Olympic Economics
The economics of
Olympic Games have only been a research field for the past 15 years. However, a
Delphi-study conducted among 55 international scholars in sport economics named
“event management” and “event impact” as the main upcoming research field,
emphasising the Olympics as a prominent and important area. In the following I
will give a brief overview on this research objective.
Festivalisation of City
Politics
Cities all over the
world lack resources and struggle in global competition to attract economic
activity and gain importance for their destination. The Olympic Games are an
event that provides what many cities are looking for. Firstly, the Olympics
attract fresh economic resources, which are in particular the IOC contribution,
governmental subsidies, foreign direct investments and most importantly the
consumption expenditures of foreign Olympic tourists. Secondly, the preparation
for the Games triggers an accelerated city transformation due to the immense
infrastructural demands of Olympic Games. Thirdly, the Games create a worldwide
attention, which can be seen as a free city marketing opportunity to attract
new tourists, businesses, fairs, congresses, events, and stimulate trade in the
years following the Olympics.
This explains why ever
more cities have shown an interest in staging the Olympic Games since Los Angeles 1984. Recently
not only developed nations attracted the Games or other mega events but also
newly industrialized countries in particular the BRIC (Brazil, Russia,
India, and China).
Politicians of these countries hope to benefit from the event legacy such as
former hosts have shown. However, legacy has to be well planned and requires
additional investments to activate and leverage the wanted long-term changes of
location factors.
Researching the Economic
Impact
From a macroeconomic
perspective the key welfare issue is whether or not Olympics really achieve
efficient outcomes given the potentially incompatible aims of different
stakeholders, which invariably lead to some debatable investments of scarce
public resources. An enormous intervention like Olympic Games always changes
the location and therefore creates winners and losers.
Latest research tries
to provide evidence whether the often exaggerated economic expectations of
politicians and many citizens become reality. Serious economic studies analyse
the Game’s output based on circle theory. The models try to consider as many
direct and indirect Olympic spending as possible and their consequential
induced effects. However, there are two shortcomings. Firstly, effects
resulting from a long-term change of the hosts’ location factors cannot be
detected and secondly, it is difficult to isolate all Olympic effects from
those of non-Olympic activities. Fact is that the direct economic impact of
Olympic Games is short lasting and then vanishes completely. Overall, the size
of the impact is relatively small for most national economies and therefore it
is not surprising that many scholars do not find a statistically significant
impact on the national GDP. Olympic Games do not support a lasting economic
growth for a nation, but certainly change the host city.
Transforming the Host City
While impact studies
only consider the output and macroeconomic consequences of Olympic-related
activities, cost-benefit analyses also include changes of production and
location factors. The change of location factors can stimulate non-event
related economic activity following the Games such as the transformation of Barcelona, which
encouraged many tourists to come after the Olympics in 1992. Due to the
pressure to deliver an adequate infrastructure for the Games, most host cities
undergo an accelerated urban transformation, which can be seen as the major
Olympic legacy. Even though some Games-related infrastructure – in particular
special sport venues – is not needed in the long-term, the whole city
transformation must be taken into consideration when discussing opportunity
costs and alternative spending of the rather small share of resources contributed
by the city.
A common phenomenon
during the preparation for the Games is that additional projects become
piggy-backed to the direct Olympic-related city transformation. This can be
positive in case former obstacles can better be overcome, however it also can
be negative when time pressure creates massive cost overruns and other projects
are crowded out due to price increases. In general, the Olympic Games themselves
required a more or less similar infrastructure over the years and therefore
only a moderate increase in costs is justified through the Games. The dramatic
growth of overall costs from Atlanta
1996 to London 2012 can be traced to the political wish to transform the city.
The discussion on
bidding for Olympics is often only based on the measurable economic Games
output. Future research starts focussing more on the change of location
factors, models detecting long-term economic growth, and other intangibles.
