Tuesday, September 25, 2018Canada's Leading Online Business Magazine

Faster, higher, stronger …poorer?

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The Olympic Games have a long and rich history of prestige, supreme athleticism and regional representation, dating back to Ancient Greece in the 8th century BCE. It was a simpler time then; the Games were held in the same city, Olympia, every four years. Because the infrastructure was already there, athletes from surrounding Greek city-states would travel to Olympia to compete in a range of events over five days.

Modern Olympics have experienced profound changes in events, seasons, rules, participants and funding, but the most significant change is likely the international nature of the competition.
 
Cities all over the world will bid years in advance for the opportunity to host the Olympics. It is an honour, after all, to have a global audience focus its attention one country. Showcasing one’s own history and culture elicits communal feelings of pride, and, for non-residents, provides insight into how other people live.

But the feel-good glamour of the Games doesn’t come without a price tag. Besides the social implications—some of which we have heard about with Vancouver’s housing issues—the financial burden can (and often does) run into the billions. Once a city wins its bid, a process that can cost tens of millions of dollars, new infrastructure for specialised facilities and housing has to be built, not to mention regional beautification, branding, security and grandiose opening ceremonies. What started as a series of athletic tournaments is now a platform for global one-upmanship. And it ain’t cheap.

The argument in favour of spending exorbitant amounts is that the long-term investment is worthwhile, profitable even. People cite increases in tourism, new businesses and much-needed improvements to infrastructure. But history doesn’t always support these notions, showing many regions left in considerable debt.
The famous example is Montreal, the city that took 30 years to pay off its $1.5-billion debt from the 1976 Summer Games. Another one is Athens, where tax payers are still struggling to pay off their billions from the 2004 Games—a bill that ended up being over five times its original estimate. And then there is Nagano, Japan, who spent so much for the 1998 Winter Games, and raised so much suspicion, that Olympic organizers burned their financial records.
 
‘White elephants’

Even for those cities who claim they broke even, further research shows otherwise. For some hosts, the annual costs to operate huge athletic facilities are incurring debt. In Sydney, Australia, for example, the estimated long-term cost is $2.3 billion to operate its 90,000-seat Olympic Stadium. And in 2005—one year after its Summer Games—Athens reported the annual maintenance costs on the Olympic facilities at $124 million. Meanwhile, most remain underutilised.

These buildings are what Robert Barney calls ‘white elephants.’ Barney is the co-founder of the International Centre for Olympic Studies at the University of Western Ontario and author of Selling The Five Rings: The IOC and the Rise of Olympic Commercialism. As he explains to the Toronto Star, “a ‘white elephant’ is a facility that is built at great cost and after its initial use for a particular event becomes less and less used and therefore the cost of it out-scales what it gives back to society…It sits there, largely empty, largely unused.”

Turns out, a herd of these white elephants are scattered all over the world. These buildings might be used for the occasional trade show and sporting event, but most don’t generate enough profit for maintenance costs.

Here are Barney’s top picks:
Bird’s Nest stadium (Beijing, 2008);
Hellinko Olympic Complex and Agios Kosmas (Athens, 2004);
Sydney Olympic Park (Sydney, 2000);
Olympic Stadium and the Piscines Bernat Picornell (Barcelona, 1992);
Olpark and the Seoul Sports Complex (Seoul, 1988); and
Montreal Olympic Stadium (Montreal 1976).

To be fair, there are cities that have greatly benefitted from the improved infrastructure, such as roads and bridges, but the question remains whether the Olympics were the best way to bring about those developments. As Dr. Carl Winston, director of SDSU’s School of Hospitality & Tourism Management, says: “If it was such a good idea to have better infrastructure during the Olympics, why not without them?”

Leaning on tourism

For other Olympic Games hosts, the population swell of tourism doesn’t always go as planned. In fact, there have been times when the influx of visitors discourages locals from sticking around. In 2002, the Utah Skier Survey found that nearly 50 per cent of non-residents would stay away from Salt Lake due to the expectation of more crowds and higher prices. Another survey in Barcelona indicated that one-sixth of the city’s residents planned to travel outside the city during the 1992 Olympics.

In other cases, host cities base numbers on the hope that tourists will keep returning indefinitely, which doesn’t always happen, or the city’s anticipated tourist revenues are off. After the Atlanta Olympics—Games that are said to have broken even—an econometric study found insignificant changes in retail sales, hotel occupancy and airport traffic. Even though hotel rates increased during the event, those profits went to headquarters of chain hotels located in other cities.

Interestingly, Atlanta has the reputation for being the tackiest Olympics, which goes to show there’s no winning. A city that was purposefully disciplined with its budget gets knocked for being cheap.

Once in a lifetime

Considering the less than rosy picture of what the Olympics can do to a city economically, why pursue it? University of British Columbia sociologist Dr. Rob VanWynsberghe is the lead researcher studying the social impact of the Olympic Games, particularly the 2010 Vancouver Winter Games. In his opinion, it has a lot to do with glory. “The attention is most likely the origin of international bids for the Olympics,” he says. “That’s what all the literature tells us.”
But is all the excitement enough to abandon responsible financial stewardship? VanWynsberghe replied saying that “citizens do get concerned as costs rise, but right now people are having a good time. [In Vancouver], it’s February and it’s nice and sunny out; it’s a big party. I think there’s a feel-good factor involved and that it’s measurable.” Like a bride before her wedding, host cities await the attention and legacy of their special day(s), enjoy the once-in-a-lifetime party, and ignore the imminent bill until after the honeymoon.

Vancouver 2010

Speaking of Vancouver, as the 2010 Winter Games end later this month, Canadians will have to wait to find out the impact. “[The Vancouver Organizing Committee] VANOC’s year end is July 31,” says VanWynsberghe. “They won’t let me see the numbers before then.” As for his forecast, VanWynsberghe suspects VANOC’s initial $1.6-billion budget was ambitious, Vancouver will be paying for the Olympics for a while. So far, estimates say the city has spent at least $11.6 billion (both construction and operation), including an estimated $40 million on the opening and closing ceremonies alone. Already, expectations are that the total will be much higher, but no one will know if Vancouver went over budget until the summer.

“We’ve put a lot of money into the Olympics,” he adds, “but we have also put a lot into leveraging the opportunity. We will owe money, but the success of what we put the money into may make people okay with it.”

VanWynsberghe is referring to Vancouver’s Green Capital strategy, announced in 2009 as a way to attract green business, leveraging the Olympics to market itself as a place in which to invest. There is also the opportunity to enter the mega-event circuit; after all, they have the space and the in-house planning expertise.

“We did a pre-Games impact report, looking at basic economic indicators,” he continues. “It looks like people want to come here for conventions, as well as open businesses in the Whistler area. Economically, Vancouver and Whistler are places that you might see growth. So far, the number of companies in Metro Vancouver has increased by 17 per cent, as well as in the Squamish-Lillooet region by 36 per cent. Some of those companies might leave after the Olympics, but we won’t know until after.”

VanWynsberghe makes a valuable point: we won’t know the economic impact until well after the Games are over. So why not ride the Olympics wave until we do? The optimist will believe this is good advice. The conditions are right, our athletes have won—and will continue into the Paralympics—and the world is watching. But as Canada counts its medals, revels in the Olympic grandeur and prepares to leave a proud legacy, we remember that the intangibles of anticipation, exhilaration and patriotism do have a finite value, and that cost leaves a legacy too.

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