANDREW ZIMBALIST: Well, the evidence that we have and I have not studied South Africa in detail, although I’ve read about it, the evidence that we have from other World Cups and other Olympics is that the morale boost is short lived, that it happens around the time of the Games and it goes on for several months after the Games. What you also have as a result of hosting the World Cup or the Olympic Games is a lot of expenditure, a lot of debt, generally speaking you have a dislocation in terms of residents who have been forced to move, a dislocation in terms of the informal sector employees, the informal sector workers who were forced to move away from the various venues. You have white elephants, you have soccer stadiums in a variety of cities where soccer is not an important sport and then you have to upkeep those sectors. So over time even if there’s a short-term morale boost there are a bunch of economic and social problems that are engendered from hosting that I think more than offset any short-term benefit there might be in the psyche of the population.

RYK VAN NIEKERK: Thank you, professor. That was Professor Andrew Zimbalist, he is an economist and a professor of economics at Smith College in Northampton, Massachusetts. He is also the author of the book, Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup.

 

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Let Athens host the games every time, with all countries contributing to the cost according to the potential size of their teams. It is unnecessary to keep moving it round the globe. Sure, time differences will have a negative effect for some TV viewers, but that’s a small price to pay, surely? Anyway, people can record it or see it at a later time, like on Supersport where the almost whole day is repeated 12 hours later. After all, Greece is the “home” of the Olympics, and in the old days, it was always Athens, they never even got to Rome! All that needs doing is repairs and maintenance to the existing Olympic facilities, with a few new things each time for new sports, like golf in Rio. Large cities around the world cannot afford to make substantial losses that they know will happen, as there’s no magic wand. And TV is the most popular choice for viewing the games – unlike the empty venues at Rio, which I doubt is because of Zika or any other reason.

Zika hardly played into this. Rio is just too expensive and crime-ridden – that is the primary reason.

I was in Brazil a month before in Sao Paulo and I can say that Zika wasn’t even discussed there nor was anyone afraid. If the locals weren’t afraid of Zika then it was blown way out of proportion.

End of comments.

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