Intangibles – the Unknown
Economic Benefits
The improvement of
location factors through Olympics is one major intangible legacy. Recently,
scholars have worked on developing new and better methodologies to measure
intangibles, because they indirectly have influence on the economy of the host
nation. Examples for intangibles related to the economy are the worldwide
location marketing, the value of happiness of citizens, the entertainment and
“feel-good” factor for the population, the emotions to consume or invest
locally, the motivation to become a volunteer, the skill development of human resources
or simply the reduction of health costs through motivating citizens to actively
do sports.
Seeing the variety of
intangibles it is clear that these are potentially the main economic benefits
but difficult to measure. However, when discussing alternative investments of
scarce public resources, a host community must also consider missing the intangible
effects of the Olympics.
Economic Winners and Losers
There are several
winners of the Olympics. Firstly the local politicians, who can use external resources
flowing into the city, such as government subsidies, plus the reallocations
within the city budget to change the structure of the city according to their
political priorities. The second group of winners is the construction industry,
which can confidently expect to receive contracts for extensive construction
projects including parks, hotels, roads, sports facilities, housing, and
sometimes convention and trade fair centres. Many of these projects contribute
to the gentrification of areas of the city - a process that benefits
higher-income groups, which constitute the third set of winners. The fourth
group is tourists who benefit from an improved tourism infrastructure and
additional attractions in the host city. A further group of winners is the city's
general population, many of whom benefit from the general upswing in economic
activity, a greater supply of service based on the improvement of urban
infrastructure and the image of the city. Although the extent of Games-related
economic activity differs greatly between host cities, the transformed city,
the better image and greater overall demand leads to higher income and
additional jobs. The criticism that additional income and employment only
benefit members of the middle and upper classes must be rejected. Each activity
stimulated by the Olympics creates demand and therefore employment and/or
additional income - directly and also indirectly - in industries not visibly
related to the Games.
Olympics also affect
certain groups negatively. The Games serve a particular complex of targets and
the winners are those that benefit from the targets being reached. Investing in
Olympic Games also means that other projects in the city may be crowded out.
Public money that was spent on the Games cannot be used for other activities
and therefore the losers are all those that have other targets, which cannot be
served but might have been realised without the Games. Many losers of Olympic
Games are therefore from the low-income groups, given the obvious priority for
basic education, cheap affordable housing, adequate medical care and social
integration – aspects not directly supported by Olympic Games. Additionally,
the poor can suffer from the subsequent gentrification of the city. When
bidding for the Games, the potential negative effects and whether they can be
borne from an economic point of view requires on-going research.
Olympic Research
Since Berlin's unsuccessful application (1993) for the Olympic Games
2000, Holger Preuss has engaged intensively in the different
facets of the Olympic Games. His main focus is placed on economic and
sociological questions, often accompanied by empirical on-site studies.
The book "The Economics of Staging the Olympics - A Comparison of the
Games 1972-2008" offers the most comprehensive information published by
Holger Preuss about the Olympic Games, but in many journal publications
the Olympic Games are discussed as well.
In Routledge Journals 24 issues with an Olympic or Paralympic focus have been published (details can be found here).
Often research takes place in cooperation with colleagues or
students from the Johannes Gutenberg-University Mainz (Research Team
Olympia), but as well from time to time in collaboration with foreign
universities and researchers. Institutional partners from outside
the university are the International Olympic Committee (IOC), the
International Olympic Academy (IOA), the former German Olympic
Institute (DOI), the German Olympic Academy Willi Daume (DOA), the
German Olympic Sports Federation (DOSB) and the Deutsche Sportmarketing
(DSM).
Also as a consultant for Olympic applicant cities Holger Preuss is in
demand. As an expert for impact- and feasibility studies he has been
consulted from the applicants Berne 2010, Frankfurt 2012, Budapest
2012, Leipzig 2012, Innsbruck 2014 and Prague 2016/2020. Besides he is
part of a group of scientific consultants, who assist the organisers
(VOCOG) of the Winter Games 2010 in Vancouver in the marketing
sector.
An overview of all research works can be found on the respective pages
of the Games 2004 till 2012 and under the heading "basic research",
which will be installed soon.
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