Foundation Briefs Advanced Level September/October Brief Resolved

The Olympic Effect

Sports boosters often claim that sports teams, facilities, and events inject large sums of money into the cities lucky enough to host them. Promoters envision hoards of wealthy sports fans descending on a city’s hotels, restaurants, and businesses, and showering them with fistfuls of dollars. For example, the National Football League (NFL) typically claims an economic impact from the Super Bowl of around $400 million (National Football League, 1999) and Major League Baseball (MLB) attaches a $75 million benefit to the All-Star Game (Selig, Harrington, and Healey 1999) and up to $250 million for the World Series (Ackman 2000)

Regular season games generate revenue for local economies. JCD

Baade, Robert A. "Big Men on Campus: Estimating the Economic Impact of College Sports on Local Economies." College of the Holy Cross, Aug. 2007. Web. 26 Aug. 2014.

Even regular season games prompt claims of huge benefits. For example, the Oregon

Baseball Campaign, a group dedicated to bringing MLB to Portland, reported that “a MLB team and ballpark would generate between $170 and $300 million annually in gross expenditures to the state of Oregon” (Oregon Baseball Campaign 2002) while a similar analysis completed for the Virginia Baseball Authority stated that a “a major league baseball franchise and stadium in northern Virginia would pump more that $8.6 billion into the economy over 30 years,” or $287 million annually

Ex post studies claiming no net benefit are flawed. JCD

Baade, Robert A. "Big Men on Campus: Estimating the Economic Impact of College Sports on Local Economies." College of the Holy Cross, Aug. 2007. Web. 26 Aug. 2014.

A valid criticism, however, of the existing body of work regarding the ex post economic impact of sports is that these studies are trying to uncover the proverbial needle in a haystack.

For example, even if a MLB franchise or a Super Bowl does result in a $300 million boost to the host city, this is less than 0.1 percent of the annual personal income of a large metropolitan area like Los Angeles. Any income gains as a result of a new franchise or a big game would almost certainly be lost within the normal fluctuations in the region’s economy. In the study of mega events, this problem is further compounded due to the time frames involved. Even if the effects of a mega-event are large in the time period immediately surrounding the event, this impact is likely to be obscured in the annual data upon which many studies, including Coates and Humphreys (1999; 2002) and Baade and Matheson (2001; 2004; 2006), rely.
Large sporting events boost local businesses’ revenues. JCD

Coates, Dennis. "Mega-Events and Housing Costs: Raising the Rent While Raising the Roof?" College of the Holy Cross, Feb. 2009. Web. 26 Aug. 2014.

Local, state, and national governments typically justify their spending on sporting events on three grounds. First, they contend that these events attract athletes, spectators, officials, and media which increases revenue for accommodations, restaurants, and retail establishments. For example, the NFL estimates that the average economic impact of the Super Bowl on the host city is $300 to $400 million (Arizona Super Bowl Host Committee, 2008). Multi-day events such as the Summer or Winter Olympics or the World Cup can generate economic impact estimates well into the billions of dollars.

Second, the sports boosters suggest that sporting events serve to publicize host cities to prospective tourists and future visitors. In justifying the $7.7 million budgeted to sports tourism, the Hawaii Tourism Authority states, “The positive media and publicity generated from national and international TV/ media coverage promotes Hawaii as a desirable sports venue and an attractive visitor destination.” (Hawaii Tourism Authority, 2007, pg. 22)

Large sporting events increase quality of life for residents. JCD

Coates, Dennis. "Mega-Events and Housing Costs: Raising the Rent While Raising the Roof?" College of the Holy Cross, Feb. 2009. Web. 26 Aug. 2014.

Third, these events may improve the quality of life of local residents by allowing them opportunities to watch major sporting events. The excitement surrounding these major events may make certain cities particularly desirable places to live or work.

Carlino and Coulson (2004) employ a different tactic in determining that NFLfranchises have a positive impact on host cities. In particular, their goal is to assess the benefits of the presence of a sports franchise in the metropolitan area, benefits that are supposed to reach all neighborhoods in the area, regardless of distance to the home field of the team. They find that housing rental prices are higher in cities with NFL teams and hypothesize that residents are willing to pay higher rents for the opportunity to live in a city with an amenity like an NFL franchise.

By contrast, the Olympic and World Cup variables are frequently individually significant. For example, there are effects on the rental housing market in the year before and the year after hosting the Summer Olympics, the year prior to hosting the Winter Olympics, and both before and after hosting the World Cup. In Model 1, our results indicate that in the years before and after hosting the Summer Olympics, Atlanta saw its rents lower by 8% to 11%. The significance of these results is sensitive to the inclusion of year and central city interactions, however. Consistent with the results in Coates and Gearhart (2008) for NASCAR races, the central city and non-central city are affected differently by the Summer Olympics. Looking at the results in Model 4, the non-central city housing units around Atlanta are not affected by the run up to the Summer Olympics and see an increase in rents after the games, while rental units in the city of Atlanta have lower rents both before and after hosting the games. Note that these effects are net of any general Atlanta effect and any Atlanta specific trend, as there are both a city specific intercept and city specific time trend in the model. Nonetheless, it may be that these results are specific to Atlanta rather than related to the Summer Olympics, as Atlanta is the only host of Summer Olympic Games in our data.

Hosting major sporting events promotes bipartisanship in local governments. JCD

Zimbalist, Andrew. "3 Reasons Why Hosting the Olympics Is a Loser's Game." The Atlantic. Atlantic Media Company, 23 July 2012. Web. 26 Aug. 2014.

The good news is that municipal and state decision-making, which may be gridlocked under normal circumstances, is forced to overcome political bickering to approve financing for construction projects. Some of these projects may be long-delayed, needed improvements to the city's infrastructure. Hosting the Olympics may catalyze their undertaking. Insofar as the Olympics impels cities to finally do what was long overdue, hosting the games has a potential benefit.

The Olympics generate large amounts of income. JCD

Sivaev, Dmitry. "A Year On: An Update on the Economic Legacy of the London 2012 Olympic and Paralympic Games." Centre for Cities. N.p., Oct. 2013. Web. 26 Aug. 2014.

The National Audit Office (NAO) Olympic Evaluation report shows that:

• LOCOG sold 11 million tickets to the Olympic and Paralympic Games which was over 97 per cent of all tickets that were made available to the public. This generated £660 million of income.

• LOCOG efficiently recruited and deployed 70,000 volunteers, and thousands were more attracted by the Greater London Authority and Transport for London.

• The opening and closing ceremonies were a great success largely due to introduction of innovative administration and management structures.

The Olympics lead to job creation and training in host cities. JCD

The National Audit Office (NAO) Olympic Evaluation report shows that:2

• LOCOG sold 11 million tickets to the Olympic and Paralympic Games which was over 97 per cent of all tickets that were made available to the public. This generated £660 million of income.

• LOCOG efficiently recruited and deployed 70,000 volunteers, and thousands were more attracted by the Greater London Authority and Transport for London.

• The opening and closing ceremonies were a great success largely due to introduction of innovative administration and management structures.

The Olympics spur much needed infrastructure reform in host cities. JCD

A post-Olympics report produced by Transport for London (TfL) points out that:4

• The Games have supported the delivery of crucial infrastructure that will have a significant impact on East and South-East London

• The Games have helped TfL to develop new approaches to transport and behaviour management, which resulted in high levels of customer satisfaction during the Olympics and the Paralympics and will be applied in the future.

The Visit Britain report shows that:

• Overall there was only a very slight increase in the number of foreign visitors coming to the UK in the Olympic year, but there was been a 5 per cent growth in visitor spending, which may been largely explained by Olympic ticket purchases.

• However the Olympics allowed VisitBritain to run an innovative, worldwide marketing campaign and improve its presence on social networks.

• An improved image for the UK has been the most significant and lasting positive outcome. An expert survey has suggested that the improved perception of Britain will encourage more people to visit in the future.

• Overall the excellence of the Games organisation has been acknowledged across the board. Last year we argued that it is important to learn from this positive experience, and it is encouraging to see that organisations like TfL and Visit Britain have used the Olympics to develop and introduce new practices. It is also good to see that the CompeteFor procurement system, which was widely praised during the Olympics preparation phase, was sustained.

Last year we suggested that London needs a clear vision for the future of the Olympic Park. The Olympic Park is  the most visible legacy of the Games. If the Olympics were to have an impact on the economic performance of the Capital and on the lives of people in East London, it would start with the Park. This is a good reason to revisit progress on its future. The success in securing legacy venues, as well as the performance of the private sector in and around the Park in the build-up to the Games, suggests that the area has significant  potential for becoming a new business hub.

In the year since the end of the Olympic and Paralympic Games London can already report some legacy successes. However, it is still early days. It took Barcelona a decade to translate the boost from the 1992 Games into economic benefits. London should be ready to keep pursuing its economic legacy targets for just as long. This will require attention to move away from assessing what the Games may or may not have brought to London and the UK, to actions that will make the Olympic glow last. At the moment top priority should be given to helping the local population access economic opportunities provided by the Games and making the most of the Olympic Park.